We had a strong quarter, but did not keep pace with the 10% surge in the Russell 2000® Value Index. We are encouraged by the indications of life in value stocks, as markets have broadened beyond the Magnificent Seven. If this trend continues, we are confident that our stocks will have their day in the sun.

We typically find ourselves positioned opposite the green side of the environmental spectrum. This is not a philosophical choice, but an investment one, driven by our strategy. Our investment strategy is in part influenced by behavioral biases, and these are more likely to be found in sectors which are perceived to have negative long-term prospects, such as fossil fuels. Current holdings in this space include CNX Resources and Vitesse Energy.

What is unusual is that we have recently purchased several companies that are environmentally friendly. Hudson Technologies is a processor and distributor of recycled commercial refrigerants, designed to substitute for now restricted versions of fluorocarbons. Short-term inventory and import problems have caused a nearly 50% drop in the stock price from early 2024 highs and triggered a company buyback announcement. A second recent purchase is Shoals Technologies, a domestic manufacturer of wiring packages for utility and commercial scale solar installations. Delays in the permitting process have caused earnings to fall below expectations, and the near-term outlook is questionable, leading to a 75%+ drop from its 2023 high.

In addition to the normal execution risk, both of these companies have exposure to potential regulatory changes. However, given current environmental mandates, the long-term fundamental outlook is clearly positive. We attribute the current stock price disconnects to short-term uncertainty on the path to this favorable outlook. For example, Shoals stock reacted negatively when the company gave glowing 2027 guidance at an investor day, but was unwilling to forecast 2025 numbers. While new purchases generally take some time to work through their short-term problems, pricing inefficiencies tend to be resolved over our multi-year holding period. Ultimately, Shoals’ solar installations will have their literal day in the sun.

                                                                                                                                                Abbott J. Keller, CFA

                                                                                                                                            Chief Investment Officer