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Conestoga Capital Advisors, an asset management company, released its first-quarter 2026 investor letter. A copy of the letter is available to download here. The first quarter of 2026 started with optimism about the domestic economy and attractive small-cap valuations, but it was affected by volatility due to geopolitical unrest in the Middle East and shifting expectations regarding interest rates. This unrest drove up energy prices and created a cautious global market. Energy, Basic Materials, and Industrials performed well, while software companies faced challenges due to AI disruption concerns. Market sensitivity to geopolitical events, energy prices, and inflation remains high. The Conestoga Smid Cap Composite fell 10.24% net-of-fees, underperforming the Russell 2500 Growth Index’s -3.52% return. The decline was driven by negative stock selection and sector/industry-specific headwinds, notably within Technology, Industrials, and Health Care sectors. In addition, please check the Strategy’s top five holdings to know its best picks in 2026.
In its first-quarter 2026 investor letter, Conestoga Capital Advisors highlighted UL Solutions Inc. (NYSE:ULS) as a leading contributor. UL Solutions Inc. (NYSE:ULS) is a leading provider of testing, inspection, and certification services and related software and advisory services. On May 5, 2026, UL Solutions Inc. (NYSE:ULS) closed at $104.74 per share. One-month return of UL Solutions Inc. (NYSE:ULS) was 22.89%, and its shares gained 49.63% over the past 52 weeks. UL Solutions Inc. (NYSE:ULS) has a market capitalization of $21.07 billion.
Conestoga Capital Advisors stated the following regarding UL Solutions Inc. (NYSE:ULS) in its Q1 2026 investor letter:
"UL Solutions Inc. (NYSE:ULS) provides testing, inspection, certification, and software solutions across a wide range of industries. The stock moved higher as results demonstrated strong underlying growth and meaningful margin expansion. Revenue increased in the quarter, while adjusted EBITDA margins expanded 460 basis points, reflecting operating leverage and productivity improvements. The combination of steady organic growth, margin expansion, and exposure to long term themes like electrification and AI-driven demand supported a favorable investor reaction."
UL Solutions Inc. (NYSE:ULS) is not on our list of 40 Most Popular Stocks Among Hedge Funds Heading Into 2026. According to our database, 39 hedge fund portfolios held UL Solutions Inc. (NYSE:ULS) at the end of the fourth quarter, up from 23 in the previous quarter. While we acknowledge the potential of UL Solutions Inc. (NYSE:ULS) 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 UL Solutions Inc. (NYSE:ULS) and shared the list of best IPO stocks to buy in 2026. In addition, please check out our hedge fund investor letters Q1 2026 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.