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 Arcos Dorados Holdings Inc. (NYSE:ARCO). Arcos Dorados Holdings Inc. (NYSE:ARCO) is a franchisee of McDonald’s restaurants. One-month return of Arcos Dorados Holdings Inc. (NYSE:ARCO) was 15.25%, and its shares lost 29.67% of their value over the last 52 weeks. On February 12, 2025, Arcos Dorados Holdings Inc. (NYSE:ARCO) stock closed at $8.39 per share with a market capitalization of $1.76 billion.
Brennan Asset Management stated the following regarding Arcos Dorados Holdings Inc. (NYSE:ARCO) in its Q4 2024 investor letter:
“Arcos Dorados Holdings Inc. (NYSE:ARCO): Rough 2024…Shares Substantially Undervalued: ARCO produced solid operating results throughout 2024 but negative currency movements, including a near freefall in the Brazilian Real (over 20 percent decline), drove investors to dump ARCO shares. As we noted in our Q3 letter, ARCO announced that it renewed its master franchise agreement (MFA) with McDonald’s (MCD) at terms that were better than many anticipated. While we won’t rehash the entire ARCO thesis (see our 2023 Q2 and Q3 letters for more color), we continue to believe that ARCO is a unique asset (the license to operate essentially all MCD restaurants from Mexico south) that was turbocharged by COVID’s aftereffects. During and after COVID, a large percentage of restaurants closed and there was rapid adoption of drive-through and delivery sales. ARCO disproportionately benefited given its larger share of free-standing stores. ARCO has a strong balance sheet (including substantial real-estate value), strong incremental returns on capital and a substantial growth opportunity. Brazil faces macro challenges and further currency weakness is distinctly possible. That said, ARCO has a history of achieving same[1]store sale growth above inflation rates and Brazil has some of the highest delivery penetration rates and digital adaptation rates in all of LATAM. Furthermore, there is no reason for ARCO not to move its listing from New York to Sao Paulo and greatly neutralize the reporting impact from currency fluctuations. We strongly believe ARCO is mispriced at current levels.”
A close-up of customers ordering from a McDonald’s restaurant in Latin America.
Arcos Dorados Holdings Inc. (NYSE:ARCO) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 19 hedge fund portfolios held Arcos Dorados Holdings Inc. (NYSE:ARCO) at the end of the third quarter which was 19 in the previous quarter. While we acknowledge the potential of Arcos Dorados Holdings Inc. (NYSE:ARCO) 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 Arcos Dorados Holdings Inc. (NYSE:ARCO) and shared the list of best beaten down stocks to invest in. 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.