Conestoga Capital Advisors, an asset management company, released its first-quarter 2026 investor letter. A copy of the letter is available to download here. The first quarter of 2026 started with optimism about the domestic economy and attractive small-cap valuations, but it was affected by volatility due to geopolitical unrest in the Middle East and shifting expectations regarding interest rates. This unrest drove up energy prices and created a cautious global market. Energy, Basic Materials, and Industrials performed well, while software companies faced challenges due to AI disruption concerns. Market sensitivity to geopolitical events, energy prices, and inflation remains high. The Conestoga Smid Cap Composite fell 10.24% net-of-fees, underperforming the Russell 2500 Growth Index’s -3.52% return. The decline was driven by negative stock selection and sector/industry-specific headwinds, notably within Technology, Industrials, and Health Care sectors. In addition, please check the Strategy’s top five holdings to know its best picks in 2026.
In its first-quarter 2026 investor letter, Conestoga Capital Advisors highlighted Watsco, Inc. (NYSE:WSO) as a leading contributor. Headquartered in Miami, Florida, Watsco, Inc. (NYSE:WSO) is a leading distributor of air conditioning, heating, and refrigeration equipment, and related parts and supplies. On May 5, 2026, Watsco, Inc. (NYSE:WSO) closed at $420.68 per share. One-month return of Watsco, Inc. (NYSE:WSO) was 10.35%, and its shares lost 8.17% over the past 52 weeks. Watsco, Inc. (NYSE:WSO) has a market capitalization of $17.10 billion.
Conestoga Capital Advisors stated the following regarding Watsco, Inc. (NYSE:WSO) in its Q1 2026 investor letter:
“Watsco, Inc. (NYSE:WSO) is a leading distributor of HVAC equipment and parts in North America. Shares outperformed despite a challenging demand environment, as investors focused on margin resilience, strong cash flow, and a more normal demand environment in 2026. The HVAC industry went through a significant refrigerant transition in 2025 which resulted in a destocking phenomenon in 2026. This was exacerbated by a consumer preference to repair instead of replace with the more expensive new equipment.”
Watsco, Inc. (NYSE:WSO) is not on our list of 40 Most Popular Stocks Among Hedge Funds Heading Into 2026. According to our database, 38 hedge fund portfolios held Watsco, Inc. (NYSE:WSO) at the end of the fourth quarter, up from 34 in the previous quarter. While we acknowledge the risk and potential of Watsco, Inc. (NYSE:WSO) 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 Watsco, Inc. (NYSE:WSO) and that has 10,000% upside potential, check out our report about this cheapest AI stock.
In another article, we covered Watsco, Inc. (NYSE:WSO) and shared the list of safest stocks with highest dividends. In addition, please check out our hedge fund investor letters Q1 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.
