Baron Funds, an investment management company, released its “Baron Health Care Fund” first quarter 2025 investor letter. A copy of the letter can be downloaded here. The fund returned 2.54% (Institutional Shares) in the quarter compared to a 3.87% gain for the Russell 3000 Health Care Index (benchmark) and a 4.72% decline for the Russell 3000 Index (the Index). The fund trailed the benchmark due to stock selection and, to a lesser extent, active sub-industry weights. In addition, please check the fund’s top five holdings to know its best picks in 2025.
In its first-quarter 2025 investor letter, Baron Health Care Fund highlighted stocks such as Waters Corporation (NYSE:WAT). Headquartered in Milford, Massachusetts, Waters Corporation (NYSE:WAT) is a specialty measurement company that provides analytical workflow solutions that operate through the Waters and TA segments. The one-month return of Waters Corporation (NYSE:WAT) was 3.08%, and its shares lost 1.49% of their value over the last 52 weeks. On May 9, 2025, Waters Corporation (NYSE:WAT) stock closed at $344.06 per share with a market capitalization of $20.47 billion.
Baron Health Care Fund stated the following regarding Waters Corporation (NYSE:WAT) in its Q1 2025 investor letter:
“We initiated a position in Waters Corporation (NYSE:WAT), a leading provider of analytical instruments and consumables for high volume, regulated applications, including biopharmaceutical quality control, late-stage drug development, food and environmental safety, chemical analysis and materials testing. Waters has a particularly strong market position in biopharmaceutical quality control where its liquid chromatography instruments are used along with its proprietary column chemistry to efficiently separate contaminants from the drug mixture for analysis. This is coupled with their Empower software, which is a one-stop platform compatible for readout across multiple analyzer types, such as mass spectrometry, UV spectroscopy, and multi-angle light scattering. Empower takes all this information and pipes it to regulators with robust data integrity and audit trail. Currently, around 80% of novel drugs filed with regulators use this software, providing a competitive advantage. Moreover, the company’s products are specified in the regulatory approval process, making them very sticky.
Historically, Waters’ revenue has grown in the mid-single digits annually. Going forward, Waters has several idiosyncratic growth drivers which could boost growth above the historic rate: India generics (driven by a larger number of blockbuster drugs going off patent over the next five years), GLP-1 testing (driven by explosive growth in the anti-obesity drug category over the coming decade), biologics (driven by growth in large molecule testing), and PFAS testing (driven by new regulations banning forever chemicals). In addition, management seeks to capture greater price contributions versus historic rates. On top of this, Waters should benefit from a replacement cycle in its instrument business over the next two to four years. Based on these growth drivers, revenue growth could accelerate to the high single digits to low double digits in the coming years. At a recent Investor Day, management established a goal to achieve 400 basis points of operating margin expansion over the next five years, from the company’s industry leading 31% operating margin in 2024 to 35% in 2030. With its strong free cash flow generation, Waters can redeploy capital into M&A and share repurchases to drive solid double-digit annual earnings per share growth.”
A technician in a lab coat monitoring a chromatography machine.
Waters Corporation (NYSE:WAT) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 32 hedge fund portfolios held Waters Corporation (NYSE:WAT) at the end of the fourth quarter which was 26 in the previous quarter. Waters Corporation (NYSE:WAT) reported sales of $662 million, an increase of 4% on a reported basis and 7% in constant currency. While we acknowledge the potential of Waters Corporation (NYSE:WAT) 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 Waters Corporation (NYSE:WAT) and shared the list of best scientific instruments stocks to buy. In addition, please check out our hedge fund investor letters Q1 2025 page for more investor letters from hedge funds and other leading investors.
READ NEXT: Michael Burry Is Selling These Stocks and A New Dawn Is Coming to US Stocks.
Disclosure: None. This article is originally published at Insider Monkey.
