Should You Expect Upside Potential in Donaldson Company (DCI)?

Heartland Advisors, an investment management company, released its “Heartland Opportunistic Value Equity Strategy” first quarter 2025 investor letter. A copy of the letter can be downloaded here. The strategy returned 0.90% (net of bundled fees) in the quarter, compared to a 1.64% return for the Russell 3000® Value Index. Stock selection varied during the quarter, exhibiting a positive selection effect in 5 out of 11 sectors, primarily driven by Utilities and Information Technology. In addition, you can check the fund’s top 5 holdings to determine its best picks for 2025.

In its first-quarter 2025 investor letter, Heartland Opportunistic Value Equity Strategy highlighted stocks such as Donaldson Company, Inc. (NYSE:DCI). Headquartered in Bloomington, Minnesota, Donaldson Company, Inc. (NYSE:DCI) manufactures and sells filtration systems and replacement parts. The one-month return of Donaldson Company, Inc. (NYSE:DCI) was 3.34%, and its shares lost 10.93% of their value over the last 52 weeks. On May 7, 2025, Donaldson Company, Inc. (NYSE:DCI) stock closed at $66.15 per share with a market capitalization of $7.906 billion.

Heartland Opportunistic Value Equity Strategy stated the following regarding Donaldson Company, Inc. (NYSE:DCI) in its Q1 2025 investor letter:

Industrials: During the quarter, we initiated a new position in Donaldson Company, Inc. (NYSE:DCI), a leading manufacturer of industrial filtration systems. Filtration is a “razor & razorblade” business model, with margins significantly lower on first-fit original equipment and higher on the annuity-like revenue stream from aftermarket sales. Thanks to Donaldson’s long history of operating in niche markets, its business skews around 65% aftermarket and 35% first fit, providing a more stable revenue profile than traditional Industrial machinery suppliers.

While DCI has historically traded at a premium to its Industrial machinery peers, because of its stable and more profitable revenues streams, the stock recently faced multiple compression due to margin headwinds created by the company’s investments in the life science industry. The life science portion of the business accounts for less than 10% of revenues yet Donaldson reported an operating loss in the segment due to new product development spend that is immediately expensed through the income statement…” (Click here to read the full text)

Donaldson Company, Inc. (NYSE:DCI) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 26 hedge fund portfolios held Donaldson Company, Inc. (NYSE:DCI) at the end of the fourth quarter, compared to 29 in the third quarter. Donaldson Company, Inc. (NYSE:DCI) reported sales of $870 million in the second quarter of fiscal 2025, down 1% year-over-year. While we acknowledge the potential of Donaldson Company, Inc. (NYSE:DCI) 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 covered Donaldson Company, Inc. (NYSE:DCI) and shared the list of best mid-cap dividend aristocrat stocks. In addition, please check out our hedge fund investor letters Q1 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.