After many years in the trenches conducting investment research, I rarely get excited about mainstream public companies. However, every once in a while I’m surprised by an amazing success story and investment opportunity. And today I’ve found one such little-known, niche company. 

With metrics revealing true longevity, like the steady 5% growth per year over the last half century, 16% compounded sales, and earnings growth since 1990, this company is a shocking find. Even better, it’s part of a growing $700 billion-plus market. 

Add in the facts of the company being family run and that it only boasts around a 2% share of its market, and it paints a powerfully attractive long-term growth picture. 

The company, Heico (NYSE: HEI), is a manufacturer based in Hollywood, Florida. It creates original equipment manufacturer (OEM) parts for the $700 billion plus aerospace sector. 

According to Deloitte LLP’s 2017 Global Aerospace and Defense Sector Outlook, there is currently a backlog of 13,500 commercial aircraft, marking an all-time high. Deloitte analysts have forecasted commercial aerospace subsector operating earnings to grow 20.6%, while defense subsector’s operating earnings will likely rise 7.0%. Even defense returns are expected to increase at just over 3% in 2017 after multi-year declines.

To say it simply, the company is part of an active, upward-trending market. 

Shadows Of Warren Buffett
Heico has an intriguing history that foreshadows its high level of success. Company patriarch Laurans “Larry” Mendelson took a finance class at Columbia from Professor David Dodd. David Dodd is the co-author, with Benjamin Graham, of the iconic book Security Analysis. 

#-ad_banner-#Value investors will instantly recognize this tome and its authors as major influencers of Warren Buffett. I am confident that this early exposure to these principles, which made Buffett among the wealthiest and most successful investors on earth, is a core impetus for Heico’s success. 

Larry’s children, Eric and Victor, followed in his footsteps to Columbia. When the boys returned home to South Florida, they had a passion for locating and purchasing underperforming companies to buy in order to maximize their value.

They purchased blocks of shares in several firms only to have their ideas shot down by existing management. Then lightning struck. During a research session, Victor Mendelson happened across Heico, and the rest is history.

At the time, Heico had been given an adrenaline shot thanks to a tragic airline accident that forced the replacement of combustors on commercial airliners. There was so much demand that Pratt & Whitney could not keep up, so they outsourced the manufacturing to Heico. 

The company obtained Part Manufacturing Approval from the FAA for the part from the Federal Aviation Administration (FAA). While the company was thriving when the Mendelson’s first discovered it, sales soon slowed down with the decreased need for that one part. Victor postulated that if Heico could get FAA approval for a crucial part like a combustor, it could get approval for many other parts. 

An offer was made for the company, and the family acquired 15% and four seats on the board of directors. Under its new management, Heico started growing fast. 

Why Is The Company So Successful?
The primary growth catalyst is Heico’s ability to produce high-quality parts at a 30% to 50% discount to the original manufacturer. Next, the company is highly skilled at buying out smaller manufacturers. Dozens have been snapped up by Heico, supercharging its growth trajectory.

Smaller firms have a hard time resisting Heico’s savvy offer of leaving 20% of the equity with the original owners while providing the acquisition its distribution system and FAA part approvals. It’s truly a win-win deal for both sides. 

In real Buffett tradition, the company dominates its market as the world’s largest independent producer of FAA-approved aircraft parts. It also maintains a moat of 10,000 FAA approvals and very high standards of production. These represent significant competitive advantages for Heico. 

Overall, Heico has produced nearly 70 million parts, saving its customer base over $2 billion since 2002. Moving forward, the company forecasts it will save its airline clients over $1 billion within the next five years. 

Risks To Consider: Heico is sensitive to the airline industry, which is influenced by global economic conditions. A global or domestic recession could adversely affect its bottom line. 

Action To Take: I love Heico as a long-term portfolio holding. Buy on a breakout of $78 per share with initial stops at $72.23 per share and a soft target price of $144 per share.

Editor’s Note: Are you using this stock indicator? The stocks it identified are beating the S&P 500 by 3,200% a year… though most brokerage sites do not provide it. Full access here.