Here’s Why Penn Davis McFarland Sold Fortrea Holdings (FTRE) in Q1

Penn Davis McFarland, an investment management company, released its first quarter 2025 investor letter. A copy of the letter can be downloaded here. Decades of unchecked government spending have strained the U.S. balance sheet, limiting economic growth and security, prompting President Trump to prioritize deficit reduction. The government’s noble commitment to cut spending faces challenges as it must abruptly detox a market reliant on federal support, with initiatives like DOGE and tariffs forming a two-part strategy against the deficit. The firm believes that the portfolio is well-positioned for a higher-volatility environment. The high-quality companies in the portfolio, with fortress balance sheets, are well-positioned to weather economic challenges. In addition, you can check the fund’s top 5 holdings to determine its best picks for 2025.

In its first quarter 2025 investor letter, Penn Davis McFarland highlighted stocks such as Fortrea Holdings Inc. (NASDAQ:FTRE). Fortrea Holdings Inc. (NASDAQ:FTRE) is a contract research organization. The one-month return of Fortrea Holdings Inc. (NASDAQ:FTRE) was -1.14%, and its shares lost 77.64% of their value over the last 52 weeks. On July 3, 2025, Fortrea Holdings Inc. (NASDAQ:FTRE) stock closed at $5.22 per share, with a market capitalization of $472.62 million.

Penn Davis McFarland  stated the following regarding Fortrea Holdings Inc. (NASDAQ:FTRE) in its first quarter 2025 investor letter:

“Alas, not every investment works out as well as Sprouts, and we sold Fortrea Holdings Inc. (NASDAQ:FTRE) during the quarter because management has been unable to deliver on the margin expansion they promised. Fortrea is a contract research organization that runs clinical trials for its biopharmaceutical customers. Following its spinout from Labcorp in June 2023, we anticipated the highly regarded CEO would improve margins towards the peer average over time, a thesis he himself laid out at the time of the spin. Instead, it’s been one self-inflicted problem after another, culminating in 2025 guidance that implies margins are heading the wrong way, with the high teens margins we ultimately anticipated nowhere in sight. With the thesis well off track, we took a loss in March.”

An executive team in a boardroom discussing the launch of a new drug trial.

Fortrea Holdings Inc. (NASDAQ:FTRE) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 41 hedge fund portfolios held Fortrea Holdings Inc. (NASDAQ:FTRE) at the end of the first quarter, which was 38 in the previous quarter. Fortrea Holdings Inc.’s (NASDAQ:FTRE) first quarter revenue declined 1.6% year-over-year to $651.3 million. While we acknowledge the potential of Fortrea Holdings Inc. (NASDAQ:FTRE) 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 undervalued AI stock set for massive gains.

In another article, we covered Fortrea Holdings Inc. (NASDAQ:FTRE) and shared Prosper Stars & Stripes Fund’s views on the company. In addition, please check out our hedge fund investor letters Q1 2025 page for more investor letters from hedge funds and other leading investors. While we acknowledge the potential of FTRE 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.

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Disclosure: None. This article is originally published at Insider Monkey.