What Makes UL Solutions (ULS) a Compelling Investment Opportunity?

Brown Brothers Harriman & Co., a global financial services firm, released its “The BBH Select Series – Mid Cap Fund” first quarter investor letter. A copy of the same can be downloaded here. The fund fell -6.0% in the first quarter on a total return basis, while the Russell Midcap Index decreased -3.4%. The fund generated an average annual total return of 3.1% since its inception on May 24, 2021, compared to the index’s 4.1% return. Given the increased policy uncertainty and market volatility, many of the firm’s management teams issued cautious 2025 guidance. For more information on the fund’s best picks in 2025, please check its top five holdings.

In its first-quarter 2025 investor letter, The BBH Select Series – Mid Cap Fund highlighted stocks such as UL Solutions Inc. (NYSE:ULS). UL Solutions Inc. (NYSE:ULS) is a testing and certification company that offers testing, inspection, and certification, and related software and advisory services. The one-month return of UL Solutions Inc. (NYSE:ULS) was 0.70%, and its shares gained 77.96% of their value over the last 52 weeks. On June 24, 2025, UL Solutions Inc. (NYSE:ULS) stock closed at $72.91 per share, with a market capitalization of $14.618 billion.

The BBH Select Series – Mid Cap Fund stated the following regarding UL Solutions Inc. (NYSE:ULS) in its Q1 2025 investor letter:

“We initiated two new positions in the first quarter in UL Solutions Inc. (NYSE:ULS) and Keysight Technologies Inc. (Keysight). ULS is a leading testing, inspection, and certification (TIC) company verifying that new and existing products meet global safety standards. ULS serves 80,000 customers including 60% of the Fortune 500 from 91 lab locations across the world as the exclusive provider of the UL mark, often prominently displayed on product packaging verifying that those products have met the applicable UL standard, of which there are over 4,000 globally.

The company works with regional regulatory bodies to codify new safety standards, which makes certification testing an essential requirement for ULS’ customers. This has translated to 99% customer retention, annual price increases, and extremely consistent revenue growth. With a well-established and consistent base of business, ULS is positioned to grow mid to high single digits from their customers’ new product introductions, expansion into growing categories like batteries and electrification, and regular price increases.

CEO Jennifer Scanlon joined in 2019 with the mandate to drive best-in-class financial performance leading up to the company’s 2024 initial public offering. While management has already delivered good margin improvement over their tenure (currently 49% gross margin and 17% operating margin), they expect to realize further margin gains as they optimize their lab footprint and leverage operating costs. ULS will also benefit if their customers adjust global manufacturing and supply chains in response to tariffs, as new facilities or new component providers necessitate re-certification of existing products.”

A technician testing the mechanical locksets in a laboratory to ensure safety and reliability.

UL Solutions Inc. (NYSE:ULS) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 23 hedge fund portfolios held UL Solutions Inc. (NYSE:ULS) at the end of the first quarter, which was 36 in the previous quarter. While we acknowledge the potential of UL Solutions Inc. (NYSE:ULS) 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 undervalued AI stock set for massive gains.

In addition, please check out our hedge fund investor letters Q1 2025 page for more investor letters from hedge funds and other leading investors. While we acknowledge the potential of ULS as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you’re looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.