Headwaters Capital Management, an investment management company, released its fourth-quarter 2024 investor letter. A copy of the letter can be downloaded here. The fund returned -6.6% (gross) and -6.8% (net) in the fourth quarter compared to a 0.6% return for the Russell Mid Cap Index. For the full year the portfolio returned +14.0% (+13.1% net) compared to a +15.3% return for the index. In addition, you can check the fund’s top 5 holdings to determine its best picks for 2024.
Headwaters Capital Management highlighted stocks like Palantir Technologies Inc. (NASDAQ:PLTR), in the fourth quarter 2024 investor letter. Palantir Technologies Inc. (NASDAQ:PLTR) offers software platforms for the intelligence community. The one-month return of Palantir Technologies Inc. (NASDAQ:PLTR) was -6.70%, and its shares gained 322.20% of their value over the last 52 weeks. On January 16, 2025, Palantir Technologies Inc. (NASDAQ:PLTR) stock closed at $69.24 per share with a market capitalization of $157.73 billion.
Headwaters Capital Management stated the following regarding Palantir Technologies Inc. (NASDAQ:PLTR) in its Q4 2024 investor letter:
“More specifically for this strategy’s benchmark, the top two performing factors during Q4 for the Russell Mid Cap Index were high beta (+10.1%) and non-earning companies (+8.3%), while high return on equity was one of the worst factors (see appendix). Given the quality focus of this strategy, I am not surprised that the portfolio lagged in this market. It is déjà vu given that the portfolio’s worst quarter of relative performance was Q1 of 2021, which coincided with the top of the last speculative bubble.
Speaking of 2021, I am surprised by the market’s amnesia as it seems to be repeating similar mistakes that were made only a few years ago. The parallels to the 2021 bubble are striking. Palantir Technologies Inc. (NASDAQ:PLTR), the Russell Mid Cap Index’s largest holding and one of the poster children of the 2021 bubble, is a good example. PLTR more than doubled in Q4 entirely driven by multiple expansion, which at the end of the year, surpassed its peak achieved in Q1 2021!
Note the correlation between PLTR’s valuation and the price of bitcoin, which again highlights the broad rotation into speculative assets. Just so readers are clear, PLTR was trading at 51x SALES at the end of 2024. I don’t know much about PLTR, I’m only using this as an example. Paying that kind of multiple generally makes it difficult to achieve strong returns in the future. For example, the last time PLTR traded at this level, the stock returned -68% over the following year. I could choose plenty of additional charts like this (ARK Innovation ETF, fringe AI stocks, quantum computing, etc), but I think readers get the idea that I believe there are pockets of frothiness in the market.”
A software engineer manipulating a vast network of code on virtual monitors.
Palantir Technologies Inc. (NASDAQ:PLTR) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 43 hedge fund portfolios held Palantir Technologies Inc. (NASDAQ:PLTR) at the end of the third quarter which was 44 in the previous quarter. While we acknowledge the potential of Palantir Technologies Inc. (NASDAQ:PLTR) 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 Palantir Technologies Inc. (NASDAQ:PLTR) and shared the list of AI Stocks on latest analyst ratings and News. In addition, please check out our hedge fund investor letters Q4 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.