Headwaters Capital Management, an investment management company, released its fourth-quarter 2022 investor letter. A copy of the same can be downloaded here. The portfolio gained 7.2% (gross) in the fourth quarter compared to a 9.2% return for the Russell Mid Cap Index. In addition, you can check the top 5 holdings of the fund to know its best picks in 2022.
Headwaters Capital highlighted stocks like Inotiv, Inc. (NASDAQ:NOTV) in the Q4 2022 investor letter. Based in West Lafayette, Indiana, Inotiv, Inc. (NASDAQ:NOTV) is a drug discovery and development services provider that operates through Contract Research Services and Research Products segments. On February 21, 2023, Inotiv, Inc. (NASDAQ:NOTV) stock closed at $7.07 per share. One-month return of Inotiv, Inc. (NASDAQ:NOTV) was 3.67%, and its shares lost 68.81% of their value over the last 52 weeks. Inotiv, Inc. (NASDAQ:NOTV) has a market capitalization of $181.213 million.
Headwaters Capital made the following comment about Inotiv, Inc. (NASDAQ:NOTV) in its Q4 2022 investor letter:
“Top Detractor: Inotiv, Inc. (NASDAQ:NOTV) -57%. All of the quarterly underperformance of the portfolio was caused by the decline in NOTV’s stock price (-230bps performance drag). NOTV was the victim of alleged fraudulent activities by one of its key suppliers during the quarter. A DOJ investigation into illegal smuggling by this supplier caused a critical supply interruption, tied up significant working capital while the matter is being investigated and, most importantly, created significant uncertainty into the outlook for NOTV’s research models business. As a reminder, the core thesis for the NOTV investment was that the vertical integration of the research models business would support healthy revenue growth in its discovery and safety assessment business, thus creating a competitively advantaged CRO. Selling a stock down 57% is difficult, however the range of outcomes for the business is highly uncertain today given the DOJ investigation and elevated leverage caused by this supply disruption.
I would like to emphasize that I believe the company was truly a victim (the company is not under DOJ investigation, only the supplier) in this matter as they believe they were provided fraudulent documents related to these imports. Furthermore, management accepted a large equity grant as compensation in early 2022 and actively bought stock throughout the year, implying that they were likely unaware of any fraud and believed that the outlook for the business was positive. Nonetheless, I’m disappointed that management did not perform better due diligence on this acquisition.”
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Inotiv, Inc. (NASDAQ:NOTV) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 11 hedge fund portfolios held Inotiv, Inc. (NASDAQ:NOTV) at the end of the fourth quarter which was 18 in the previous quarter.
We discussed Inotiv, Inc. (NASDAQ:NOTV) in another article and shared Headwaters Capital Management’s views on the company in the previous quarter. In addition, please check out our hedge fund investor letters Q4 2022 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.