Baron Funds, an investment management company, released its “Baron Small Cap Fund” third-quarter 2025 investor letter. A copy of the letter can be downloaded here. In the third quarter of 2025, the fund was up 0.54% (Institutional Shares) compared to the Russell 2000 Growth Index’s (the Index) 12.19% return. Year to date, the Fund is up 0.91% compared to the index’s 11.65% return. In addition, please check the fund’s top five holdings to know its best picks in 2025.
In its third-quarter 2025 investor letter, Baron Small Cap Fund highlighted stocks such as Novanta Inc. (NASDAQ:NOVT). Novanta Inc. (NASDAQ:NOVT) offers precision medicine and manufacturing, medical solutions, and robotics and automation solutions. The one-month return of Novanta Inc. (NASDAQ:NOVT) was 7.30%, and its shares lost 41.28% of their value over the last 52 weeks. On November 6, 2025, Novanta Inc. (NASDAQ:NOVT) stock closed at $107.26 per share, with a market capitalization of $3.837 billion.
Baron Small Cap Fund stated the following regarding Novanta Inc. (NASDAQ:NOVT) in its third quarter 2025 investor letter:
“This quarter, the Fund initiated a position in Novanta Inc. (NASDAQ:NOVT), a supplier of proprietary technology solutions and subsystems to medical and advanced industrial original equipment manufacturers. Novanta combines deep proprietary expertise (about 750 patents) and competencies in precision medicine, precision manufacturing, robotics and automation, and advanced surgery to solve complex technical challenges.
Novanta’s key products include lasers, beam steering devices, high-precision motors, drives, and controls, robotic sensors and end-of-arm tooling, medical insufflators and endoscopic pumps, and vision and radio frequency identification solutions sold in a variety of applications. Products are generally solely sourced during long design cycles in which Novanta acts as an extension of its customers’ R&D function, with very sticky revenue from designed-in positions spanning multiple years.
Since 2012, Novanta has grown its revenues at a 12% CAGR and its EBITDA at 14%. Yet, lackluster organic growth recently driven by supply chain and tariff uncertainty and post-COVID demand fluctuations in key end markets has pressured the stock, presenting us the opportunity to invest at what we believe is a cheap multiple for a high-quality, technology-oriented industrial company on the cusp of reaccelerating growth via new products in the medical and robotics space. Additionally, with a strong balance sheet and active pipeline for M&A, we believe the company can double its $1 billion in revenue over the coming five years, with earnings growing faster driven by a continuous improvement culture driving 1% gross margin expansion annually, operating leverage over time, and strong free cash flow conversion.”
Novanta Inc. (NASDAQ:NOVT) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 27 hedge fund portfolios held Novanta Inc. (NASDAQ:NOVT) at the end of the second quarter, which was 31 in the previous quarter. Novanta Inc.’s (NASDAQ:NOVT) revenue reached $248 million in the third quarter of 2025, reflecting a reported growth of plus 1%. While we acknowledge the risk and potential of Novanta Inc. (NASDAQ:NOVT) 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 Novanta Inc. (NASDAQ:NOVT) and that has 10,000% upside potential, check out our report about this cheapest AI stock.
In another article, we covered Novanta Inc. (NASDAQ:NOVT) and shared Conestoga Capital Advisors’ views on the company. In addition, please check out our hedge fund investor letters Q3 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.
