Palm Valley Capital Management, an investment management firm, released the “Palm Valley Capital Fund” second quarter 2025 investor letter. A copy of the letter can be downloaded here. In the second quarter, Palm Valley Capital Fund appreciated 0.82% compared to a 4.90% gain for the S&P SmallCap 600 and a 7.28% rise in the Morningstar Small Cap Total Return Index. Cash was 76.7% of Fund assets at the start of the quarter and 73.6% at the conclusion. Year-to-date, the fund gained 1.39% compared to a 4.46% decline for the S&P SmallCap 600 and a 0.75% rise for the Morningstar Small Cap Index. In addition, please check the fund’s top five holdings to know its best picks in 2025.
In its second quarter 2025 investor letter, Palm Valley Capital Fund highlighted stocks such as Healthcare Services Group, Inc. (NASDAQ:HCSG). Headquartered in Bensalem, Pennsylvania, Healthcare Services Group, Inc. (NASDAQ:HCSG) engages in managing housekeeping, laundry, linen, facility maintenance, and dietary services within the healthcare sector. The one-month return of Healthcare Services Group, Inc. (NASDAQ:HCSG) was 1.30%, and its shares gained 41.61% of their value over the last 52 weeks. On July 7, 2025, Healthcare Services Group, Inc. (NASDAQ:HCSG) stock closed at $14.77 per share, with a market capitalization of $1.077 billion.
Palm Valley Capital Fund stated the following regarding Healthcare Services Group, Inc. (NASDAQ:HCSG) in its second quarter 2025 investor letter:
“The Fund acquired four new names during the second quarter: Healthcare Services Group, Inc. (NASDAQ:HCSG), Chord Energy (ticker: CHRD), RPC (ticker: RES), and Papa John’s International (ticker: PZZA).
Healthcare Services Group is the largest provider of housekeeping, laundry, and dietary services to nursing homes in the United States. The company has been in business for 48 years and services over 2,500 facilities. It has an 80%+ market share for facilities that outsource. After suffering from declining revenues and labor shortages during COVID, the company’s operating results have been gradually improving over the past year, along with the long term healthcare industry. In fact, management noted its first quarter results were the best they’ve seen in five years due to an increase in new clients, strong cash collections, and a strengthening balance sheet. Due to its solid first quarter and expectations of further improvements, the company raised its 2025 cash flow guidance from $45-$60 million to $60-$75 million. We’re attracted to Healthcare Services Group’s free cash flow generation and its strong debt-free balance sheet. While we were pleased with its recent operating results and improved outlook, we sold a portion of the position shortly after purchasing, as its rising stock price reduced the discount to our calculated valuation.”
An operator overseeing the linen processing operations at a large care facility.
Healthcare Services Group, Inc. (NASDAQ:HCSG) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 20 hedge fund portfolios held Healthcare Services Group, Inc. (NASDAQ:HCSG) at the end of the first quarter, compared to 20 in the previous quarter. In the first quarter of 2025, Healthcare Services Group, Inc. (NASDAQ:HCSG) reported revenue of $447.7 million, an increase of 5.7% over the prior year. While we acknowledge the potential of Healthcare Services Group, Inc. (NASDAQ:HCSG) 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 addition, please check out our hedge fund investor letters Q2 2025 page for more investor letters from hedge funds and other leading investors. While we acknowledge the potential of HCSG 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.
READ NEXT: The Best and Worst Dow Stocks for the Next 12 Months and 10 Unstoppable Stocks That Could Double Your Money.
Disclosure: None. This article is originally published at Insider Monkey.
