Laughing Water Capital, an investment management company, released its second-quarter 2024 investor letter. A copy of the letter can be downloaded here. In the second quarter, Class A interests in Laughing Water Capital returned about 2.5% bringing year-to-date returns to 11.1%. The SP500TR and R2000 returned 4.3% and -3.3% in the second quarter and 15.3% and 1.7% year-to-date, respectively. The strength of the market is now concentrated in a small number of mega-cap stocks. The SP500’s “artificial intelligence”-related equities increased 14.7% during the second quarter, while the overall SP500 fell 1.2%. The firm does not own any of these stocks and focuses on the hidden corners of the market. In addition, you can check the fund’s top 5 holdings to determine its best picks for 2024.
Laughing Water Capital highlighted stocks like Avid Bioservices, Inc. (NASDAQ:CDMO), in the second quarter 2024 investor letter. Avid Bioservices, Inc. (NASDAQ:CDMO) is a contract development and manufacturing organization. The one-month return of Avid Bioservices, Inc. (NASDAQ:CDMO) was 44.54%, and its shares lost 21.04% of their value over the last 52 weeks. On July 25, 2024, Avid Bioservices, Inc. (NASDAQ:CDMO) stock closed at $10.32 per share with a market capitalization of $656.157 million.
Laughing Water Capital stated the following regarding Avid Bioservices, Inc. (NASDAQ:CDMO) in its Q2 2024 investor letter:
“Avid Bioservices, Inc. (NASDAQ:CDMO) – Avid is one of our two Contract Drug Manufacturing Organizations that are tied to biologic drugs. I detailed the reasoning behind our investment in Avid in the Q1’24 letter, and would suggest you revisit that letter for a more detailed review of the long-term opportunity and the recent disappointments. In brief, this is a company that is not currently profitable as they are incurring expenses from newly added capacity that is not yet generating much revenue, and they are also victim to a slowdown in biotech spending. However, industry dynamics are very favorable, and Avid enjoys a real competitive advantage in the form of a long tenured favorable FDA track record. I believe favorable industry dynamics and a favorable competitive position combine to make the idea of Avid filling capacity very much a “when” not an “if.” When this capacity is filled, Avid should be able to generate somewhere around $125M in EBITDA which will translate to free cash flow at very high rates as the Company should have net interest income (assuming conversion of convertible debt), very low cash taxes due to large NOLs, and minimal CapEx tied to novel facilities.
As such, I believe CDMO is just a few years away from trading at a mid-single digit multiple of free cash flow. In my view, a 20x multiple would be more appropriate, and looking at larger public peers suggests that something considerably higher is possible.
Also of note, Avid’s largest customer, Halozyme Therapeutics Inc. (HALO), raised near term guidance and their five-year outlook during the quarter. It is hard to see how Avid does not benefit from HALO’s success, but for now shares of CDMO remain deeply out of favor.”
A chemist looking through a microscope in a research and development facility as they synthesize recombinant proteins.
Avid Bioservices, Inc. (NASDAQ:CDMO) is not on our list of 31 Most Popular Stocks Among Hedge Funds. Avid Bioservices, Inc. (NASDAQ:CDMO) was held by 24 hedge fund portfolios at the end of the first quarter, compared to 21 in the previous quarter, according to our database. In the fourth quarter of fiscal 2024 Avid Bioservices, Inc. (NASDAQ:CDMO) reported revenues of $43 million, an 8% increase compared to $39.8 million in Q1 2023. The increase was mainly due to improved manufacturing runs and process development services. While we acknowledge the potential of Avid Bioservices, Inc. (NASDAQ:CDMO) 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 discussed Avid Bioservices, Inc. (NASDAQ:CDMO) and shared the list of stocks that are on hedge funds’ radar. Laughing Water Capital explained their investment in Avid Bioservices, Inc. (NASDAQ:CDMO) in the first quarter 2024 investor letter. In addition, please check out our hedge fund investor letters Q2 2024 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.
