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Hammond Power Solutions: An Investment Thesis

Philip MacKellar profile picture
Philip MacKellar


  • Well-run and tightly held corporation with attractive financials.
  • Stock is currently beaten up after last year’s selloff.
  • Reasons for the selloff are likely cyclical not structural, thus presenting would-be investors with a potential opportunity.
  • Low liquidity may be a significant risk or impediment to owning this stock.


This little-known company’s primary listing is on the Toronto Stock Exchange. It trades under the symbol HPS.A, and is headquartered in Ontario. Hammond Power Solutions (OTC:HMDPF) manufactures a variety of transformers and magnetic products. They are the largest manufacturer of dry-type transformers in North America and enjoy a variety of technological, process, and scale advantages over peers. While some competitors are large multinationals, the market is fragmented and many are small scale operators generating less than $20 million in annual revenue. Hammond Power has manufacturing operations in Canada, the US, and Mexico, as well as in the fast-growing Indian economy and, until recently, Italy.

The primary end users for their products are electrical utilities, local power companies, and commercial, industrial, and residential power consumers. The equipment alters the voltage of electrical current and is integral to distributing electricity. Their products essentially change the voltage from large power lines so it can be sent to individual power users. Other end markets include connecting mining outfits, oil & gas operations, renewable energy companies, and utilities to the grid.

Unlike most companies which will be written about here on Seeking Alpha or in our quarterly newsletter, Hammond Power Solutions is not held in a Contra the Heard portfolio. This is because the average daily volumes are too low. This volume issue aside, HPS.A has many of the characteristics we look for in a potential investment. The company has been on a watch list for years, and I now own it personally. My average cost base is roughly $5.75 and it was purchased in December 2018.

Corporate Characteristics Underpinning the Investment Thesis:

Hammond Power’s financials are strong. On the balance sheet, the enterprise has a good current ratio, low intangibles, and manageable debt. Not only does it have strong working capital, but the current assets handily exceed all its

This article was written by

Philip MacKellar profile picture
Philip MacKellar is an analyst, portfolio manager, and investor at Contra the Heard Investment Newsletter. He has been with the company since 2011 and has been investing since 2004. The newsletter’s primary focus is on contrarian and value-oriented investment opportunities traded in the United States and Canada. In addition, Philip sometimes engages in M&A, other special situations, and holds bonds, preferred shares, and convertible securities. Contra the Heard is a Toronto based company and was founded in 1995. Philip also blogs about personal finance topics on his own website called mymoneymoves.ca in his free time. You can also follow Philip at the Globe & Mail, on Twitter @Rallekcam, and catch him on YouTube at Contra the Heard.

Analyst’s Disclosure: I am/we are long HMDPF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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