Heartland Advisors, an investment management company, released its “Heartland Value Plus Fund” first quarter 2025 investor letter. A copy of the letter can be downloaded here. The fund declined 8.23% in the quarter, compared to a 7.7% loss for the Russell 2000 Value Index. The firm believes, this is a patient market, as expectations of better demand dynamics were put on hold during the quarter due to slowdown fears. In addition, you can check the fund’s top 5 holdings to determine its best picks for 2025.
In its first-quarter 2025 investor letter, Heartland Value Plus Fund highlighted stocks such as Gates Industrial Corporation plc (NYSE:GTES). Gates Industrial Corporation plc (NYSE:GTES) manufactures and distributes engineered power transmission and fluid power solutions. The one-month return of Gates Industrial Corporation plc (NYSE:GTES) was -13.89%, and its shares lost 1.46% of their value over the last 52 weeks. On April 17, 2025, Gates Industrial Corporation plc (NYSE:GTES) stock closed at $16.93 per share with a market capitalization of $4.32 billion.
Heartland Value Plus Fund stated the following regarding Gates Industrial Corporation plc (NYSE:GTES) in its Q1 2025 investor letter:
“We consider Gates Industrial Corporation plc (NYSE:GTES), one of the leading global manufacturers of belts and hoses used in vehicles and industrial machines, to be an all-weather stock set up to perform well relative to small-cap Industrials in all types of macro environments. Yet the shares have fallen 21.7% since Feb. 19 along with the entire Industrial sector amid concerns of a trade war.
Ironically, the company’s biggest end market is auto replacement parts, representing 36% of sales. The threat of tariffs significantly boosting the overall price of new cars should make consumers hold onto their existing vehicles longer, which should be good for Gates. If the macro environment deteriorates, we believe the company will face less downside pressure than most Industrials owing to the large percentage of revenues it derives from the less-cyclical replacement markets. On the other hand, should the macro environment improve, Gates could see significant revenue upside as cyclical Industrial end-markets have been pressured by a weak economy for multiple quarters.
The company’s recent self-help efforts have also led to margin improvement through material cost reduction and footprint optimization. Those moves should help offset any margin pressure that could occur from end-market weakness. The company appears to have significantly improved its balance sheet, with leverage currently at 2.2 times net debt to EBITDA, down from its pre-COVID-19 levels of 3-4 times. At this current leverage profile, Gates should be positioned to return more of its free cash flow to shareholders in the form of share repurchases. Yet the stock trades at just 13 times earnings and 9 times EBITDA, which is relatively low compared to other Industrial businesses with a similar margin profile.”
A factory worker in a safety vest tightening a V-belt on a power transmission assembly.
Gates Industrial Corporation plc (NYSE:GTES) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 39 hedge fund portfolios held Gates Industrial Corporation plc (NYSE:GTES) at the end of the fourth quarter compared to 31 in the third quarter. While we acknowledge the potential of Gates Industrial Corporation plc (NYSE:GTES) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
In another article, we covered Gates Industrial Corporation plc (NYSE:GTES) and shared The London Company Small Cap Strategy’s views on the company in the previous quarter. In addition, please check out our hedge fund investor letters Q1 2025 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.