Baron Funds, an investment management company, released its “Baron Discovery Fund” third quarter 2022 investor letter. A copy of the same can be downloaded here. Compared to the Russell 2000 Growth Index benchmark, which was slightly positive, the fund (institutional shares) was flat in the third quarter. In addition, please check the fund’s top five holdings to know its best picks in 2022.
In the third-quarter letter, Baron Funds discussed stocks like Mercury Systems, Inc. (NASDAQ:MRCY). Headquartered in Andover, Massachusetts, Mercury Systems, Inc. (NASDAQ:MRCY) is a technology company that operates for aerospace and defense industries. On October 28, 2022, Mercury Systems, Inc. (NASDAQ:MRCY) stock closed at $49.12 per share. One-month return of Mercury Systems, Inc. (NASDAQ:MRCY) was 15.99% and its shares lost 4.70% of their value over the last 52 weeks. Mercury Systems, Inc. (NASDAQ:MRCY) has a market capitalization of $2.838 billion.
Baron Funds made the following comment about Mercury Systems, Inc. (NASDAQ:MRCY) in its Q3 2022 investor letter:
“Shares of Mercury Systems, Inc. (NASDAQ:MRCY), the leading U.S. Tier 2 defense electronics integrator, declined in the third quarter. The company reported June results that were below consensus and gave forward guidance for its 2023 fiscal year (ending June 30, 2023) that were below consensus. Similar to nearly every other company in the defense industry, the misses were due to inflation, delays in the government defense budget (which caused delays in award timelines), supply-chain issues (including failure of delivery by suppliers), and labor issues resulting from the pandemic. The positive is that demand remains very strong. Mercury is involved in all key priorities of the current U.S. defense strategy including electronic warfare, radar, missile defense, and carrier defense. This is reflected in backlog at the end of fiscal 2022 that already constitutes two-thirds of expected fiscal 2023 sales. Historically, Mercury has grown organically at around 10% to 15% per year. In fiscal year 2022, organic growth declined by 5% and we expect it to be flat in fiscal year 2023. As the issues from fiscal year 2022 resolve through the course of 2023, we model organic growth of around 6%, supplemented by small acquisitions. At this pace, Mercury is trading at only 7 times our calendar 2027 cash flow, and at 14 times calendarized 2023 cash flow (a fair current multiple given the recent headwinds). We did reduce the position a bit during the quarter as we felt it was too large given current market conditions. Nevertheless, we expect significant share accretion over the long term, and maintain a relatively full-sized investment in the company.”
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Mercury Systems, Inc. (NASDAQ:MRCY) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 19 hedge fund portfolios held Mercury Systems, Inc. (NASDAQ:MRCY) at the end of the second quarter which was 17 in the previous quarter.
We discussed Mercury Systems, Inc. (NASDAQ:MRCY) in another article and shared Baron Funds’ views on the company. In addition, please check out our hedge fund investor letters Q3 2022 page for more investor letters from hedge funds and other leading investors.
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