Conestoga Capital Advisors , an asset management company, released its third-quarter 2026 investor letter. The letter can be downloaded here . In 2026, Small Caps initially outperformed but faced challenges in the third quarter, marked by the Russell 2000 Growth Index's -9.4% decline versus the S&P 500's +2.3% rise. Factors such as rising Treasury yields and higher oil prices due to geopolitical tensions, especially in Iran, played a role. The Federal Reserve's policy shifts influenced market sentiment, leading to a selloff in AI and semiconductor stocks, although a stable Fed outlook provided a temporary recovery. The Conestoga Small Cap Composite fell -11.22% in the quarter, underperforming the Russell 2000 Growth Index's -9.39% return, impacted by exposure to struggling sectors like Industrials and Consumer Discretionary, while Health Care and Technology showed resilience. The firm remains committed to owning high-quality companies with strong competitive moats and resilient growth, driving long-term value creation. Also, check the Fund's top five holdings to see its best picks for 2026.
In its Q3 2026 investor letter, Conestoga Capital Advisors highlighted AAON, Inc. (NASDAQ: AAON ). AAON, Inc. (NASDAQ:AAON) designs and manufactures high-efficiency air conditioning and heating equipment. On October 27, 2026, AAON, Inc. (NASDAQ:AAON) closed at $75.83 per share with a market capitalization of $6.25 billion. AAON, Inc. (NASDAQ:AAON) has posted a slight 0.55% YTD pullback while trading within its 52-week range of $66.39 to $150.46.
Conestoga Capital Advisors stated the following regarding AAON, Inc. (NASDAQ:AAON) in its Q3 2026 investor letter:
"AON, Inc.(NASDAQ:AAON) manufactures highly engineered HVAC equipment, including cooling systems serving the data center market. 2Q26 results were a mixed bag-the company showed very strong revenue growth but gross margins disappointed and BASX orders were lumpy. The company's margins were weighed down by a decision to significantly increase revenue in the Memphis facility which is running at sub optimal margins. We remain constructive given robust data center demand, continued market share gains and significant opportunities to improve margins as recent investments mature."
AAON, Inc. (NASDAQ:AAON) is not on our list of the 40 Most Popular Stocks Among Hedge Funds . As per our database, 35 hedge fund portfolios held AAON, Inc. (NASDAQ:AAON) at the end of the second quarter, which was 30 in the previous quarter. While we acknowledge the potential of AAON, Inc. (NASDAQ:AAON) 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 discussed AAON, Inc. (NASDAQ:AAON) and shared Brown Advisory's views on the company. In addition, please check out our hedge fund investor letters Q3 2026 page for more investor letters from hedge funds and other leading investors.
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This article is originally published at Insider Monkey .
