Market Overview - The S&P 500 Index rose 17.9% in 2025, while the Bloomberg US Aggregate Index increased by 7.3% [3] - The average investor experienced a positive sentiment driven by expectations of AI advancements and Federal Reserve easing [3] - Despite overall market gains, nearly half of U.S. stocks were down, with the bottom fifth of stocks in the Russell 3000 experiencing a median loss of 40% [18] Economic Indicators - U.S. GDP grew by 4.3% in Q3 2025, with healthcare spending and construction of new AI data centers contributing significantly to this growth [17] - The Federal Reserve's policies have led to a financial system reliant on permanent liquidity, raising concerns about long-term inflation and economic inequality [10][13] Fund Performance - The Palm Valley Capital Fund achieved a total return of 4.46% in 2025, underperforming the S&P SmallCap 600 and Morningstar SmallCap benchmarks, which gained 6.02% and 12.20% respectively [32] - The Fund's equity positions increased by 1.12% over the last quarter, benefiting from exposure to precious metals [31] Investment Opportunities - New positions were added in Domino's Pizza Group, Utz Brands, and Ingredion, with each company showing potential for growth despite current challenges [33][36][39] - Domino's holds a significant market share in the UK pizza delivery market but faces growth challenges due to a pressured consumer environment [34] - Utz Brands is well-positioned with strong free cash flow potential and improving margins, trading at approximately 12x estimated free cash flow [37] - Ingredion is focusing on modified ingredients to address wellness trends and has improved its balance sheet, trading at 10x earnings [39] Market Trends - The "Visine effect" suggests that underperforming stocks are often discarded without sensitivity to price, impacting smaller companies more significantly [21] - The rise of passive investing has altered market dynamics, leading to concentrated buying and selling pressures during rebalancing periods [21] - Despite a strong year for equities, many small caps remain fully valued, with the average profitable non-financial member of the Russell 2000 trading at an enterprise value to operating profit of 18x [26]

Core Insights - Keurig Dr Pepper Inc. (KDP) is currently undervalued with a forward 12-month P/E ratio of 16.04X, lower than the industry average of 18.31X and the sector average of 17.39X [1][4] - KDP shares have appreciated 5.9% in the last three months, outperforming the Zacks Beverages - Soft Drinks industry's growth of 1% and the broader Consumer Staples industry's return of 3.5% [4] Valuation Picture - The stock offers compelling value to investors seeking exposure to the consumer staple sector [4] Performance Analysis - KDP's strong performance in Q1 2025 is attributed to its consumer-focused innovation model, which has driven market share gains in key categories such as liquid refreshment beverages, K-Cup pods, and brewers [6][10] - The company achieved a 4.8% year-over-year increase in net sales, or 6.4% on a constant-currency basis, in Q1 2025, with a 3.6% rise in volume/mix and a 2.8% benefit from favorable pricing [10] Segment Growth - The U.S. Refreshment Beverages segment saw sales reach $2.32 billion in Q1 2024, marking an 11% year-over-year increase, supported by an 8% rise in volume/mix and a 3% increase in net price realization [11] - Strong performance in liquid refreshment beverages was driven by brands like Peñafiel and core offerings such as Dr Pepper and Crush, with the acquisition of GHOST enhancing the energy drink portfolio [12] Future Outlook - The Zacks Consensus Estimate for KDP's 2025 earnings has increased by a penny in the past 30 days, indicating positive sentiment [13] - For 2025, the consensus estimates imply 5.61% and 6.25% year-over-year growth in sales and EPS, respectively [13] Strategic Initiatives - KDP's growth reflects a strategic combination of innovation, brand activity, and strong commercial execution, with a focus on cost efficiency and disciplined capital management [7] - The company has strengthened its distribution network with new territory expansion in Tennessee and enhanced its Direct Store Delivery network in Mexico [9]