According to 13F filings at the Securities and Exchange Commission (SEC), the number of hedge funds holding stock in toolmaker Stanley Black & Decker (SWK), aerospace-component manufacturer TransDigm (TDG -2.13%), and industrial-giant General Electric (GE -3.19%) increased in the fourth quarter. Is that reason enough to buy the stocks? Let's take a closer look at all three stocks to find out.

1. Stanley Black & Decker

The toolmaker's earnings have contained a lot of moving parts in recent years. On the downside, it was hit with $1 billion worth of cost headwinds from tariffs, adverse foreign-exchange movements, and cost increases. On the upside, the surge in do-it-yourself (DIY) interest caused by the stay-at-home measures led to soaring tool sales in the second half of 2020.

As such, management is expecting sales to increase by 27%-32% in the first half of 2021, but then sales are expected to fall by 12% to 7% in the second half when the company comes up against very tough comparisons from 2020. It's somewhat confusing, but investors need to keep an eye on the big picture. That's a good idea because it's a very attractive one.

A man working on a drafting table with a yellow construction hat nearby.

Image source: Getty Images.

Even with the second-half sales decline, management expects overall sales growth of 4%-8% in 2021 and its industrial tools and security segments are expected to get back to growth given an improving economy. Meanwhile, a combination of possibly dissipating cost headwinds, Stanley's underlying growth initiatives (including the exciting MTD acquisition)  and the possibility of a shift in demand and interest in DIY is expected to lead to double-digit earnings growth for Stanley in the coming years.

Trading at around 17 times expected 2021 earnings, Stanley is an attractive stock for investors.

2. TransDigm

Hedge funds have probably been buying TransDigm stock as a way to play a recovery in commercial aviation. While conditions don't look great right now -- and won't until the rollout of COVID-19 vaccinations creates a positive environment around air travel -- better days will come. In fact, the industry is about to experience the anniversary of the major slump in air travel that occurred after the pandemic spread globally in March 2020.

As such, investors could start looking at an industry set for a multiyear period of growth, albeit from a low base in 2020. Given TransDigm's reputation as one of the best operators in the industry, along with it's history of acquisition-led growth, it's naturally seen as one of the best ways to make an investment in the industry.

A couple in an airport.

TransDigm and General Electric ae hoping air travel comes back. Image source: Getty Images.

In a nutshell, TransDigm's business model involves acquiring small businesses that sell relatively low-price-ticket items that may operate under the radar of interest of the large original equipment manufacturers like Raytheon, General Electric, Honeywell, et al.

If there are concerns about TransDigm, however, it's over the assumption that it will maintain its leading margins in an industry likely to be fighting over every scrap of growth it can get. Moreover, trading at a current enterprise value (market cap plus net debt) to earnings before interest, taxation, depreciation, and amortization (EBITDA) multiple of 25.6 times, the stock is hardly cheap.

3. General Electric

GE is a company in recovery mode, with significant exposure to an industry (commercial aviation) in recovery mode. In common with TransDigm, GE is a play in the commercial aviation market, but it's also a self-help story, with management seeking to increase profit margins in the renewable energy and power businesses, while the healthcare business continues to generate healthy cash flows.

Wind power turbines.

Wind turbines are a big part of GE's recovery plan. Image source: Getty Images.

In a nutshell, a combination of a slump in gas turbine equipment and services demand, alongside the previous management's go-for-growth policy, has left GE working through some less profitable contracts in power and renewable energy. However, CEO Larry Culp is leading the company as it works through these contracts while implementing lean management techniques in order to improve productivity and, ultimately, margin.

As a result of the improvements, GE is outperforming its own free cash flow estimates, and the market is starting to price in multiyear growth in GE's cash flow. Indeed, the company's recent results demonstrated progress on GE's aim to increase cash flow generation in the power and renewable energy segments. 

In a nutshell, GE is underpromising and overdelivering, and the stock continues to look like a decent value as it marches toward a multiyear recovery.