SouthernSun Asset Management, LLC, an investment management firm, released its “SouthernSun Small Cap Strategy” second quarter 2024 investor letter. A copy of the same can be downloaded here. In the second quarter, the strategy lost -3.55% on a gross basis (-3.69% net) compared to a -3.28% return for the Russell 2000 Index and -3.64% for the Russell 2000 Value Index. The strategy returned 4.61% on a gross basis (3.88% net) for the trailing twelve months compared to 10.06% and 10.90% respectively for the indexes over the same period. In addition, please check the top 5 holdings of the strategy to know its best pick in 2024.
SouthernSun Small Cap Strategy highlighted stocks like Darling Ingredients Inc. (NYSE:DAR), in the second quarter 2024 investor letter. Darling Ingredients Inc. (NYSE:DAR) develops, produces, and sells natural ingredients from edible and inedible bio-nutrients. The one-month return of Darling Ingredients Inc. (NYSE:DAR) was 7.44%, and its shares gained 42.11% of their value over the last 52 weeks. On July 31, 2024, Darling Ingredients Inc. (NYSE:DAR) stock closed at $39.73 per share with a market capitalization of $6.409 billion.
SouthernSun Small Cap Strategy stated the following regarding Darling Ingredients Inc. (NYSE:DAR) in its Q2 2024 investor letter:
“Darling Ingredients Inc. (NYSE:DAR) is the largest publicly traded company turning edible by-products and food waste into sustainable products and a leading producer of renewable energy. DAR was the top detractor in the Small Cap strategy in the second quarter. The stock has struggled after a difficult reset period in the third quarter of last year, as fears regarding new industry supply of renewable diesel and the lack of government support have increased. Over time and through thoughtful leadership and capital allocation, the company has built a vertically integrated growth engine with attractive returns on capital while consolidating the industry and driving innovation. After a strong year of EBITDA growth in 2023, we expect 2024 to be an important year of transition before growth resumes over the next 2-3 years, as recent M&A and growth capex drive deleveraging and free cash flow. The company is currently constructing sustainable aviation fuel (SAF) capacity expected to come online in 4Q24 and is evaluating further SAF expansion for the future, as growth and incentives in that market provide significant margin expansion and return on investment. The valuation is compelling, in our opinion, based on multiple scenarios and valuation methodologies. We spent time with local leadership in Brazil during the second quarter – reviewing significant investments that have been made over recent years as well as touring important production facilities. Brazil is the most important international market for Darling where they have consolidated the industry and enjoy very strong market share. While these investments have put some strain on the balance sheet in the near term, we believe the growth in cash flow and return on invested capital will deliver improved stock performance in the years ahead.”
A selection of pet food ingredients being prepared in a kitchen for quality and safety testing.
Darling Ingredients Inc. (NYSE:DAR) is not on our list of 31 Most Popular Stocks Among Hedge Funds. As per our database, 24 hedge fund portfolios held Darling Ingredients Inc. (NYSE:DAR) at the end of the first quarter which was 34 in the previous quarter. Net sales of Darling Ingredients Inc. (NYSE:DAR) for Q2 2024 were $1.5 billion compared to $1.8 billion for Q2 2023. While we acknowledge the potential of Darling Ingredients Inc. (NYSE:DAR) 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 Darling Ingredients Inc. (NYSE:DAR) and shared Aristotle Atlantic Large Cap Growth Strategy’s views on the company. 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.
