SouthernSun Asset Management, LLC, an investment management firm, released its “SouthernSun SMID Cap Strategy” third quarter 2024 investor letter. A copy of the letter can be downloaded here. The third quarter of 2024 has reinforced the effectiveness of SouthernSun’s investment philosophy. In the third quarter, the strategy returned 8.98% on a gross basis (8.76% net) compared to an 8.75% return for the Russell 2500 Index and 9.63% for the Russell 2500 Value Index. The fund returned 23.93% on a gross basis (23.00% net) over the trailing 12 months compared to 26.17% and 26.59% returns for the indexes respectively over the same period. In addition, please check the top 5 holdings of the strategy to know its best pick in 2024.
SouthernSun SMID Cap Strategy highlighted stocks like Generac Holdings Inc. (NYSE:GNRC), in the third quarter 2024 investor letter. Generac Holdings Inc. (NYSE:GNRC) is a power generation equipment, energy storage systems, and other power product manufacturer and supplier. The one-month return of Generac Holdings Inc. (NYSE:GNRC) was -0.21%, and its shares gained 64.51% of their value over the last 52 weeks. On November 4, 2024, Generac Holdings Inc. (NYSE:GNRC) stock closed at $170.74 per share with a market capitalization of $10.159 billion.
SouthernSun SMID Cap Strategy stated the following regarding Generac Holdings Inc. (NYSE:GNRC) in its Q3 2024 investor letter:
“We initiated Generac Holdings Inc. (NYSE:GNRC) as a new position in the SMID Cap strategy. Generac is an excellent example of what we look for in our portfolio companies. We have been tracking Generac for many years and believe our patience has provided us with an attractive entry point. Generac designs and manufactures standby generators for residential and commercial markets, and they also offer energy technology solutions that allow users to better store and manage energy used in their home or business. Generac dominates that home standby generator market in the U.S. with greater than 80% market share, and they are a strong player in the commercial genset market, with particular strength in natural gas-powered generators. While the majority of their products are powered by internal combustion engines (ICEs), through strategic acquisitions and product development, management has positioned the company to be a strong player if and when the market moves away from ICEs to solar or other cleaner energy solutions. We believe that their strategy is sound: dominate the market with ICE based product today with high margin products that they can efficiently produce; but be ready for a potential shift with leading, clean energy and power management solutions for the future.
There are several long-term drivers in place which should provide meaningful growth opportunities for the generator industry. First, the demand for power on the grid continues to grow due to several factors: general economic growth, more companies bringing operations back to the U.S., adverse weather patterns and the significant demand coming from growth in AI and data centers. Forecasted growth in power consumption is far beyond estimates from just a few years ago, and in our opinion, the growth is likely to stress an under-invested electrical grid and utility infrastructure. That stress on the grid can lead to less reliability and more outages which, in turn, drives demand for backup power. In addition, this stress comes at a time when weather events and the power outages from storms seem to be growing in frequency and intensity…” (Click here to read the full text)
A technician in protective gear repairing a huge generator at a power plant.
Generac Holdings Inc. (NYSE:GNRC) is not on our list of 31 Most Popular Stocks Among Hedge Funds. As per our database, 35 hedge fund portfolios held Generac Holdings Inc. (NYSE:GNRC) at the end of the second quarter which was 33 in the previous quarter. Generac Holdings Inc. (NYSE:GNRC) overall net sales in the third quarter increased approximately 10% year-over-year to $1.2 billion. While we acknowledge the potential of Generac Holdings Inc. (NYSE:GNRC) 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 Generac Holdings Inc. (NYSE:GNRC) and shared the list of best hurricane and natural disaster stocks to buy. 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.