SouthernSun Asset Management, LLC, an investment management firm, released its “SouthernSun Smid Cap Strategy” second-quarter 2026 investor letter. A copy of the letter can be downloaded here. The second quarter of 2026 was influenced by the AI boom and the Iran War, impacting interest rates and consumer sentiment. Portfolio companies linked to high-value consumer purchases faced pressure but still aligned with positive earnings and trends. The SMID Cap Composite returned +12.47% gross (+12.28% net), underperforming the Russell 2500® and Russell 2500® Value, which returned 20.26% and 18.50% respectively. YTD, the composite returned 23.29% on a gross basis (22.44% net) versus 36.72% and 38.54% for the indexes, respectively. Despite overall market volatility, robust fundamentals were reported, particularly among AI-tied sectors. An underweight in speculative growth caused underperformance relative to the index in Q2, although exposure to the AI data center sector was maintained while profits were taken from AI investments. In addition, please check the Strategy’s top five holdings to know its best picks in 2026.
In its Q2 2026 investor letter, SouthernSun Smid Cap Strategy highlighted Generac Holdings Inc. (NYSE:GNRC). Generac Holdings Inc. (NYSE:GNRC) is a leading energy technology manufacturer, offering residential automatic standby generators, automatic transfer switch, air-cooled engine home standby generators, and liquid-cooled engine generators. On July 23, 2026, Generac Holdings Inc. (NYSE:GNRC) closed at $210.50 per share, reflecting a market capitalization of $12.39 billion. Generac Holdings Inc. (NYSE:GNRC) posted a one-month return of -24.45%, while its shares gained 34.11% over the past 52 weeks.
SouthernSun Small Cap Strategy stated the following regarding Generac Holdings Inc. (NYSE:GNRC) in its Q2 2026 investor update:
“Generac Holdings Inc. (NYSE:GNRC) was a top contributor in the SMID Cap strategy during the second quarter, reporting first quarter 2026 results that significantly exceeded expectations. Net sales increased 12% year-over-year to $1.06 billion, and adjusted diluted EPS of $1.80 surpassed the consensus estimate of $1.35 by more than 30%, representing a 43% increase over the prior-year period. The primary driver of upside was the Commercial & Industrial segment, where net sales grew 28% to $510.1 million, driven by shipments to the company’s domestic industrial distributor and rental channels, and increased controls solutions sales to the global power generation market. Separately, management noted it is in the final stages of vendor qualification with several hyperscale customers and is seeing backlog expansion for these products, pointing to further data center-driven upside in future quarters. Residential segment net sales were roughly stable at $552.2 million, consistent with management’s expectation of a modest recovery in the home standby market following an extended period of channel inventory normalization. Adjusted EBITDA margin expanded to 18.3%, and management raised its full year 2026 net sales growth outlook to the mid-to-high teens percent range — above the prior guidance of mid-teens — and increased its adjusted EBITDA margin guidance to 18.5%–19.5%. The company also completed its acquisition of Enercon Services during the quarter, deepening vertical integration in large megawatt backup power solutions for the data center market. In our opinion, the share price appreciation during the quarter reflected growing investor conviction that the data center opportunity represents a durable, multi-year growth driver for Generac, complementing the anticipated recovery in the residential market as outage activity normalizes. We believe the combination of C&I momentum, improving residential fundamentals, and expanding margin profile positions the company for a meaningful earnings inflection over the next several years.”
Generac Holdings Inc. (NYSE:GNRC) is not on our list of 40 Most Popular Stocks Among Hedge Funds Heading Into 2026. According to our database, 66 hedge fund portfolios held Generac Holdings Inc. (NYSE:GNRC) at the end of the first quarter, up from 56 in the previous quarter. While we acknowledge the risk and potential of Generac Holdings Inc. (NYSE:GNRC) as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than Generac Holdings Inc. (NYSE:GNRC) and that has 10,000% upside potential, check out our report about this cheapest AI stock.
In another article, we covered Generac Holdings Inc. (NYSE:GNRC) and shared Brown Advisory Large-Cap Growth Strategy’s views on the company. In addition, please check out our hedge fund investor letters Q2 2026 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.
