Since its founding in 1983, Ariel Investments, with $15 billion under management, has built a reputation as one of the country’s top value-stock managers.
Its co-chief executive, John Rogers, even beat basketball legend Michael Jordan at a one-on-one game.
Another Ariel staffer with athletic chops is Micky Jagirdar, head of global equities investments. He plays cricket for the New York Thunderbolts, which represented the U.S. in the prestigious Last Man Stands World Championships in 2022.
Jagirdar is co-manager of Ariel International Fund and Ariel Global Fund.
International equities have vastly underperformed the U.S. market over the past decade. This would seem to indicate tremendous buying opportunities overseas. And that’s what he seeks.
Jagirdar recently shared his single best trade idea with TheStreet.com.
Ariel Investments/TheStreet.com
So what is the Single Best Idea?
Michelin (MGDDY) , the giant French tire maker. This stock is a non-consensus play on the auto industry’s decarbonization.
Why do you like Michelin stock?
Investors might not realize that it’s not just a tire manufacturer. It’s a materials science company for polymer composites.
Tires are a specialty composite comprised of over 200 materials, including rubber, carbon black, and metal wires.
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Premium pricing is viewed as at risk because tires are considered commodities. In reality, achieving excellence in tire manufacturing is more akin to manufacturing something more complex, such as semiconductors. It’s not as simple as just producing rubber donuts.
Michelin is underappreciated, with an 11-times price-equity multiple and a healthy balance sheet (net debt-to-EBITDA ratio of 0.7 times). EBITDA is earnings before interest, taxes, depreciation and amortization.
We believe in multiple ways to win. Michelin’s prospects during the auto industry’s decarbonization stand in contrast to industry peers that face binary outcomes or geopolitical constraints.
Michelin is already a market share leader in the premium tire market.
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If the auto industry decarbonizes at a slower-than-expected rate, the company will continue to benefit from the multi-year trend of moving from sedans to SUVs. The latter require bigger tires that are more complex (and profitable) to make.
Michelin would equally benefit from a faster shift to electric vehicles. EV tires are even more profitable than SUV tires and are replaced at a faster rate. That’s because of greater wear and tear on the tires from the instant torque and heavier weight of the car.
In addition, management recently increased its 2026 operating income guidance. This suggests continued under-appreciation of the business. Michelin also has a 3.7% dividend yield.
What could go wrong?
The risks of recession, inflation, and supply chain issues are real. But in Michelin’s case, we believe these factors are already priced in or lower for the company than competitors.
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Michelin is recession-resilient. During a recession, new car sales stall, and consumers focus on used cars, which is a higher-margin tire replacement business.
Inflation can also serve as a tailwind, with higher-priced commodities benefitting the company’s mining segment.
Finally, Michelin’s manufacturing strategy entails locating production capacity in the same country as sales. This enables supply-chain resiliency, while competitors are disproportionately impacted by complications such as the Red Sea shipping disruption.
Single Best Trade does not represent investment advice from TheStreet. All investments should be researched carefully through consultation with an investment professional.
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