Headwaters Capital Management Sold Transmedics (TMDX) After a Strong Q1 Report

Headwaters Capital Management, an investment management company, released its second-quarter 2025 investor letter. A copy of the letter can be downloaded here. The portfolio bounced back from the first quarter uncertainty and, like the rest of the market, experienced a strong rebound after the tariff-induced sell-off at the start of the quarter. The portfolio gained +7.5% (+7.3% net) in the quarter compared to a +8.5% gain for the Russell Mid Cap Index. In addition, you can check the fund’s top 5 holdings to determine its best picks for 2025.

In its second quarter 2025 investor letter, Headwaters Capital Management highlighted stocks such as TransMedics Group, Inc. (NASDAQ:TMDX). TransMedics Group, Inc. (NASDAQ:TMDX) is a medical technology company. The one-month return of TransMedics Group, Inc. (NASDAQ:TMDX) was -14.19%, and its shares lost 23.01% of their value over the last 52 weeks. On July 14, 2025, TransMedics Group, Inc. (NASDAQ:TMDX) stock closed at $116.88 per share, with a market capitalization of $3.954 billion.

Headwaters Capital Management stated the following regarding TransMedics Group, Inc. (NASDAQ:TMDX) in its second quarter 2025 investor letter:

"Top Contributor: TransMedics Group, Inc. (NASDAQ:TMDX) +98%. The top contributor for Q2 ‘25 was also the top detractor in Q4 ‘24. How quickly narratives can change despite actual results largely remaining the same. Concerns around TMDX approaching a market share ceiling were dismissed with Q1 ’25 results. Market share gains for its OCS heart product resumed once a competitor’s clinical trial reached completion, OCS liver continued to steadily gain share and seasonality in the transplant industry flipped from a headwind to a tailwind. Nonetheless, competitive dynamics are likely to change later in 2025 and into 2026, which led to the decision to sell TMDX following the strong share price performance (see details below).

Sell: Transmedics (TMDX): TMDX was sold following a strong Q1 report that saw the shares nearly double in value. Despite incredible volatility in this name, it was a successful investment for the Headwaters strategy. For the representative account, TMDX returned +85% in less than two years, generating a +56% IRR (for those that prefer to look at things with a private equity lens). While I prefer to hold investments longer than two years, industry dynamics have changed since the initial investment. Compared to initial research, the Company’s Organ Care System has proven much more controversial than expected. Specifically, many transplant surgeons question whether the value of the system justifies its high cost. Additionally, competition will be increasing later in 2025 as OrganOx raised $160mm earlier in 2025 and XVIVO is starting a liver clinical trial that will likely pressure market share for TMDX. I was also disappointed with the way management handled controversy around the stock late in 2024. Ultimately, with shares trading at a high valuation and risk from competition increasing, I exited the position given numerous other attractive opportunities in the market."

TransMedics Group, Inc. (NASDAQ:TMDX) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 23 hedge fund portfolios held TransMedics Group, Inc. (NASDAQ:TMDX) at the end of the first quarter, which was 29 in the previous quarter. TransMedics Group, Inc. (NASDAQ: TMDX) reported total revenue of $143.5 million for 1Q 2025, reflecting a year-over-year growth of about 48% and a sequential increase of around 18% from 4Q 2024. While we acknowledge the potential of TMDX 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.

In another article, we covered TransMedics Group, Inc. (NASDAQ:TMDX) and shared best mid cap growth stocks to invest in. In addition, please check out our hedge fund investor letters Q2 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.