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 Sprouts Farmers Market, Inc. (NASDAQ:SFM). Sprouts Farmers Market, Inc. (NASDAQ:SFM) is a retailer of fresh, natural, and organic food products under the Sprouts brand. The one-month return of Sprouts Farmers Market, Inc. (NASDAQ:SFM) was -4.07%, and its shares gained 96.69% of their value over the last 52 weeks. On July 3, 2025, Sprouts Farmers Market, Inc. (NASDAQ:SFM) stock closed at $162.29 per share, with a market capitalization of $15.881 billion.
Penn Davis McFarland stated the following regarding Sprouts Farmers Market, Inc. (NASDAQ:SFM) in its first quarter 2025 investor letter:
“Sprouts Farmers Market, Inc. (NASDAQ:SFM), the specialty grocery store chain focused on fresh produce and low cost better-for-you products, has been as outstanding performer. Our first purchase of SFM was made in the summer of 2019 at $17 and change. Several worries were weighing on the shares at the time, including the recent departure of the CEO, sluggish produce pricing and the competitive threat from Amazon’s acquisition of Whole Foods, causing the multiple to contract to a reasonable 15x forward earnings.
We saw plenty of room for expansion within the large and attractive natural and organic food segment of the grocery industry, and believed the depressed multiple offered an adequate margin of safety. A few weeks later, the company announced the appointment of Jack Sinclair as CEO, who had previously led Walmart’s U.S. grocery business, where he drove big growth by pushing local products and fresh foods…” (Click here to read the full text)
A bright, colorful display of fresh produce in a grocery store.
Sprouts Farmers Market, Inc. (NASDAQ:SFM) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 50 hedge fund portfolios held Sprouts Farmers Market, Inc. (NASDAQ:SFM) at the end of the first quarter, compared to 47 in the fourth quarter. Sprouts Farmers Market, Inc.’s (NASDAQ:SFM) sales rose 19% to $2.2 billion in Q1 2025. While we acknowledge the potential of Sprouts Farmers Market, Inc. (NASDAQ:SFM) 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 Sprouts Farmers Market, Inc. (NASDAQ:SFM) and shared the list of stocks Jim Cramer’s successful stocks predictions. 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 SFM 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.
