Baron Funds, an investment management company, released its fourth-quarter investor letter for the “Baron Health Care Fund”. A copy of the letter can be downloaded here. The fund rose 13.10% (Institutional Shares) in the quarter, compared to a 11.92% gain for the Russell 3000 Health Care Index (benchmark) and a 2.40% gain for the Russell 3000 Index (the Index). The Fund returned 10.28% for the full year, compared to 14.56% and 17.15% gains for the indexes, respectively. Strong stock selection in biotechnology contributed to the Fund’s relative gains in the quarter. The Fund seeks to invest in businesses with secular growth opportunities, a sustainable competitive edge, and strong management. The firm believes that healthcare is a strong sector in the U.S. economy, offering attractive investment opportunities with positive momentum heading into 2026. Please review the Fund’s top five holdings to gain insights into their key selections for 2025.
In its fourth-quarter 2025 investor letter, Baron Health Care Fund highlighted stocks like Elanco Animal Health Incorporated (NYSE:ELAN). Elanco Animal Health Incorporated (NYSE:ELAN) is a leading animal health company. On February 5, 2026, Elanco Animal Health Incorporated (NYSE:ELAN) stock closed at $24.31 per share. One-month return of Elanco Animal Health Incorporated (NYSE:ELAN) was 3.58%, and its shares gained 111.02% of their value over the last 52 weeks. Elanco Animal Health Incorporated (NYSE:ELAN) has a market capitalization of $12.079 billion.
Baron Health Care Fund stated the following regarding Elanco Animal Health Incorporated (NYSE:ELAN) in its fourth quarter 2025 investor letter:
“We bought shares of Elanco Animal Health Incorporated (NYSE:ELAN), which sells medicines used to prevent and treat diseases in pets (cats and dogs) and farm animals (cattle, poultry, swine, and sheep). We believe Elanco operates in an attractive industry with secular growth drivers, including greater pet ownership, increased spending on pets, higher consumption of animal protein, and more focus on food safety. We believe Elanco is at an inflection point and is well positioned for consistent mid-single-digit revenue growth, margin expansion, and double-digit EBITDA and EPS growth. Elanco’s innovation portfolio is accelerating and becoming a larger percentage of the company’s revenue mix which will drive growth and gross margin expansion. Management guidance calls for $840 million to $880 million innovation revenue in 2025 (18.5% of total revenue) and $1.1 billion in 2026 (over 22% of estimated revenue), up from $461 million in 2024 (10.6% of total revenue). Key innovation products include, among others: Credelio Quattro, a monthly chewable tablet for dogs that protects against fleas, ticks, heartworms, roundworms, hookworms, and three different species of tapeworms; Zenrelia, a medicine for atopic dermatitis in dogs; Befrena, a monoclonal antibody targeting IL-31 for allergic dermatitis and atopic dermatitis, expected to launch in the first half of 2026; Bovaer, a methane-reducing feed ingredient for use in lactating dairy cattle; and Experior, a product used in cattle to reduce ammonia gas emissions. Further, the company’s innovation pipeline consists of five to six additional products expected to be approved 2026-2031 with potential unadjusted peak sales of $2 billion. The innovation portfolio generates above corporate average gross margins and should drive gross margin expansion as these products become a bigger percentage of the overall mix. Management is targeting 200-350 bps of EBITDA margin expansion from 2025-2028. Management is targeting $1 billion of cumulative free cash flow 2026-2028 which the company will use to pay down debt and lower net debt to EBITDA from 3.7 times to 3.8 times at the end of 2025 to 2.0 to2.5 times at the end of 2028. We think management’s targets could be conservative and we see long term upside in the stock.”
Elanco Animal Health Incorporated (NYSE:ELAN) is not on our list of 30 Most Popular Stocks Among Hedge Funds. According to our database, 26 hedge fund portfolios held Elanco Animal Health Incorporated (NYSE:ELAN) at the end of the third quarter, up from 25 in the previous quarter. While we acknowledge the risk and potential of Elanco Animal Health Incorporated (NYSE:ELAN) 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 Elanco Animal Health Incorporated (NYSE:ELAN) and that has 10,000% upside potential, check out our report about this cheapest AI stock.
In another article, we covered Elanco Animal Health Incorporated (NYSE:ELAN) and shared Hardman Johnston Global Equity Strategy’s views on the company. In addition, please check out our hedge fund investor letters Q4 2025 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.
