SouthernSun Asset Management, LLC, an investment management firm, released its “SouthernSun Small Cap Strategy” fourth quarter 2024 investor letter. A copy of the letter can be downloaded here. The uncertainly prevailing in the market seems to be fueled by constant speculation about macro causes over which the businesses have any control and so much capital concentrated in few enterprises. In the fourth quarter, the strategy returned -7.55% on a gross basis (-7.73% net) compared to a 0.33% return for the Russell 2000 Index and -1.06% for the Russell 2000 Value Index. The strategy returned 5.53% on a gross basis (4.73% net) for the trailing twelve months compared to 11.54% and 11.54% 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.
In its fourth quarter 2024 investor letter, SouthernSun Small Cap Strategy emphasized stocks such as MGP Ingredients, Inc. (NASDAQ:MGPI). MGP Ingredients, Inc. (NASDAQ:MGPI) produces and distributes distilled spirits, branded spirits, and food ingredients. MGP Ingredients, Inc.’s (NASDAQ:MGPI) one-month return was -2.42%, and its shares lost 60.43% of their value over the last 52 weeks. On February 6, 2024, MGP Ingredients, Inc. (NASDAQ:MGPI) stock closed at $33.81 per share, with a market capitalization of $742.241 million.
SouthernSun Small Cap Strategy stated the following regarding MGP Ingredients, Inc. (NASDAQ:MGPI) in its Q4 2024 investor letter:
“MGP Ingredients, Inc. (NASDAQ:MGPI) was the top detractor in the fourth quarter in the Small Cap strategy. In early October, MGPI provided preliminary third quarter sales estimates that were significantly lower than we expected, driven by a significant and unexpected decline in its brown goods distilling business. During the subsequent quarterly earnings release, management indicated that they expect the distilling business to remain under pressure for the foreseeable future as demand for aged whiskey has declined sharply. We were surprised by the magnitude of and the speed at which the demand for distilled brown goods declined. Perhaps more alarming was management’s lack of visibility into the market. In December, MGPI announced that David Bratcher, who took over as CEO at the beginning of 2024, was stepping down and the current CFO, Brandon Gall, will serve as interim CEO while the board conducts a search for a permanent replacement. Given the rapid changes in the business and the leadership team, we decided to exit our position and deploy the capital into businesses that we believe offer more attractive opportunities.
We exited our position in MGP Ingredients (MGPI) during the fourth quarter. In early October, MGPI provided preliminary third quarter sales figures that were significantly lower than we expected driven by a significant and unexpected decline in its brown goods distilling business. During the subsequent quarterly earnings release, management indicated that they expect the distilling business to remain under pressure for the foreseeable future as demand for aged whiskey has declined sharply. We were surprised by the magnitude of and the speed at which the demand for distilled brown goods declined. Perhaps more alarming was management’s lack of visibility into the market. In December, MGPI announced that David Bratcher, who took over as CEO at the beginning of 2024, was stepping down and the current CFO, Brandon Gall, will serve as interim CEO while the board conducts a search for a permanent replacement. Given the rapid changes in the business and the leadership team, we decided to exit our position and deploy the capital into businesses that we believe offer more attractive opportunities.”
A close-up of an iconic bottle of branded spirit produced by the distillery.
MGP Ingredients, Inc. (NASDAQ:MGPI) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 23 hedge fund portfolios held MGP Ingredients, Inc. (NASDAQ:MGPI) at the end of the third quarter which was 18 in the previous quarter. While we acknowledge the potential of MGP Ingredients, Inc. (NASDAQ:MGPI) 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 MGP Ingredients, Inc. (NASDAQ:MGPI) and shared the list of best alcohol stocks to own 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.