Conestoga Capital Advisors, an asset management company, released its third-quarter 2024 investor letter. A copy of the letter can be downloaded here. At its September meeting, the Federal Reserve lowered the Federal Funds rate by 50 basis points due to weaker employment growth and moderate inflation. Equity markets welcomed the news, raising optimism for a soft landing in the U.S. economy. On September 26th, the S&P 500 Index achieved a record high, the Russell 2000 Index also moved higher over the quarter but remains roughly 10% below its all-time high. The Conestoga Small Cap Composite surged 10.09% (net) in the third quarter outperforming the Russell 2000 Growth Index’s 8.41% return. The Conestoga SMid Cap Composite returned 12.94% (net) versus the Russell 2500 Growth Index’s 6.99% return. The Conestoga Micro Cap Composite advanced 7.60% (net) but trailed the Russell Microcap Growth Index’s return of 8.57%. Finally, the Conestoga Mid Cap Composite returned 8.36% (net) outperforming the Russell Midcap Growth Index’s 6.54%. Please check the top 5 holdings of the fund for a better understanding of their best picks for 2024.

Conestoga Capital Advisors highlighted stocks like Energy Recovery, Inc. (NASDAQ:ERII) in the third quarter 2024 investor letter. Energy Recovery, Inc. (NASDAQ:ERII) develops, manufactures, and distributes energy efficiency technology solutions. The one-month return of Energy Recovery, Inc. (NASDAQ:ERII) was 5.58%, and its shares gained 17.05% of their value over the last 52 weeks. On October 22, 2024, Energy Recovery, Inc. (NASDAQ:ERII) stock closed at $17.99 per share with a market capitalization of $1.038 billion.

Conestoga Capital Advisors stated the following regarding Energy Recovery, Inc. (NASDAQ:ERII) in its Q3 2024 investor letter:

"Energy Recovery, Inc. (NASDAQ:ERII): ERII is a global leader in energy efficiency technology through its proprietary pressure exchanger technology. Shares gained in ERII’s first full quarter in the portfolio as its results beat Street expectations on both revenue and adjusted EBITDA. The company indicated that its backlog coverage to hit full year guidance is ahead of normal. Looking forward, investors anticipate significant growth not only in its core water desalination vertical, but also in wastewater and CO2 refrigeration, two potentially large market opportunities."

A treatment plant with a large industrial wastewater treatment pipe in the foreground.

Energy Recovery, Inc. (NASDAQ:ERII) is not on our list of 31 Most Popular Stocks Among Hedge Funds. As per our database, 14 hedge fund portfolios held Energy Recovery, Inc. (NASDAQ:ERII) at the end of the second quarter which was 19 in the previous quarter. While we acknowledge the potential of Energy Recovery, Inc. (NASDAQ:ERII) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.