Investment Pitches

Pitch Summary:
GEHC is the former Healthcare division of GE, spun out in early 2023. It's a global leader in imaging equipment such as MRI machines, CT scanners and ultrasound systems along with associated consumables. The business has a long and storied history but was trapped inside a larger, underperforming conglomerate, starved of the love and attention it needed to thrive. From a subset of value perspective, we view GEHC as a Low risk turnaround. The underlying business is fundamentally sound but has ceded market share over time, with sales growth lagging the industry. There is significant margin opportunity with core imaging margins (~50% of sales) much lower than its main peer. We see two drivers in restoring performance. Firstly an increase in research and development spending (since 2017 R&D spend is up 70%, far outpacing revenue growth). Secondly an opportunity to improve SG&A cost efficiency. What makes the turnaround low risk? Management and quality are critical. GEHC features a few of what we call 'CI Alumni'; executives we have invested behind at other companies. Top of this list is Chairman Larry Culp, the former CEO of Danaher, an executive we have the highest respect for. Mag 7, GEHC has strong financial characteristics. It is a market leader in an oligopolistic industry where market share changes slowly and gross profit comes largely from aftermarket. The balance sheet is appropriately geared with well structured debt. Our analysis of GEHC's accounts suggests there may be some conservatism baked into the P&L numbers. At today's share price you don't need to assume much going right to do well, which partially reflects the backdrop of healthcare stocks having been under pressure this year. If GEHC can deliver on its potential, the upside is significant.

BSD Analysis:
Cooper Investors presents GEHC as a compelling low-risk turnaround opportunity following its spin-off from General Electric in early 2023. The fund's thesis centers on the company's dominant position in medical imaging equipment (MRI, CT scanners, ultrasound) with significant margin expansion potential, as core imaging margins trail peers despite representing 50% of sales. Management quality is a key differentiator, with Chairman Larry Culp (former Danaher CEO) leading what Cooper calls 'CI Alumni' - executives they've successfully backed previously. The investment case is supported by a 70% increase in R&D spending since 2017 and opportunities for SG&A cost efficiency improvements. GEHC operates in an oligopolistic industry with slow market share changes and substantial aftermarket revenue streams, providing defensive characteristics. The fund believes conservative accounting may be masking underlying value, while the broader healthcare sector pressure has created an attractive entry point with significant upside potential if execution improves.

Pitch Summary:
Finally, we have built a position in Seneca Foods. Seneca is a supplier of possibly the least glamorous product around: canned vegetables. I actually prefer the taste of certain canned veggies over fresh or frozen, but that seems to be an unpopular opinion. Still, there is a large market for canned vegetables, which appeal to the budget-conscious consumer. The market values Seneca like a relic in irreversible decline. That's why shares trade at half of tangible book value and below net current asset value. I happen to think Seneca is in substantially better shape than the market believes, thanks to changes in the market structure of the canned vegetables industry. Simply put, there is only so much profit to go around in a mature market. Seneca earned a good share of those profits until Del Monte, in a bid for market share, cut prices and bought a small, struggling producer. This went poorly for Del Monte, which ultimately chose to exit the market, shutting down some packing plants and selling others, including to Seneca Foods. Since Del Monte exited, Seneca's profits have bounced back. With Del Monte humbled and nobody else eager to rush in, I expect Seneca to enjoy a lengthy period of healthy profits and stable market share. Seneca Foods shares trade at a mid-single digit multiple of 2023 profits. The company's capital allocation is reasonably good, with shares outstanding down 22% over the last 5 years and no major investment missteps. The company's accounting earnings can be volatile thanks to a quirk of inventory accounting. Seneca Foods is one of the few remaining public companies to employ "LIFO" (last in, first out) inventory valuation, which has the practical effect of understanding the value of its inventory by $300 million. The LIFO convention results in under-stated earnings in periods of rising input costs and over-stated earnings when input costs are falling. Nobody should mistake Seneca Foods for a growth company or a return on capital standout, but neither should shares languish at 5x earnings.

BSD Analysis:
Waters identifies Seneca Foods as a deep value opportunity in the unglamorous canned vegetables market, trading below tangible book value and net current asset value. The investment thesis centers on improved industry structure following Del Monte's exit from the market after failed price competition and plant closures. This competitive rationalization has allowed Seneca to regain pricing power and market share, with profits recovering significantly. Trading at mid-single digit earnings multiples despite the improved competitive dynamics, the valuation appears disconnected from fundamentals. Management has demonstrated reasonable capital allocation with 22% share count reduction over five years and disciplined investment approach. The company's LIFO inventory accounting creates earnings volatility but understates inventory value by approximately $300 million, providing hidden asset value. While not a growth story, the combination of defensive consumer staples exposure, improved industry structure, attractive valuation metrics, and shareholder-friendly capital allocation creates compelling risk-adjusted returns. The market's dismissal of this mature but stable business creates opportunity for patient value investors.

Pitch Summary:
Next is Hammond Manufacturing Corp. We also own shares of Hammond Power Solutions, but this is the other Canadian industrial company, run by the other Hammond brother. I hope that clears things up. Hammond Manufacturing is significantly smaller than Hammond Power Solutions, but it is consistently profitable, and its products are experiencing a huge growth in demand. Hammond Manufacturing produces enclosures, cabinets, and racks for electrical applications. It also produces power distribution products like power strips and small transformers. All products that have seen great growth in demand thanks to the boom in data center construction, industrial facilities investment, and electrification. The strong US Dollar benefits Hammond Manufacturing. About 60% of Hammond's sales are to US customers, while its expenses are all in Canadian Dollars. At the current run rate, Hammond Manufacturing shares trade at less than 5 times earnings. Free cash flow has been low of late as the company rebuilt depleted inventories and finished construction on a new facility in Palmerston, Ontario. Now that these investments are complete, I expect the company will focus on reducing debt and rewarding shareholders.

BSD Analysis:
Waters presents Hammond Manufacturing as an attractively valued play on the data center and electrification boom. The company produces electrical enclosures, cabinets, and power distribution equipment experiencing surging demand from data center construction and industrial electrification trends. Trading at under 5x earnings, the valuation appears compelling given the strong demand environment and operational leverage potential. The company benefits from favorable currency dynamics with 60% of sales in USD while costs remain in CAD, providing natural margin expansion as the dollar strengthens. Recent capital investments in inventory rebuilding and a new Ontario facility have temporarily depressed free cash flow, but Waters expects this to normalize as growth investments conclude. The completion of these investments should allow management to focus on debt reduction and shareholder returns. Hammond's exposure to structural growth themes in data centers and electrification, combined with attractive valuation and improving cash generation, creates a compelling risk-reward profile for patient investors.

Pitch Summary:
We invested in a new post-bankruptcy security in the quarter, Talen Energy Corp. Talen owns a variety of power generation assets. Its crown jewel is the Susquehanna Steam Electric Station, a two-unit nuclear power plant with 2.5 gigawatts of capacity, enough to power 2 million homes. Talen sought bankruptcy protection after struggling with excess debt and high hedging costs. The company emerged from bankruptcy in May, shedding billions in debt. Talen shares currently trade over-the-counter, but I expect the company to achieve an exchange listing in short order. Talen has numerous tailwinds that support a much higher share price. The Inflation Reduction Act passed last year contains supports and subsidies for nuclear power production, essentially providing Talen with a price floor and reducing its hedging costs. The result is a de-risked business model and a higher justified multiple of earnings and cash flows. Talen's nuclear plants could be desirable assets for larger regulated utilities looking to expand their renewables fleets. Acquisition rumors have swirled, but nothing has materialized yet. In the absence of a transaction, I would not be surprised to see Talen separate its nuclear assets from its legacy "dirty" natural gas and coal generation assets. Finally, Talen has a 95% stake in a new data center being built adjacent to the Susquehanna plant. There is strong interest in data centers powered by renewable energy sources, and Talen expects to sell the data center or otherwise monetize the asset. I expect Talen will look much different by this time a year from now, if it is still independent at all.

BSD Analysis:
Waters identifies Talen Energy as a compelling post-bankruptcy opportunity with multiple catalysts for value creation. The company emerged from Chapter 11 with a dramatically improved capital structure after shedding billions in debt, while retaining valuable nuclear generation assets including the 2.5 GW Susquehanna facility. The Inflation Reduction Act provides significant tailwinds through nuclear subsidies and production tax credits, creating a de-risked cash flow profile with improved hedging economics. Waters sees multiple paths to value realization including potential acquisition by regulated utilities seeking clean baseload power, asset separation between nuclear and fossil fuel generation, or monetization of the adjacent data center development. The nuclear assets offer attractive fundamentals in a market increasingly focused on carbon-free baseload generation. With shares trading OTC following bankruptcy emergence, Waters expects exchange listing and multiple expansion as the restructured business model becomes apparent. The combination of improved capital structure, policy support, and strategic optionality creates substantial upside potential.

Pitch Summary:
I have a soft spot for family-run businesses in boring industries far from global financial centers. Shocker, right? Problem is, many of these businesses are run for insiders, with the idea that outside investors should be happy with whatever scraps they receive after the "real owners" are satisfied. Monarch Cement Company is a happy exception. Founded in 1908 in Humboldt, Kansas, by H.F.G. Wulf, Monarch Cement operates a cement plant with >1 million tons of annual capacity. Walter H. Wulf, Jr., grandson of the founder, is CEO and chairman. Monarch produces and distributes Portland Cement and ready-mix concrete across Kansas, Missouri, and Iowa. The company has a stellar track record of profitability and growth. Cement is nothing new for Alluvial Fund. We have been happily invested in a similar company, Boston Sand & Gravel, for several years. In Monarch Cement, I see an opportunity to own another rare asset with a huge economic moat, at a very attractive price. Monarch is having a record year thanks to high cement prices and strong demand from construction and infrastructure projects. Despite strong performance year-to-date, Monarch Cement shares trade at just 5.5x my estimate of 2023 EBITDA and <10x net income. Monarch employs no debt and holds a substantial cash and securities portfolio. The company pays a healthy dividend and regularly repurchases shares. While the cement business is cyclical and Monarch will have its ups and downs, the current price represents an attractive entry point. I don't put a lot of trust in relative valuations, but it's worth mentioning that Monarch Cement trades at a 40% discount to most other public cement producers. If the company were sold, shareholders could expect a very healthy premium. I don't expect the Wulf family to sell any time soon. Then again, family-controlled businesses tend to be "Not for sale!" until the minute they are. Whatever happens, I am happy to be invested with the Wulfs in a successful, attractively valued enterprise that will continue creating and sharing wealth for decades to come.

BSD Analysis:
Waters presents a compelling value thesis for Monarch Cement, a family-controlled cement producer trading at attractive multiples despite strong fundamentals. The company trades at just 5.5x estimated 2023 EBITDA and under 10x net income, representing a 40% discount to public cement peers. Monarch benefits from strong cement pricing and infrastructure demand, generating record performance while maintaining a debt-free balance sheet with substantial cash holdings. The family management under Walter Wulf Jr. has demonstrated shareholder-friendly capital allocation through dividends and share repurchases. Waters views the cyclical cement business as having significant economic moats, similar to his successful Boston Sand & Gravel investment. The valuation disconnect suggests potential for substantial returns either through multiple expansion or potential acquisition by larger players. The combination of defensive balance sheet strength, attractive valuation, and exposure to infrastructure spending creates a compelling risk-adjusted opportunity.

Pitch Summary:
Northern Oil & Gas (NOG), a leading non-operated working interest franchise in the premier shale basins across the United States, was added to the portfolio. Overall, we believe the company's ability to opportunistically add high-quality acreage in multiple basins remains a key differentiator for the stock. Furthermore, we believe the company's scale and proprietary database built from participation in over 9,800 wells provides management with intimate knowledge and the ability to make swift and informed capital allocation decisions.

BSD Analysis:
Aristotle initiated a new bullish position in Northern Oil & Gas, viewing it as a differentiated energy investment. The company operates as a leading non-operated working interest franchise across premier U.S. shale basins, providing diversified exposure to high-quality drilling locations. Management's ability to opportunistically acquire acreage across multiple basins demonstrates strategic flexibility and market expertise. The company's significant scale advantage, built through participation in over 9,800 wells, creates a proprietary database that provides superior market intelligence. This extensive operational history enables management to make informed and swift capital allocation decisions, identifying the most attractive investment opportunities. The non-operated model allows Northern Oil & Gas to participate in drilling programs without operational risk, while benefiting from operator expertise and efficiency improvements. This asset-light approach should generate attractive returns with lower execution risk compared to traditional E&P companies. The fund's new position reflects confidence in management's capital allocation discipline and the company's unique market position.

Pitch Summary:
Belden (BDC), a manufacturer and seller of connectors, cables, and networking gear to help its customers acquire, transmit, manage, and orchestrate data, declined during the period amid a weaker demand environment, pauses in capital spending, and channel de-stocking. Despite these near-term pressures, we maintain our position as we believe the company's ongoing transition from being mostly a commoditized component supplier to a complete solutions provider can drive margin expansion. Furthermore, we believe the company's focus on serving secularly attractive end markets of Industrial Automation, Cybersecurity, Broadband & 5G, and Smart Buildings will position the company favorably over the long term.

BSD Analysis:
Aristotle maintains a bullish long-term thesis on Belden despite near-term cyclical headwinds. The company faced pressure from weak demand, reduced capital spending, and channel destocking, creating temporary earnings challenges. However, the fund views Belden's strategic transformation as a key value driver. The transition from a commoditized component supplier to a complete solutions provider should drive significant margin expansion over time. This business model evolution allows Belden to capture more value per customer relationship and reduce competitive pressure. The company's focus on secular growth markets including Industrial Automation, Cybersecurity, Broadband & 5G, and Smart Buildings provides multiple long-term tailwinds. These end markets benefit from digital transformation trends and infrastructure modernization. Belden's specialized connectivity solutions and data transmission expertise position it well to capitalize on these secular themes. The fund's conviction in maintaining the position reflects confidence in the company's strategic repositioning and long-term market opportunities.

Pitch Summary:
Oceaneering International (OII), a global technology company delivering engineered services, products and robotic solutions to the offshore energy, defense, aerospace, manufacturing, and entertainment industries, declined during the period amid a pullback in energy prices and conservative management commentary around the company's near-term outlook. We maintain a position, as we believe the company should continue to benefit from future increases in offshore activity along with continued growth within its industrial robotics business segment.

BSD Analysis:
Despite near-term headwinds, Aristotle maintains a bullish long-term view on Oceaneering International. The company faced pressure from declining energy prices and conservative management guidance, creating temporary weakness in the stock. However, the fund sees this as a cyclical downturn rather than a structural issue. Oceaneering's diversified technology platform spans offshore energy, defense, aerospace, manufacturing, and entertainment, providing multiple growth vectors. The manager expects the company to benefit from a recovery in offshore drilling activity as energy companies increase capital expenditure. Additionally, the industrial robotics segment represents a secular growth opportunity that should provide earnings diversification away from energy cyclicality. Oceaneering's specialized engineering capabilities and robotic solutions create competitive advantages in niche markets. The fund's decision to maintain the position suggests confidence in the company's long-term fundamentals despite short-term volatility.

Pitch Summary:
Customers Bancorp (CUBI), a Pennsylvania-based regional bank, benefited from strong fundamental performance and improved sentiment following the company's latest earnings release after the company reported net interest margin expansion alongside, solid credit, capital, and broader business trends. We maintain our investment as we believe management's focus on accumulating capital, limiting balance growth, and remixing loans and deposits into higher value-add verticals should create additional shareholder value in periods to come.

BSD Analysis:
Aristotle maintains a bullish view on Customers Bancorp based on strong fundamental performance and strategic positioning. The bank demonstrated net interest margin expansion alongside solid credit quality and capital metrics, indicating effective management execution in a challenging rate environment. Management's disciplined approach of accumulating capital while limiting balance sheet growth shows prudent risk management. The strategy of remixing loans and deposits into higher value-add verticals suggests a focus on improving profitability and return on assets. This repositioning should drive sustainable shareholder value creation as the bank optimizes its business mix. The Pennsylvania-based regional bank appears well-positioned to benefit from normalized interest rates and improved operating leverage. Aristotle's confidence in maintaining the position reflects their belief in management's strategic execution and the bank's fundamental trajectory.

Pitch Summary:
SP Plus (SP), a provider of parking management, payment services, facility maintenance and event logistics solutions, appreciated following an announcement that the company would be acquired by Metropolis Technologies. We maintain a position ahead of the expected close of the transaction in 2024.

BSD Analysis:
Aristotle maintains a bullish stance on SP Plus following the announced acquisition by Metropolis Technologies. The fund views this as a positive catalyst that drove appreciation during the quarter. The manager's decision to maintain the position ahead of the expected 2024 transaction close suggests confidence in the deal's completion and potential for additional upside. SP Plus operates in the parking management and facility services space, providing essential infrastructure services to commercial and institutional clients. The acquisition by Metropolis Technologies, a technology-focused parking solutions company, likely represents strategic value creation through operational synergies and technology integration. This transaction validates the underlying value of SP Plus's business model and market position in the parking management industry.

Pitch Summary:
Tecnoglass is a vertically integrated manufacturer, supplier, and installer of architectural glass, framing systems, windows, and doors. The company's automated manufacturing base in Colombia allows it to manufacture products at a much lower cost than domestic companies. Shipping expenses are a low-single digit percentage of revenues because Tecnoglass transports products to the United States in containers that would otherwise return empty (there is a significant trade imbalance between the US and Colombia). The company has a reputation for quality. Its entry-level windows are made of tempered glass (compared to more fragile annealed glass of competitors) and its framing systems are coated with a resin-based coating that performs better (resistance to fade/scratches) than the powder coat coating of peers. The company initially took market share by pricing below competitors, but as its reputation for quality and dealer network has grown the company has been able to increase prices and currently prices at or near market rates. Before 2017, the company strictly supplied glass for commercial buildings. In 2017, the company entered the residential market. During the COVID19 pandemic, the company was able to maintain its output and took market share from domestic competitors who suffered from supply chain kinks and mandated factory shutdowns. Dealers who made the jump from competitors have mostly stuck with Tecnoglass. The rapid increase in market share has led to a >30% sales CAGR for Tecnoglass's residential business since 2020. Today, the bulk of the company's sales are made in Florida. Florida, specifically Miami-Dade County, has the strictest standards for impact resistant windows in the country. This is relevant as manufacturers of impact resistant glass are leading innovations in thermally efficient glass that is increasingly relevant as consumers and developers build and remodel homes today. Thermally efficient windows and doors were made eligible for federal tax credits as part of the Inflation Reduction Act through 2032. We expect the tax credits will provide a tailwind to Tecnoglass as the company enters new markets in Texas and along the East Coast. As of this write-up, Tecnoglass's closest peer, PGT Innovations, trades for 8.0x EBITDA and is in talks to be acquired. If we apply a similar multiple to TGLS shares we would get a share price roughly 60% higher than today's price. You can penalize the company for being controlled by the founders, but we think a premium multiple is warranted given the company's competitive advantages, its higher margins, healthier balance sheet, track record of taking market share, and its long runway for growth. In August, the company relocated its headquarters to Miami form Barranquilla, Colombia. This move should open the door for inclusion in index funds and make the stock more attractive to domestic managers.

BSD Analysis:
Liberty Park presents a compelling bull case for Tecnoglass based on the company's cost advantages from Colombian manufacturing and quality differentiation through tempered glass and superior coating systems. The manager highlights impressive execution during COVID-19 when TGLS gained market share while domestic competitors struggled with supply chain disruptions, resulting in over 30% sales CAGR in residential since 2020. The investment thesis centers on geographic expansion opportunities beyond Florida, supported by federal tax credits for thermally efficient windows through 2032 under the Inflation Reduction Act. Using peer valuation of 8.0x EBITDA from PGT Innovations suggests 60% upside potential. The recent headquarters relocation to Miami should improve institutional accessibility and index inclusion prospects. Key risks include founder control structure, though the manager argues competitive moats and superior financial metrics justify a premium valuation multiple.

Pitch Summary:
We sold Unity Software, a name purchased in early 2022 to participate in the growth of the global video game market, as our thesis no longer remains valid. Via M&A, Unity has diversified away from its game engine subscription business into the less differentiated advertising segment and most recently saw negative customer reaction to price increases, calling into question the offering's pricing power.

BSD Analysis:
ClearBridge exited their Unity Software position after the original investment thesis deteriorated significantly. The managers initially invested in early 2022 to capitalize on global video game market growth through Unity's game engine platform. However, Unity's strategic direction shifted unfavorably through M&A activity, diversifying away from their core differentiated game engine subscription business into the commoditized advertising segment. The recent negative customer reaction to price increases represents a critical red flag, undermining the company's pricing power and competitive positioning. This suggests Unity's moat has eroded and the business model has become less defensible. The exit demonstrates disciplined portfolio management, with ClearBridge willing to cut losses when fundamental thesis assumptions prove incorrect. The deterioration from a focused, differentiated platform to a diversified, less competitive offering illustrates the risks of unfocused M&A strategies.

Pitch Summary:
Application software is an area where we have seen success with disruptors HubSpot and CrowdStrike. New addition ServiceNow is a leading provider of workflow automation software. We see the company as a key enabler of modernization and digital transformation, which is well-positioned as enterprises look to converge on a single platform solution. Despite its sizable customer base, we believe ServiceNow still has substantial room to expand spending with existing customers, as most have not fully leveraged its full product suite. We also are encouraged by the company's strong leadership team and history of innovation which should enable it to continue to expand wallet share. Additionally, despite ongoing investments in growth, ServiceNow continues to drive healthy operating leverage.

BSD Analysis:
ClearBridge added ServiceNow as a new position, positioning it alongside successful application software disruptors HubSpot and CrowdStrike in their portfolio. The managers view ServiceNow as a critical enabler of enterprise digital transformation and modernization initiatives, benefiting from the trend toward platform consolidation. The investment thesis centers on significant expansion opportunities within the existing customer base, as most clients have not fully adopted ServiceNow's complete product suite. This suggests substantial runway for wallet share expansion and revenue growth per customer. The managers are particularly impressed with ServiceNow's leadership team and innovation track record, which should support continued market share gains. Despite heavy growth investments, the company maintains healthy operating leverage, demonstrating strong unit economics. This appears to be a high-conviction bet on enterprise workflow automation and digital transformation trends.

Pitch Summary:
New purchase Cintas maintains a leading position in a fragmented, $40 billion market for uniform rental and facilities services. The company's scale gives it better purchasing power, route density and technology, which have historically led to better price and service levels. Its position also enables industry-leading retention rates and sustainably higher returns on invested capital. Finally, Cintas has demonstrated a strong track record of improving margins. This addition not only supports our efforts to increase the aggregate quality and growth of the portfolio, but also acts to further diversify our industry exposures.

BSD Analysis:
ClearBridge initiated a new position in Cintas, viewing it as a high-quality compounder in the fragmented uniform rental and facilities services market. The managers highlight Cintas' competitive advantages including superior scale economics that drive better purchasing power, route density, and technology capabilities versus competitors. These structural advantages translate into industry-leading customer retention rates and sustainably higher returns on invested capital. The company's demonstrated track record of margin expansion further supports the investment thesis. ClearBridge sees this addition as enhancing both portfolio quality and growth characteristics while providing valuable sector diversification. The $40 billion addressable market size suggests significant runway for continued expansion. This appears to be a classic quality growth investment targeting a market leader with durable competitive moats.

Pitch Summary:
Switzerland-based Temenos is one of the world's largest software providers to the banking industry. Since our initial purchase in November 2020, the company has faced several difficulties. A volatile economic environment reduced customer willingness for transformational projects, and this issue was compounded by broad management turnover and a business model transition away from a license + maintenance payment model toward a subscription model. Over the past year, the economic environment has stabilized, new management has been installed with a permanent CEO search still active, and >80% of software revenues have transitioned to subscription. At the same time, growth has accelerated, and profitability has begun to improve. As the subscription transition matures, we expect revenue growth to be less volatile and profitability to continue to improve. Given this, we increased our position to reflect a more full-sized position.

BSD Analysis:
Polen Capital views Temenos as emerging from a challenging transition period with improved fundamentals and business model stability. The company's position as a leading banking software provider creates a strong competitive moat in a mission-critical market. The successful transition to subscription model (>80% complete) provides more predictable revenue streams and improved customer lifetime value. Management stabilization and economic environment improvement remove key overhangs that pressured performance since 2020. Accelerating growth and improving profitability demonstrate the benefits of the subscription transition and operational improvements. Polen expects continued margin expansion as the subscription model matures and provides operating leverage. The decision to increase to full position size reflects confidence in the company's competitive position and improved execution. The combination of market leadership in banking software, subscription model benefits, and operational improvements positions Temenos for sustained growth and profitability expansion.

Pitch Summary:
HDFC Bank is the largest private sector bank in India. It has benefited from the strong growth of the Indian economy over the past two decades while taking significant share from its less well-run public-sector competitors. We expect these trends to remain in place for at least the next five years. More recently, HDFC Bank's share price has stagnated after its merger with parent company, HDFC Ltd. After the completion of the merger in Q3 2023, the bank's margins and returns on capital have deteriorated slightly, owing to its parent company's higher cost of funding. We expect in the coming years, HDFC Bank will integrate its parent's operations and replace its higher-cost funds with lower-cost deposits. If it continues to execute on its strategy well, then a period of outsized earnings growth could follow. Meanwhile, valuations trade at an attractive level of 17x forward earnings, a level not much above its 2008 low valuations. Given this, we increased our position to reflect a more full-sized position.

BSD Analysis:
Polen Capital views HDFC Bank's post-merger integration as a temporary headwind creating an attractive entry opportunity. The bank's market leadership position in India's private banking sector provides sustainable competitive advantages and share gain opportunities versus inefficient public sector competitors. The merger with HDFC Ltd creates near-term margin pressure due to higher funding costs, but Polen expects successful integration to drive deposit growth and cost optimization. India's strong economic growth trajectory supports continued banking sector expansion and HDFC's market share gains. Trading at 17x forward earnings near 2008 crisis levels suggests excessive pessimism despite the bank's strengthened market position. The potential for outsized earnings growth following successful integration creates an asymmetric risk-reward profile. Polen's decision to increase to full position size reflects confidence in management's execution capabilities and the long-term India growth story. The combination of market leadership, integration upside, and attractive valuation positions HDFC Bank for strong returns.

Pitch Summary:
France-based Teleperformance is the world's leading outsourced call center manager. Teleperformance shares suffered in 2023 as sentiment surrounding AI adoption reached a crescendo and related market narratives assumed customer experience services would be fully automated. We believe Teleperformance's customers and many other businesses will continue to require effective human customer experience management. Teleperformance continues to leverage technologies, including AI, to deliver successful business outcomes to customers. Management effectively navigated the impacts of transformational technologies at times over its 40 years in business and is proactively thinking through opportunities in the present environment. We believe Teleperformance can weather today's weak IT services market environment and rebound to the steady growth trajectory of recent years. We see low double-digit total returns ahead. At less 8x 2024 earnings, shares discount a darker future than we think is in store. As such, we have increased the position to a more full-sized position.

BSD Analysis:
Polen Capital takes a contrarian view on Teleperformance, seeing AI disruption fears as overblown and creating an attractive valuation opportunity. The fund emphasizes the continued need for human-centric customer experience management despite technological advances. Teleperformance's 40-year track record of adapting to technological disruption provides confidence in management's ability to navigate current challenges. The company's proactive integration of AI technologies positions it to enhance rather than replace human capabilities. Trading at 8x 2024 earnings reflects excessive pessimism about the company's future prospects. Polen's projection of low double-digit returns suggests confidence in the business model's resilience and eventual recovery. The decision to increase position size to full weight demonstrates conviction that current market fears are temporary while the underlying business fundamentals remain intact. The combination of market leadership, technological adaptation, and attractive valuation creates compelling risk-adjusted returns.

Pitch Summary:
Medtronic is the largest medical technology company in the world. Despite a few tough years characterized by post-COVID supply chain issues, Chinese market payment changes, and diabetes business challenges, the company has continued to invest aggressively in its R&D pipeline. Because of this long-term mindset and commitment to product innovation, the company is in a position today where it has numerous significant new product launches across the business, helping to accelerate growth and improve profitability. More recently, the market's infatuation with the promise of GLP-1 drugs has resulted in valuation de-ratings across the medtech industry broadly, to which Medtronic was not immune. The combination of all of these factors has resulted in Medtronic shares trading at their lowest valuation in a decade. Given the emerging business momentum, we felt the valuation offers a compelling chance to increase our weight in the world's largest medtech company.

BSD Analysis:
Polen Capital views Medtronic's current valuation as an attractive entry point for the world's largest medical technology company. Despite recent headwinds including supply chain disruptions and diabetes market challenges, the fund emphasizes Medtronic's sustained R&D investment and long-term innovation focus. The company's product pipeline is now materializing into significant new launches across multiple business segments, creating a catalyst for accelerating growth and margin improvement. The GLP-1 drug narrative has created indiscriminate selling pressure across medtech, presenting a valuation opportunity. Trading at decade-low valuations despite improving fundamentals creates an asymmetric risk-reward profile. Polen's decision to increase position size reflects confidence in the company's scale advantages, innovation capabilities, and emerging business momentum. The combination of market leadership, product cycle inflection, and attractive valuation positions Medtronic for strong returns as fundamentals improve.

Pitch Summary:
In terms of total return, Lasertec was the best-performing stock in the Portfolio during the fourth quarter, appreciating nearly 70%. As a reminder, Lasertec has a monopoly in the manufacturing of actinic photomask inspection equipment, a critical component of the global semiconductor supply chain market. The company has seen rapid sales growth of its newest photomask machine, and management commentary suggests overall semiconductor sales could be bottoming in the next few months. Given the strong secular trends in the semiconductor industry, as well as Lasertec's importance in it, we believe the company is likely to be one of the faster-growing companies in the Portfolio. At the same time though, the stock's premium valuation earns it a smaller weight in our strategy.

BSD Analysis:
Polen Capital recognizes Lasertec's unique monopolistic position in actinic photomask inspection equipment, a critical bottleneck in advanced semiconductor manufacturing. The 70% quarterly return reflects the market's recognition of the company's strategic importance as semiconductor demand recovers. Lasertec's monopoly provides exceptional pricing power and visibility into future cash flows, particularly as EUV lithography adoption accelerates. The rapid sales growth of newer photomask machines demonstrates the company's innovation leadership and expanding addressable market. Management's commentary on semiconductor cycle bottoming suggests improving demand visibility ahead. However, Polen's position sizing reflects valuation discipline, acknowledging that premium valuations limit upside despite strong fundamentals. The combination of monopolistic positioning, secular growth trends, and cycle recovery positions Lasertec as a high-growth compounder with exceptional competitive moats.

Pitch Summary:
Shopify was the best-performing holding in the Portfolio during 2023, with a 125% total return. The company continued its strong performance last quarter with impressive Q3-23 results that demonstrated continued share gains in North American e-commerce. Additionally, the company's decision last year to sell its fulfillment business, as well as more rational expense management, has led to significant margin expansion with Q3-23 operating margins at 16%, up 1900bps from a year ago. Even accounting for potential valuation compression in the future, we believe Shopify is at least a mid-teens compounder from a return perspective, and we remain excited about the future prospects of the business.

BSD Analysis:
Polen Capital expresses strong conviction in Shopify's transformation and market position. The 125% return in 2023 reflects the market's recognition of the company's strategic pivot and operational improvements. The decision to divest the fulfillment business demonstrates management's focus on core competencies and capital allocation discipline. The dramatic margin expansion from negative to 16% operating margins showcases the scalability of Shopify's platform model. Continued market share gains in North American e-commerce validate the company's competitive positioning against larger rivals. Polen's projection of mid-teens compounding returns suggests confidence in Shopify's ability to maintain growth while expanding profitability. The combination of market share gains, margin expansion, and strategic focus positions Shopify as a high-quality growth compounder in the e-commerce infrastructure space.