Madison Investments, an investment advisor, released its “Madison Small Cap Fund” second-quarter 2024 investor letter. A copy of the letter can be downloaded here. In the second quarter, the fund declined 1.06% outperforming a 3.28% decline for the Russell 2000 Index and a 4.27% decline for the Russell 2500 Index. In the second quarter, the small-cap market was weak. Strong stock selection drove the outperformance. In addition, you can check the fund’s top 5 holdings to know its best picks in 2024.
Madison Small Cap Fund highlighted stocks like LegalZoom.com, Inc. (NASDAQ:LZ) in its Q2 2024 investor letter. LegalZoom.com, Inc. (NASDAQ:LZ) is an online platform that supports the legal, compliance, and business management needs of small businesses, and consumers. The one-month return of LegalZoom.com, Inc. (NASDAQ:LZ) was -21.80%, and its shares lost 53.91% of their value over the last 52 weeks. On July 19, 2024, LegalZoom.com, Inc. (NASDAQ:LZ) stock closed at $6.42 per share with a market capitalization of $1.208 billion.
Madison Small Cap Fund stated the following regarding LegalZoom.com, Inc. (NASDAQ:LZ) in its Q2 2024 investor letter:
“Our worst performing sectors for the quarter were Industrials and Materials, both very cyclically sensitive areas. During the second quarter, several bellwether industrial companies reported disappointing results driven by macroeconomic weakness. The Industrial sector has seen some of the strongest fundamentals since the COVID lows as distributors built buffer inventory stock during the days of tight supply chains and strong stimulus demand. And so we were not surprised to see a natural slowdown after several years of growth. However, we are uncertain regarding the magnitude and duration and are watching fundamentals closely. Our worst performing stocks here were LegalZoom.com, Inc. (NASDAQ:LZ), Summit Materials, and WillScot Mobile Mini.
Legal Zoom (LZ) delivered a challenging first quarter result. During the earnings conference call, management openly discussed losing market share in the all-important first quarter, which has historically been the seasonally strongest quarter for new business formations – the locomotive of LZ’s business. This is troubling for several reasons. Our thesis has been that LZ solutions offer automation for new business formation with arguably the easiest, most comprehensive, and cost-effective solution, competitively speaking. New business formations historically have grown at a 5% compound annual growth rate (CAGR) and growth above that must come from market share gains. So, losing market share is quite possibly a thesis breaker, which is why we have not opportunistically added to this investment. So, why are we holding on? Legal Zoom has a debt free, cash rich balance sheet. Following the poor results and stock sell off, the board announced a material expansion of their stock buyback program, a signal, we believe, in their confidence regarding the long-term opportunity for the company. Furthermore, there were several company specific reasons why the company viewed the share losses as temporary. Most importantly, a deliberate pullback in marketing spending as they reorganized and streamlined their salesforce. Although this investment is on a short leash, if the company can display share stability in the next few quarters, we would consider adding to our position. Legal Zoom is quite profitable, with solid operating margins and, we believe, a very attractively valued stock.”
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LegalZoom.com, Inc. (NASDAQ:LZ) is not on our list of 31 Most Popular Stocks Among Hedge Funds. As per our database, 24 hedge fund portfolios held LegalZoom.com, Inc. (NASDAQ:LZ) at the end of the first quarter which was 26 in the previous quarter. The first quarter revenue of LegalZoom.com, Inc. (NASDAQ:LZ) was $174 million, up 5% year over year (see the details here). While we acknowledge the potential of LegalZoom.com, Inc. (NASDAQ:LZ) 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 LegalZoom.com, Inc. (NASDAQ:LZ) and shared the list of biggest gig economy companies in the world. Madison Small Cap Fund added LegalZoom.com, Inc. (NASDAQ:LZ) to its portfolio in the fourth quarter of 2023. 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.
