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The following segment was excerpted from The Broyhill Q1 2026 Letter.
It's hard not to be uber bullish when stocks are enjoying a once-in-a-century acceleration in innovation, resulting in a surge in productivity and corporate profits. But as it turns out, we are actually witnessing a twice-in-a-century acceleration in innovation, as the opening quote of this letter was first delivered by Former Fed Chairman Alan Greenspan in January 2000. As they say, history doesn't repeat, but. . .
Valvoline (VVV) was our largest contributor in the quarter. While the market spent its days hallucinating about the terminal value of artificial intelligence, Valvoline went on quietly changing oil, opening new stores, while moving more cars through its bays than any other competitor in the industry. Since we've owned it, shares have exhibited significantly more volatility than the business itself, but what matters is that the underlying unit economics are intact, while unit growth, service mix, and price continue moving in the same direction.
Honeywell (HON) was our second-largest contributor in the quarter. Management accelerated the aerospace spin-off, moving the separation up to the end of June and leaving behind a pure-play automation business. We continue to believe the pieces, including the recently announced Quantinum IPO, are worth meaningfully more than the whole. Upcoming Investor Days are the next chance for the market to do the math.
Ball Corporation (BALL) rounded out our top three contributors during the quarter. When we initially acquired the position, our thesis centered around the company's post-aerospace-divestiture status, which left it a pure-play packaging company well positioned to return significant capital to investors. As the thesis played out, we sold into the re-rating and redeployed proceeds into more attractive opportunities.
IQVIA (IQV) was our largest detractor despite fundamentals being far better than price action suggested. The stock has sold off because investors have convinced themselves that AI will compress economics faster than it drives demand. At the current price, we are more than willing to take the other side of that trade. Large pharma is structurally reliant on IQVIA's clinical trial architecture and proprietary data assets, and we think it is highly unlikely that Claude can automate away the FDA approval process. While the burden of proof remains on the company, we believe we are being paid well to wait at the stock's current valuation.
Louis Vuitton (LVMUY) was our second-largest detractor, posting its worst quarterly performance on record, driven by the Middle East conflict and fears of a broader slowdown in luxury demand. Beneath the headlines, Wines & Spirits delivered its biggest beat in years as the Hennessy destocking cycle ends, Watches & Jewelry beat as Tiffany continues to gain share, and Fashion & Leather continues its slow sequential improvement. The stock now trades at the bottom of its valuation range, which we find compelling for a business of this quality.
Avantor (AVTR) made our list of detractors for the last time in the first quarter. The destocking cycle has run far longer than we initially modeled, but the bigger issue was self-inflicted. Successive management teams failed to defend the share against Thermo Fisher (TMO). After swapping half of our position for Thermo last year, we took our
remaining lumps and redeployed the capital into Sotera Health (SHC), where litigation fears have created an opportunity to own a mission-critical sterilization duopoly at a meaningful discount to intrinsic value.
We run a concentrated portfolio and aim to invest over a three- to five-year horizon. With roughly 20 positions, that translates into a handful of new ideas in a normal year. But like our returns, our ideas come in lumps, as volatility creates opportunity.
The extreme dispersion we saw in the first quarter handed us an opportunity to populate the book with at least a year's worth of new ideas. Running towards controversy after big dislocations is our bread and butter. I suspect that's a gene inherited from my father, who still fills his car to the ceiling with random items he doesn't need from close-outs (most recently, Livingston Mall in NJ) or even relics of the past left on the roadside. In markets, such a strategy rarely guarantees short-term success, but over the long term, it has consistently been our most reliable generator of alpha.
During the quarter, we booked a portion of our gains on Phillip Morris (PM) and fully liquidated several positions. In addition to Ball, noted previously, we liquidated profitable investments in Kenedy Wilson (KW) and Fresenius Medical Care (FMS), as the former agreed to a higher bid from CEO Bill McMorrow and Fairfax Financial (FRFHF), and proceeds from the latter were redeployed into more attractive opportunities. We also fully liquidated two positions – Evolution (EVVTY) and Avantor - after reducing exposure to each, to reinvest in higher conviction ideas.
We initiated several new positions during the quarter. We bought Microsoft (MSFT) as the stock's valuation declined to levels in line with the broader market. We initiated a new position in Smurfit WestRock (SW) with proceeds from Ball, as we suspect continued capacity tightening and additional pricing will drive mid-term results well above guidance and current consensus. We bought Sotera Health, a sterilization-franchise medical device business whose customers cannot easily replace it, where an ongoing tort overhang has created a price we believe materially underestimates the underlying business. And we established two new positions in the depressed housing industry – Masco (MAS) and Floor and Décor (FND), as we believe the normalized earnings power of both companies has increased significantly through market share gains and expense efficiencies captured during this extended downturn. We also began accumulating shares of Leggett & Platt (LEG), anticipating a higher bid from Somnigroup International (SGI), and fully exited when that bid emerged.
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