Is Textron Inc. (NYSE:TXT) the Next Big Bet in Small-Cap Manufacturing Stocks?

We recently released a list of the 15 Tiny-Market-Manufacturing Stocks That Hedge Funds Are Snatching Up In this piece, we will examine how Textron Inc. (NYSE:TXT) measures up against other small-cap manufacturing companies.

On February 26, Liz Ann Sonders, who serves as the chief investment strategist at Charles Schwab, appeared on CNBC’s 'Squawk on the Street' to address potential obstacles in manufacturing stemming from continuing policy uncertainties. According to her observations, investor focus currently leans towards apprehensions regarding economic expansion rather than inflationary pressures. During this discussion, she highlighted several diminishing metrics including dips in consumer confidence levels, weaker retail sales numbers, and lower service sector Purchasing Managers' Index readings. Additionally, she pointed out that heightened political ambiguity impacts decisions related to acquiring significant durable equipment, leading businesses to scale back their investments and expenditure strategies. She further elaborated that throughout the last twelve months, bond markets experienced shifts where interest rates fluctuated based predominantly either on changes in price levels or indications of economic performance—whether these were positive gains or negative drops. Recently, however, the decline observed in yield rates can be attributed mainly to fears concerning an impending slowdown in overall economic activity instead of predictions for decreasing cost-push factors. Consequently, this shift has prompted many investors to gravitate toward safer asset classes inside the stock market, indicating a general inclination towards prudence among financial participants.

The latest Purchasing Managers' Index (PMI) indicates a downturn in service activities, whereas manufacturing seems to be gaining momentum. This shift might lead to a favorable alignment between both industries. However, according to Sonders, this boost in manufacturing may face challenges because of persistent uncertainties related to policies. Consequently, numerous businesses within the manufacturing domain are becoming more hesitant regarding their future investment plans and expansions. Additionally, Sonders highlighted that although substantial budget reduction talks were initially aimed at slashing around $2 trillion, the real cutbacks currently stand below $10 billion. In her view, concentrating solely on these expenditure decreases would be hasty since factors such as tariff implementations, immigration regulations, deportation measures, and shifts in rules are all contributing to reduced economic forecasts and increased anticipations for higher inflation rates. Furthermore, she mentioned that even though alterations in taxation laws are under discussion, they will probably impact long-term projections rather than short-term trends.

Our Methodology

Initially, we reviewed financial news articles, along with data from the iShares U.S. Manufacturing ETF and the Vanguard Industrials ETF, alongside Insider Monkey’s Q4 2024 report on hedge fund holdings, to create a roster of small-cap manufacturing equities that were attracting investments from these funds. By our definition for this piece, small-cap stocks encompass companies valued at between $10 billion and $20 billion as of April 25th. From this pool, we identified the top 15 stocks based on their ranking according to how many different hedge funds had invested in them. If multiple securities shared the same level of interest among investors, we determined the final ordering using each stock’s market capitalization as a deciding factor.

Why do we focus on the stocks that hedge funds amass? It's straightforward: our studies indicate that mimicking the leading stock choices from premier hedge funds allows us to surpass the market performance. Each quarter, our monthly bulletin recommends 14 small-cap and large-cap equities and has achieved a return of 373.4% since May 2014, exceeding its benchmark by 218 percentage points. s ee more details here ).

A military transport aircraft touching down at its destination underscores the potency of its defensive capabilities.

Textron Inc. (NYSE: TXT )

As of April 25, the Market Capitalization stands at $12.35 billion.

Number of Hedge Fund holders: 29

Textron Inc. (NYSE: TXT), listed on the New York Stock Exchange with ticker symbol TXT, specializes in producing, distributing, and maintaining various types of aircraft for both government agencies and civilian markets across multiple sectors including defense, industry, and commerce. This company operates through six distinct business units: Textron Aviation, Bell Helicopter division which produces rotary-wing craft such as helicopters and tilt-rotors along with their components; another unit named Textron Systems focuses on specialized products and support systems; then comes the Industrial sector dealing with non-aircraft-related ventures; followed by Textron eAviation dedicated to electric aviation solutions; lastly, there’s a finance arm handling financial aspects. Among these divisions, the Bell group crafts and delivers military-grade alongside civil-use helicopters and tilt-rotor flying machines together with essential replacement parts and maintenance services.

In the first quarter of 2025, The Bell segment reported revenues totaling $983 million, marking a significant 35% rise compared to the same period last year. Military operations drove this growth through the advancement of the Future Long-Range Assault Aircraft (FLARA) project as well as bolstered backing from military assistance initiatives. Moving forward into 2025, efforts will concentrate on refining designs and meeting additional milestones tied to the FLARA initiative.

In the business sector, Textron Inc. (NYSE:TXT) reported delivering 29 helicopters during the first quarter of 2025, marking an uptick from the 18 units provided in the same period of 2024. The company’s subsidiary, Bell, received a contract for five extra CMV-22 aircraft and will continue manufacturing until at least 2027. Additionally, Bell entered into a deal with Air Methods involving the acquisition of 15 IFR-equipped 407 GXI models, with provisions for another dozen should they choose to exercise their options. Shipments under this arrangement are scheduled to start towards the end of 2025.

Overall, TXT ranks 15th On our roster of small-cap manufacturing equities favored by hedge funds, we recognize the expansion prospects of TXT. However, our confidence leans toward AI stocks as they present substantial opportunities for generating significant profits over a brief duration. One particular AI equity has surged year-to-date despite many prominent AI shares dropping approximately 25%. Should you seek an AI stock with greater upside potential compared to TXT yet trades below five times its earnings, explore our detailed analysis featured in our latest report. cheapest AI stock .

READ NEXT: 20 Top AI Stocks You Should Consider Buying Today and 30 Top Stocks to Purchase Currently as Recommended by Millionaires .

Disclosure: No conflicts of interest. This article was initially published here. Insider Monkey .