Will Watsco (WSO) Benefit from Technology Investments?

Heartland Advisors, an investment management company, released its “Heartland Opportunistic Value Equity Strategy” fourth-quarter 2025 investor letter. A copy of the letter can be downloaded here. Large- and mega-cap stocks posted another quarter of outperformance in Q4, despite a brief broad-based performance across market caps. The Russell 2000® Index of small stocks returned 2.19% in the quarter, lagging the 2.66% gain for the S&P 500. The market remains uncertain on the definitive long-term winners from the proliferation of AI. To navigate economic uncertainty, the strategy adheres to its 10 Principles of Value Investing by focusing on attractively priced, financially sound, and well-managed businesses that can grow intrinsic value. The Strategy returned 0.79% during the quarter, trailing the Russell 3000® Value Index’s 3.78% return. The Strategy remains optimistic about the market’s expansion and opportunities for growth. However, the recent volatility in AI trends highlights the need to evaluate multiple outcomes. Please review the Strategy’s top five holdings to gain insights into their key selections for 2025.

In its fourth-quarter 2025 investor letter, Heartland Opportunistic Value Equity Strategy highlighted stocks like Watsco, Inc. (NYSE:WSO). Watsco, Inc. (NYSE:WSO) is a leading distributor of air conditioning, heating, and refrigeration equipment, and related parts and supplies serving clients across the United States, Canada, Latin America, and the Caribbean. On March 24, 2026, Watsco, Inc. (NYSE:WSO) stock closed at $363.47 per share. One-month return of Watsco, Inc. (NYSE:WSO) was -10.87%, and its shares lost 29.17% over the past 52 weeks. Watsco, Inc. (NYSE:WSO) has a market capitalization of $14.78 billion.

Heartland Opportunistic Value Equity Strategy stated the following regarding Watsco, Inc. (NYSE:WSO) in its fourth quarter 2025 investor letter:

“A multi-year holding that has struggled recently is Watsco, Inc. (NYSE:WSO), the largest wholesale distributor of HVAC and refrigeration equipment in the Unites States. The company is run by father-son duo Albert (Al) and AJ Nahmad. In 1973, Al acquired a controlling stake in the company when it was a small components manufacturer. He soon pivoted the company’s strategy to distribution, and he has built a holding company that focuses on capital allocation and on building technology infrastructure that can be leveraged by their independently run business units and by the company’s HVAC contractor customers. A demand lull caused by declining new home construction activity, the weakening financial health of consumers, and the fact that demand had been pulled forward the prior year ahead of known price increases drove the stock down more than a third since February.

Why are we still attracted to this business? For starters, around 85% of its revenues are tied to the replacement of HVAC systems and components, where demand is driven by equipment failure, regardless of where we are in the economic cycle. In addition, HVAC original equipment manufacturing is a highly consolidated industry, and government efficiency standards continue to add costs to the hardware that WSO sells. This creates a backdrop where Watsco benefits from inflation in products sold. Meanwhile, its capital-light business model, where capex accounts for only around 0.5% of sales, helps to ensure that inflation won’t chip away at cash flow available for shareholder returns or growth investments.”

In addition, please check out our hedge fund investor letters Q4 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.