Here's Why Watsco (WSO) Sold Off in Q2

Conestoga Capital Advisors, an asset management company, released its second-quarter 2025 investor letter. A copy of the letter can be downloaded here. The second quarter began with a historically poor start but gained momentum later as tariff fears subsided and market volatility dropped precipitously. Conestoga Smid Cap Composite underperformed the Russell 2500 Growth Index in the quarter and returned 5.00% net-of-fees vs 11.31% for the index. Sector allocation effects were positive, while sector allocation effects were negative. Please check the top 5 holdings of the fund for a better understanding of their best picks for 2025.

In its second quarter 2025 investor letter, Conestoga Capital Advisors highlighted stocks such as Watsco, Inc. (NYSE:WSO). Watsco, Inc. (NYSE:WSO) engages in the distribution of air conditioning, heating, and refrigeration equipment, and related parts and supplies. The one-month return of Watsco, Inc. (NYSE:WSO) was 10.95%, and its shares lost 2.72% of their value over the last 52 weeks. On July 25, 2025, Watsco, Inc. (NYSE:WSO) stock closed at $489.97 per share, with a market capitalization of $19.554 billion.

Conestoga Capital Advisors stated the following regarding Watsco, Inc. (NYSE:WSO) in its second quarter 2025 investor letter:

"Watsco, Inc. (NYSE:WSO) is the nation’s largest distributor of heating, ventilation and air conditioning (HVAC) equipment, parts and supplies with 80% of revenue tied to the Sun Belt region. The stock sold off after missing estimates in its seasonally smallest quarter citing residential equipment weakness due to an industry-wide refrigerant transition. We believe this disruption will resolve itself during peak heating months."

Watsco, Inc. (NYSE:WSO) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 35 hedge fund portfolios held Watsco, Inc. (NYSE:WSO) at the end of the first quarter, which was 33 in the previous quarter. While we acknowledge the potential of Watsco, Inc. (NYSE:WSO) 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 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.