Baron Capital, an investment management company, released its Q1 2026 investor letter for the “Baron Discovery Fund”. A copy of the letter can be downloaded here. It was a difficult quarter for Baron Discovery Fund, both on an absolute and relative basis. The Fund declined 10.65% (Institutional Shares) in the quarter, compared to the Russell 2000 Growth Index’s return of -2.81%. The underperformance of 7.88% was primarily attributed to sectors such as Information Technology, Consumer Discretionary, Health Care, and Industrials, along with a lack of exposure to Energy. The Fund sees the current SaaS-pocalypse as an opportunity to invest in compelling prospects among software companies that possess robust and sustainable competitive advantages. In addition, please check the Fund’s top five holdings to know its best picks in 2026.
In its first-quarter 2026 investor letter, Baron Discovery Fund highlighted stocks like Enpro Inc. (NYSE:NPO). Enpro Inc. (NYSE:NPO) is an industrial technology company that designs and develops proprietary, value-added products and solutions to safeguard critical environments. On May 7, 2026, Enpro Inc. (NYSE:NPO) closed at $300.76 per share. One-month return of Enpro Inc. (NYSE:NPO) was 8.16%, and its shares gained 72.44% over the past 52 weeks. Enpro Inc. (NYSE:NPO) has a market capitalization of $6.35 billion.
Baron Discovery Fund stated the following regarding Enpro Inc. (NYSE:NPO) in its Q1 2026 investor letter:
“Enpro Inc. (NYSE:NPO) is a diversified industrial technology company whose proprietary, value add products and solutions provide critical functionality and protection across a wide range of demanding environments. Today, more than half of revenue is generated from recurring, high margin aftermarket applications, and a similar proportion is exposed to structurally higher growth end markets. Enpro’s Sealing Technologies segment designs, engineers, and manufactures metallic seals, soft gaskets, wheel end products, and gas analyzers and sensors serving general industrial, commercial vehicle, power generation, food and pharmaceutical, aerospace, and petrochemical markets, supported by strong brands such as Garlock, which is widely regarded as the “Kleenex” of its category. The Advanced Surface Technologies (AST) segment is focused on the semiconductor market and provides precision manufacturing, cleaning, refurbishment, and coating services to leading wafer fabrication equipment original equipment manufacturers and foundries, with a particular emphasis on leading edge production.
We believe Enpro can deliver mid to high single-digit organic revenue growth over time, with EBITDA margins expanding into the high 20% range from the low to mid 20% range today, supported by contributions from both segments. Sealing Technologies should continue to achieve above GDP organic growth driven by strong pricing power and ongoing investment in innovation and attractive growth markets. AST is positioned to benefit from a multi year secular growth opportunity driven by increasing leading-edge semiconductor spending and a rising U.S. share of global manufacturing, particularly supported by AI driven demand in the near term. We also expect the company to continue deploying its strong free cash flow toward highly complementary acquisitions, leveraging its operational excellence capabilities to drive value creation. As Enpro continues to scale and margins improve, we believe the business will warrant a more premium valuation, supporting further upside over time.”
Enpro Inc. (NYSE:NPO) is not on our list of 40 Most Popular Stocks Among Hedge Funds Heading Into 2026. According to our database, 22 hedge fund portfolios held Enpro Inc. (NYSE:NPO) at the end of the fourth quarter, up from 18 in the previous quarter. In Q1 2026, Enpro Inc. (NYSE:NPO) generated sales of $303 million, an increase of nearly 11% year-over-year, supported by strong year-on-year revenue growth at AST. While we acknowledge the risk and potential of Enpro Inc. (NYSE:NPO) 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 Enpro Inc. (NYSE:NPO) and that has 10,000% upside potential, check out our report about this cheapest AI stock.
In Q1 2026, Conestoga Capital Advisors also initiated a position in Enpro Inc. (NYSE:NPO), expecting continued earnings growth driven by its higher-growth and higher-margin segments. 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.
