We purchased shares of Arconic (NYSE:ARNC) after it separated from Alcoa and became an independent public company. We believe Arconic represents an attractive investment opportunity given our favorable long-term outlook for many of its end markets, the durability of its underlying business segments, and its discount relative to precedent acquisition activity. Arconic designs and manufactures lightweight metal parts and components that are used within the aerospace, building and construction, transportation, and other industries. Its largest division, Engineered Products and Solutions, accounts for approximately half of the firm’s profits and is considered the “crown jewel” of the company. This segment has a similar product portfolio to Precision Castparts, which was acquired by Warren Buffett (Trades, Portfolio)’s Berkshire Hathaway in 2016. We believe Arconic’s long-term revenue outlook is bright. It should benefit from the trend toward more lightweight platforms in both the commercial aerospace and automotive industries. Moreover, we expect Arconic’s operating margins to expand considerably as the company reduces overhead and increases plant capacity utilization.
From the Oakmark Global Fund first-quarter 2017 shareholder letter.
