Is Lennox International Inc. (LII) the Next Big Play in Small-Cap Manufacturing? This version maintains the essence of the original question—whether hedge funds are buying into Lennox International Inc.—while making it more engaging and succinct. The use of "Next Big Play" suggests potential growth or opportunity for investors, which could attract more interest.

We recently released a list of the 15 Little-Known Manufacturing Stocks That Hedge Funds Are Snapping Up In this piece, we will examine how Lennox International Inc. (NYSE:LII) measures up against other small-cap manufacturing companies.

On February 26, Liz Ann Sonders, who serves as the Chief Investment Strategist at Charles Schwab, appeared on CNBC’s 'Squawk on the Street' to talk about potential slowdowns in manufacturing caused by continuing policy uncertainties. According to her, the prevailing mood in financial markets currently centers around apprehensions regarding economic expansion rather than inflationary pressures. Sonders pointed out several diminishing metrics like consumer confidence polls, retail sales numbers, and service sector Purchasing Managers' Index readings. Additionally, she highlighted that heightened levels of political ambiguity result in diminished inclinations towards buying substantial machinery and equipment, leading businesses to cut back on investments and expenditure strategies. She further elaborated that throughout the last twelve months, fluctuations in interest rates were predominantly influenced first by shifts in inflation reports then later by signs indicating changes in economic performance—whether these trends involved upward movements or downturns alike. Recently though, this pattern shifted; lower bond yields seem now more closely tied with fears concerning an impending recession instead of anticipated decreases in price hikes. Consequently, investors are shifting their focus toward safer segments inside stock exchanges, signaling overall hesitancy among participants.

The latest Purchasing Managers' Index (PMI) indicates a downturn in service activities, whereas manufacturing seems to be gaining momentum. This might lead to a favorable alignment between both industries. However, according to Sonders, this boost in manufacturing may face challenges because of persisting uncertainties related to government policies. Consequently, numerous firms within the manufacturing industry are becoming more hesitant regarding their future investment plans and expansions. Additionally, Sonders highlighted that although substantial budget reduction talks were initially aimed at slashing deficits by approximately $2 trillion, the real savings fall short of even $10 billion. In her view, concentrating solely on these modest expenditure decreases would be too hasty since factors such as tariff impacts, shifts in immigration and deportation laws, along with alterations in regulations, collectively contribute to lower economic forecasts and higher anticipated inflation rates. Furthermore, she mentioned that proposed modifications in taxation will probably influence end-of-year projections instead of having an immediate impact on upcoming months.

Our Methodology

Initially, we examined financial news articles, along with data from the iShares U.S. Manufacturing ETF and the Vanguard Industrials ETF, alongside insider trading information compiled by Insider Monkey for their Q4 2024 report on hedge fund activities. This research helped us assemble a roster of small-cap manufacturing equities currently attracting investment attention from major hedge funds. By our definition, these small-caps had valuations ranging between $10 billion and $20 billion as recorded up until April 25th. From this initial compilation, we narrowed down the selections to spotlight the top fifteen companies, arranging them based on how many different hedge funds were reported holding positions within each firm. When multiple firms shared similar levels of interest measured in terms of investor count, we resolved ties using market capitalization as the deciding factor.

Why do we pay attention to the stocks that hedge funds accumulate? It's straightforward: our analysis indicates that mimicking the leading stock choices from premier hedge funds allows us to surpass the market performance. Each quarter, our monthly publication recommends 14 small-cap and large-cap equities, achieving a return of 373.4% since May 2014, which significantly exceeds its benchmark by 218 percentage points. s ee more details here ).

A maintenance worker dressed in a coverall outfit is repairing an industrial air conditioner within a manufacturing plant.

Lennox International Inc. (NYSE: LII )

As of April 25, the Market Capitalization stands at $18.71 billion.

Number of Hedge Fund Holders: 39

Lennox International Inc. (NYSE:LII) specializes in designing, manufacturing, and marketing equipment for HVACR applications—covering areas like heating, ventilation, air conditioning, and refrigeration systems. They manage their operations under two main divisions: Home Comfort Solutions and Building Climate Solutions. Their offerings reach customers via direct selling efforts as well as through partnerships with distributors and an extensive network of company-operated retail locations focused on parts and accessories.

In the first quarter of 2025, the HCS (Home Comfort Solutions) division saw a rise in sales by 7% compared to the previous year. This growth can be attributed to an advantageous product mix, since approximately half of the segment’s equipment sales for the period comprised the newer, low Global Warming Potential (GWP) R-454B model. These units met the expected pricing yield of around 10%, aligning with the firm’s projections.

Despite having stable yearly sales figures, this outcome resulted from clearing out stock issues experienced in the fourth quarter of 2024 before the purchase season being balanced out by restocking efforts focused on the newer R-454B items. In the first quarter, HCS didn’t face major reductions in their inventories; however, they expect some challenges in the second quarter. The shift towards lower global warming potential (GWP) products continues, with stocks of R-410A now almost exhausted. This move puts Lennox International Inc. (NYSE:LII) well-positioned to benefit from market demands for eco-friendly heating, ventilation, air conditioning, and refrigeration systems.

Overall, LII ranks 7th On our roster of small-cap manufacturing equities favored by hedge funds, we recognize the expansion prospects of LII. However, our confidence leans towards the notion that artificial intelligence stocks offer substantial potential for generating significant gains over a condensed timeframe. One such AI equity has surged this year despite many prominent AI shares dropping approximately 25% since January 2025. Should you seek an AI stock with greater upside potential compared to LII yet trading below five times its earnings, consider reviewing our detailed analysis available in our latest report. cheapest AI stock .

READ NEXT: 20 Top AI Stocks You Should Consider Purchasing Today and 30 Top Stocks to Purchase Currently as Recommended by Billionaires .

Disclosure: None. This piece was initially published at Insider Monkey .