Cantillon Capital's William Von Mueffling has been a leading hedge fund manager since the 1990s, and his fund is worth watching because it tends to be relatively concentrated -- it has less than 40 holdings at present. According to Cantillon's latest SEC filing, it recently made three particularly interesting stock buys.

The hedge fund opened new positions in semiconductor capital equipment company Applied Materials (NASDAQ:AMAT) and specialty chemicals company W.R. Grace (NYSE:GRA), and added to its existing stake in marine engine and boat company Brunswick (NYSE:BC).

Let's take a closer look at the three and see whether they are worth considering for your portfolio.

1. Brunswick: Marine equipment specialist

Brunswick is best known for its recreational boats, but actually, its marine engines and aftermarket parts and accessories are what really powers its earnings. For example, original marine engines and parts contributed 38% of revenue in 2019, with aftermarket parts and accessories responsible for 49%. Sales of boats made up the remaining 13%. That's a huge change from back in 2006 when boats contributed 41% of Brunswick's revenue.

A boat on the sea.

A recreational boat. Image source: Getty Images.

Of course, marine engines and boats are closely related businesses, but it's interesting that in the COVID-19 ravaged first quarter, when propulsion sales declined 1% and parts and accessories sales declined 4%, boat revenue fell by 22%. The end result was a total sales decline of 8%. These results make it clear that Brunswick is shifting toward being a less-cyclical company, so it won't be as exposed to this latest downturn as it was to the last recession.

That said, there's still the difficult issue of the outlook for discretionary spending on recreational boats. On the one hand, the bulls will argue that this niche will receive a boost as consumer interest shifts from, say cruise ships and air travel.

On the other hand, if the COVID-19 pandemic causes a lasting recession and house price depreciation -- particularly in coastal areas -- then it's hard to argue the case for a consumer discretionary stock of this type. In addition, in the company's earnings presentation management predicted that the retail marine market will decline this year by a percentage in the high teens to the low twenties. 

Going into 2020, management was anticipating EPS of $5.10-$5.40 putting for 2020 and $6.25-$7.25 in 2022. Obviously, both those targets are highly unlikely now but analysts have Brunswick on EPS of $3.93 in 2021, putting the stock on less than 15 times expected 2021 earnings. That looks a good value provided the company can get back to the kind of double-digit earnings growth trajectory it's been on in recent years.   

However, there's also significant downside risk, and it's far too early to conclude that Brunswick's long-term earnings potential will be enhanced by rather than impaired by the COVID-19 pandemic. Meanwhile, the near-term headlines are not likely to be good.

2. W.R. Grace: Planning for a COVID-19 decline

Specialty chemicals company Grace is likely to attract a healthy bull vs. bear debate. The company generates more than three-quarters of its revenue from catalysts used in refining oil for gasoline production and in the production of thermoplastic resins.

Given that, it's not hard to understand why the company is going to take a major near-term hit. If people aren't driving cars as much and plastics production is being reduced in line with a slowdown in economic activity more broadly, then demand for those catalysts will also fall. As such, Grace's management is planning for a 20% decline in sales in the second quarter.

But here's the thing. All of these headwinds are likely to turn around in due course. The key headline metric to look out for is miles driven because that tends to spur refining activity and then catalyst demand. Miles driven will increase as lockdown measures are eased, while history suggests that the relatively low price of oil will encourage drivers.

WTI Crude Oil Spot Price Chart

Data by YCharts

There's also the possibility that the aftermath of the COVID-19 pandemic will lead to an increased preference for travel in private cars rather than via public transport. This, too, could stimulate refining demand.

All told,  a combination of a growing economy, low gasoline prices, and a shift in preference toward private travel could boost Grace's earnings and get it back to something close to the $4.38 in EPS earned in 2019. For reference, analysts have $4.07 in EPS for 2021 putting it on 13.3 times forward earnings. That looks like a good value.

However, be aware that it will take plenty of time for the investment thesis to play out, and the headline news could be ugly in the meantime. 

3. Applied Materials: Set to benefit from the move to 5G and AI

The semiconductor industry is one of the few industrial sectors that entered 2020 in growth mode. Part of that came down to it taking a bounce off a disappointing 2019, and part was due to the expansion of applications for chips in new technologies such as 5G, artificial intelligence, the internet of things (IoT), and automatic driving, among others.

The COVID-19 pandemic has certainly slowed the industry's momentum; even though Applied Materials' revenue grew 12% on a year-over-year basis in its fiscal second quarter (which ended April 26), it was down 5% compared to the prior quarter.

No matter. The underlying drivers remain in place for the industry's growth, and they may even be enhanced by the coronavirus crisis as companies are induced to increase spending on digital technologies and consumers shift more of their shopping activity to e-commerce. Indeed, when industrial giant 3M recently gave its sales figures for April, it noted "strong end-market demand specifically in personal safety, electronics (semiconductor and data center)."

Semiconductors on a circuit board.

Semiconductor manufacturing. Image source: Getty Images.

Stocks to buy?

All three are attractive stocks, but Brunswick and Grace face a lot more near-term uncertainty than Applied Materials does. It could get worse before it gets better for those two.

The semiconductor capital equipment sector (Applied Materials) looks likely to bounce back first, while the direction that consumer discretionary spending on recreation will take (Brunswick) won't be clear for a while. Finally, history suggests it could be at least a year or so before refining companies release their spending budgets (Grace), even as the miles-driven statistic rises.