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 IDEX Corporation (NYSE:IEX) in its Q3 2024 investor letter. IDEX Corporation (NYSE:IEX) is a global provider of applied solutions. The one-month return of IDEX Corporation (NYSE:IEX) was 5.08%, and its shares gained 14.31% of their value over the last 52 weeks. On November 4, 2024, IDEX Corporation (NYSE:IEX) stock closed at $219.00 per share with a market capitalization of $16.583 billion.
SouthernSun SMID Cap Strategy stated the following regarding IDEX Corporation (NYSE:IEX) in its Q3 2024 investor letter:
“We exited IDEX Corporation (NYSE:IEX) in the third quarter due to higher return opportunities elsewhere. We first purchased IDEX in 1996 at $11.65 per share, when the market cap was $769 million and the business was trading ~9x EBITDA. At the time, IDEX was composed of a handful of subsidiaries that designed and manufactured industrial pumps and other niche industrial products such as clamps and vibration dampers. Throughout our holding period, management consistently acquired high quality, niche industrial businesses, maintaining returns on capital in the mid to high teens. As the quality of the business and management team became recognized in the market, the valuation expanded to ~20x EBITDA. The stock currently trades ~$200/share (~$16 billion mkt cap), or roughly 17x our initial purchase price. Although we continue to believe IDEX is a well-managed collection of niche industrial businesses, we believe that continuing to generate high returns on acquisitions will be more difficult going forward due to higher valuations typically demanded for larger businesses. The increased difficulty of generating high returns on larger M&A, coupled with IDEX’s premium valuation, made IDEX less attractive than other investment opportunities. We will continue to follow the business and could own it again if the price becomes attractive.”
A worker in a laboratory coat checking a Positive Displacement Pump.
IDEX Corporation (NYSE:IEX) is not on our list of 31 Most Popular Stocks Among Hedge Funds. As per our database, 33 hedge fund portfolios held IDEX Corporation (NYSE:IEX) at the end of the second quarter which was 25 in the previous quarter. IDEX Corporation’s (NYSE:IEX) sales for the third quarter were $798 million, reflecting a 1% increase compared to the previous year, though remaining flat organically. While we acknowledge the potential of IDEX Corporation (NYSE:IEX) 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 IDEX Corporation (NYSE:IEX) and shared Weitz Investment Management’s views on the company in the previous quarter. In addition, please check out our hedge fund investor letters Q3 2024 page for more investor letters from hedge funds and other leading investors.
READ NEXT: Michael Burry Is Selling These Stocks and A New Dawn Is Coming to US Stocks.
Disclosure: None. This article is originally published at Insider Monkey.