Giverny Capital Asset Management's Investment Thesis for Watsco (WSO)

Giverny Capital Asset Management, LLC, an investment management company, recently published its fourth-quarter 2025 investor letter. A copy of the same can be downloaded here. The Portfolio returned 0.01% compared to 2.66% for the S&P 500. YTD, the fund returned 12.58% compared to 17.88% for the Index. The firm faced a challenging fourth quarter and calendar year, despite solid appreciation. The outperformance of a few large technology companies has negatively impacted performance, given the portfolio's underweight in large tech and overweight in smaller niche leaders. While portfolio companies are excelling in earnings growth and capital returns, the market is fixated on AI investments, leaving the actual benefits unclear. Additionally, you can review the Portfolio’s top 5 holdings to see its best picks for 2025.

In its fourth-quarter 2025 investor letter, Giverny Capital Asset Management highlighted Watsco, Inc. (NYSE:WSO) as a new portfolio holding. Watsco, Inc. (NYSE:WSO) is a leading distributor of air conditioning, heating, and refrigeration equipment, and related parts and supplies. On January 30, 2026, Watsco, Inc. (NYSE:WSO) stock closed at $386.45 per share. One-month return of Watsco, Inc. (NYSE:WSO) was 9.51%, and its shares lost 19.05% of their value over the last three months. Watsco, Inc. (NYSE:WSO) has a market capitalization of $15.72 billion.

Giverny Capital Asset Management stated the following regarding Watsco, Inc. (NYSE:WSO) in its fourth quarter 2025 investor letter:

"We initiated a 3.5% position in Watsco, Inc. (NYSE:WSO), the country’s largest distributor of so-called HVAC systems – heating, ventilation and air conditioning. Its most important relationship is with Carrier, but it also distributes products from Rheem, Daikin (Goodman) and others.

Founded by the Miami entrepreneur Albert Nahmad, Watsco entered the HVAC market in 1989 and over the next 36 years bought 70 regional players, turning itself into the largest distributor nationally with a low teens market share. I like the HVAC market because it is stable and grows steadily over time. The major brands – Trane, Lennox and Carrier – are nicely profitable and command premium valuations in the marketplace, as does Watsco…” (Click here to read the full text)

Watsco, Inc. (NYSE:WSO) is not on our list of 30 Most Popular Stocks Among Hedge Funds. According to our database, 34 hedge fund portfolios held Watsco, Inc. (NYSE:WSO) at the end of the third quarter, the same as 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 Q4 2025 page for more investor letters from hedge funds and other leading investors.

READ NEXT: The Best and Worst Dow Stocks for the Next 12 Months and 10 Unstoppable Stocks That Could Double Your Money.

Disclosure: None. This article is originally published at Insider Monkey.