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Baron Capital, an investment management company, released its Q2 2026 investor letter for the "Baron Small Cap Fund." Baron Small Cap Fund gained 12.57% (Institutional Shares) in the second quarter, trailing the Russell 2000 Growth Index's 25.71% return. A copy of the letter can be downloaded here. U.S. equities rebounded sharply after March's selloff related to the U.S.-Iran conflict, with AI infrastructure, semiconductors, and other technology stocks driving much of the market's gains. Small caps also outperformed large caps, although performance remained concentrated in high-Beta and Momentum stocks, areas where the Fund has historically had less exposure. The Fund benefited from several AI-related and industrial holdings, but software and services stocks remained pressured by concerns that AI could disrupt their businesses. Looking ahead, management believes broader market participation, attractive small-cap valuations, improving industrial growth, and stronger earnings could support future returns despite continued uncertainty around oil prices, inflation, and interest rates. In addition, please check the Fund's top five holdings to know its best picks in 2026.

In its second-quarter 2026 investor letter, Baron Small Cap Fund highlighted Casella Waste Systems, Inc. (NASDAQ:CWST). Casella Waste Systems, Inc. (NASDAQ:CWST) operates as a vertically integrated solid waste services company in the United States. On August 18, 2026, Casella Waste Systems, Inc. (NASDAQ:CWST) closed at $89.91 per share. The one-month return of Casella Waste Systems, Inc. (NASDAQ:CWST) was -0.58% and its shares lost -11.07% over the past 52 weeks. Casella Waste Systems, Inc. (NASDAQ:CWST) has a market capitalization of $5.72 billion.

Baron Small Cap Fund stated the following regarding Casella Waste Systems, Inc. (NASDAQ:CWST) in its Q2 2026 investor letter:

"We acquired shares of Casella Waste Systems, Inc. (NASDAQ:CWST), a well entrenched market leader with high barriers to entry in an industry we understand well (after more than a decade owning Waste Connections, Inc.) at what we believe is an attractive entry point. In both cases, we feel the issues leading to lower stock prices are temporary, creating long-term opportunities in the stocks."

Casella Waste Systems, Inc. (NASDAQ:CWST) is not on our list of the 40 Most Popular Stocks Among Hedge Funds. As per our database, 28 hedge fund portfolios held Casella Waste Systems, Inc. (NASDAQ:CWST) at the end of the first quarter which was 28 in the previous quarter. While we acknowledge the potential of Casella Waste Systems, Inc. (NASDAQ:CWST) 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 Casella Waste Systems, Inc. (NASDAQ:CWST) and shared a list of stocks that beat second quarter earnings expectations. In addition, please check out our hedge fund investor letters Q2 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.