SouthernSun Asset Management, LLC, an investment management firm, released its “SouthernSun SMID Cap Strategy” first quarter 2025 investor letter. A copy of the letter can be downloaded here. In the first quarter, the strategy returned -8.60% on a gross basis (-8.76% net compared to a -7.50% return for the Russell 2500 Index and -5.83% for the Russell 2500 Value Index. The fund returned -9.41% on a gross basis (-10.06% net) over the trailing 12 months compared to -3.11% and -1.47% returns for the indexes, respectively, over the same period. In addition, please check the top 5 holdings of the strategy to know its best pick in 2025.
In its first-quarter 2025 investor letter, SouthernSun SMID Cap Strategy highlighted stocks such as Watsco, Inc. (NYSE:WSO). Watsco, Inc. (NYSE:WSO) is a distributor of air conditioning, heating, and refrigeration equipment, and related parts and supplies. The one-month return of Watsco, Inc. (NYSE:WSO) was -18.821%, and its shares gained 2.52% of their value over the last 52 weeks. On April 25, 2025, Watsco, Inc. (NYSE:WSO) stock closed at $456.08 per share with a market capitalization of $18.821 billion.
SouthernSun SMID Cap Strategy stated the following regarding Watsco, Inc. (NYSE:WSO) in its Q1 2025 investor letter:
“Watsco, Inc. (NYSE:WSO), the largest distributor of air conditioning, heating, and refrigeration products in North America, was a top contributor this quarter, posting record fourth-quarter results with sales up 9% and EPS up 15%. Digital platform sales continue to outpace offline channels, now representing 36% of total revenue, and management remains committed to investing in proprietary technology solutions for contractors. The 2025 outlook appears favorable, as the rollout of higher-priced A2L refrigerant units from HVAC OEMs should be a tailwind to equipment pricing. With no debt and $782 million in cash and short-term investments, Watsco has significant flexibility to pursue acquisitions in the highly fragmented $74 billion North American HVAC/R distribution market. We continue to believe Watsco has a long runway for organic and inorganic growth, an owner-oriented culture and competitive advantages that increase with scale.”
A commercial air conditioning unit mounted atop a residential roof in a suburban neighbourhood.
Watsco, Inc. (NYSE:WSO) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 33 hedge fund portfolios held Watsco, Inc. (NYSE:WSO) at the end of the fourth quarter, compared to 37 in the third quarter. While we acknowledge the potential of Watsco, Inc. (NYSE:WSO) 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 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.