Headwaters Capital Management, an investment management company, released its third-quarter 2024 investor letter. A copy of the letter can be downloaded here. The fund returned 9.0% (+8.8% net) in the third quarter compared to a 9.2% return for the Russell Mid Cap Index. Interest rate reductions have generally driven small cap outperformance. Small caps benefited in Q3 after the Fed started the anticipated easing cycle with a 50-basis point rate drop in September. In addition, you can check the fund’s top 5 holdings to determine its best picks for 2024.
Headwaters Capital Management highlighted stocks like Medpace Holdings, Inc. (NASDAQ:MEDP), in the third quarter 2024 investor letter. Medpace Holdings, Inc. (NASDAQ:MEDP) is a clinical research-based drug and medical device development services provider. The one-month return of Medpace Holdings, Inc. (NASDAQ:MEDP) was -1.05%, and its shares gained 43.38% of their value over the last 52 weeks. On October 9, 2024, Medpace Holdings, Inc. (NASDAQ:MEDP) stock closed at $341.32 per share with a market capitalization of $10.582 billion.
Headwaters Capital Management stated the following regarding Medpace Holdings, Inc. (NASDAQ:MEDP) in its Q3 2024 investor letter:
“Top Detractor: Medpace Holdings, Inc. (NASDAQ:MEDP) -19%. Medpace declined during the quarter as bookings growth decelerated and concern around increasing clinical trial cancellations accelerated during the quarter. The reality is that Medpace’s clinical trial business exhibits cyclicality tied to the biotech funding environment, but these cycles occur within a secular growth opportunity. While biotech funding accelerated in Q1 ‘24, growth since then has been more modest. Stepping back from the near-term noise, Medpace is still well positioned to capitalize on the trend of increased drug development by smaller biotechs and their reliance on contract research organizations (CRO’s) to perform clinical trial work. With only 5% market share, Medpace has ample room to continue gaining share given their position as the leading biotech CRO. Additionally, MEDP has proven to be a prudent capital allocator using cyclical downturns as an opportunity to aggressively repurchase shares. While MEDP’s stock has appreciated by +135% during HCM’s ownership, the stock experienced a -45% decline in 2022 when similar biotech funding fears emerged. Due to the cash balance that the company retained during that period and ongoing free cash flow, MEDP took advantage of the share price weakness by repurchasing 16% of shares outstanding. MEDP is in a similar position today with ~$700mm of cash on hand and is projected to generate an additional $500mm of FCF next year. Simply by deploying cash on hand, MEDP could repurchase 10% of shares outstanding over the next year. I would expect the company to be an aggressive repurchaser of shares if clinical trial weakness persists, which will lead to higher earnings per share power for the company over the long term.”
A medical professional in a lab coat discussing with a colleague.
Medpace Holdings, Inc. (NASDAQ:MEDP) is not on our list of 31 Most Popular Stocks Among Hedge Funds. As per our database, 37 hedge fund portfolios held Medpace Holdings, Inc. (NASDAQ:MEDP) at the end of the second quarter which was 40 in the previous quarter. Medpace Holdings, Inc.’s (NASDAQ:MEDP) second quarter revenue was $528.1 million, up 14.6% year-over-year. While we acknowledge the potential of Medpace Holdings, Inc. (NASDAQ:MEDP) 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 Medpace Holdings, Inc. (NASDAQ:MEDP) and shared the bulls’ thesis on the company. 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.