Brennan Asset Management, an investment management company, released its fourth quarter 2024 investor letter. A copy of the letter can be downloaded here. Approximately half of the US was thrilled with the election result, and the equilibrium felt catatonic. At first, the markets surged, mostly due to expectations of tax extensions and maybe regulatory relief. The largest winners were some of the more speculative segments of the market, including Tesla stock, investments with an artificial intelligence theme, “normal” cryptocurrency, Dogecoin and other weird/”less normal” cryptocurrencies. This relief rally stalled following the Federal Reserve’s December meeting, which indicated fewer rate cuts in 2025. Meanwhile, markets outside the US continue to trade at extreme discounts, as do value equities to their growth counterparts. Please check the top 5 holdings of the fund for a better understanding of their best picks for 2024.
In its fourth quarter 2024 investor letter, Brennan Asset Management emphasized stocks such as Compass Diversified (NYSE:CODI). Compass Diversified (NYSE:CODI) is a private equity firm focuses on acquisitions, buyouts, industry consolidation, recapitalization, late stage, and middle market investments. One-month return of Compass Diversified (NYSE:CODI) was -3.68%, and its shares gained 10.86% of their value over the last 52 weeks. On February 12, 2025, Compass Diversified (NYSE:CODI) stock closed at $20.68 per share with a market capitalization of $1.564 billion.
Brennan Asset Management stated the following regarding Compass Diversified (NYSE:CODI) in its Q4 2024 investor letter:
“Compass Diversified (NYSE:CODI): Too Cheap on Many Levels…Lugano is a Monster: We had a chance to attend CODI’s investor day in New York earlier this month and we further increased our position size in the name. We provided a detailed update on CODI during our Q3 letter — including details on one of the more unheralded growth businesses that we have seen (Lugano Diamonds) — so we will not rehash the investment in detail. We would simply reiterate that CODI’s 93 portfolio companies are the highest quality batch in its history, led by Lugano Diamonds and BOA. Lugano is an absolute monster, having increased EBITDA from $21 million in 2020 to ~$180 million+ in 2024, and the company appears to have substantial growth ahead. BOA (shoe dials) should also continue to be a faster grower (perhaps mid-teens), as the company makes advances in the alpine skiing and workforce categories. While admittedly there are multiple assumptions involved (including the critical assumption on Lugano’s value), our best “liquidation” estimate is that CODI’s various subsidiaries are worth ~$36 versus the ~$21 current price. If CODI retains all of its remaining subsidiaries and if one makes some normalization for Lugano’s aggressive working capital trend (if you don’t…then this means EBITDA likely grows far faster than we think), we believe the company could generate ~$2.70 a share in free cash flow by 2027 (~8x free cash flow), and this is before any deals which are a near certainty. For those who want a fuller discussion on the name, we presented the company at MOI’s Best Idea Conference and would be happy to pass along the full presentation link to those who are interested.”
An overview of a manufacturing plant, representing the production of consumer products from the company.
Compass Diversified (NYSE:CODI) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 12 hedge fund portfolios held Compass Diversified (NYSE:CODI) at the end of the third quarter which was 9 in the previous quarter. While we acknowledge the potential of Compass Diversified (NYSE:CODI) 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 Compass Diversified (NYSE:CODI) and shared the list of best conglomerate stocks to buy according to hedge funds. In addition, please check out our hedge fund investor letters Q3 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.