RS Investments, an investment management company, released its “RS Concentrated All Cap Value Strategy” third quarter 2024 investor letter. A copy of the letter can be downloaded here. During the third quarter, the rally of the year persisted, with the broad market, indicated by the S&P 500® Index, posting nearly a 6% return. This brings the total return to over 22% for the first three quarters of the year. However, there has been a shift in market breadth. In the third quarter, the strategy underperformed its benchmark Russell 3000® Value Index (the “Index”) and returned 7.4% net versus a return of 9.5% for the Index. The strong performance from stock selection in Consumer Staples and Financials aided relative performance in the quarter, while stock selection in Information Technology and Health Care detracted. In addition, you can check the fund’s top 5 holdings to determine its best picks for 2024.
RS Concentrated All Cap Value Strategy highlighted stocks like Keurig Dr Pepper Inc. (NASDAQ:KDP) in the third quarter 2024 investor letter. Keurig Dr Pepper Inc. (NASDAQ:KDP) owns and distributes beverages and single serve brewing systems. The one-month return of Keurig Dr Pepper Inc. (NASDAQ:KDP) was -1.53%, and its shares lost 1.44% of their value over the last 52 weeks. On December 31, 2024, Keurig Dr Pepper Inc. (NASDAQ:KDP) stock closed at $32.12 per share with a market capitalization of $43.569 billion.
RS Concentrated All Cap Value Strategy stated the following regarding Keurig Dr Pepper Inc. (NASDAQ:KDP) in its Q3 2024 investor letter:
“Keurig Dr Pepper Inc. (NASDAQ:KDP) was formed in 2018 following the merger of privately owned Keurig Green Mountain and publicly traded Dr Pepper Snapple Group. KDP manufactures and distributes nonalcoholic beverages, including soft drinks, coffee, juices, teas, mixers, water, and other ready-to-drink beverages. It is one of North America’s largest beverage companies, with more than 125 owned, licensed, and partner brands. It owns the #1 single-serve coffee system in the U.S. (Keurig) and has grown Dr. Pepper to become the second largest soft drink brand in the U.S., having overtaken Pepsi by the end of 2023.
While KDP has displayed steady growth and market share gains in its larger “cold beverage” segment (two-thirds of profits) for many years, the company’s at-home coffee segment (one-third of profits) slowed in 2023 as post-Covid return-to-office trends caused revenue growth to slow. Weak top-line growth on the coffee side combined with inflationary pressures to result in more muted overall earnings growth for the company in 2023. Our view was that the trends experienced in the coffee segment during 2023 would eventually stabilize, and with the cold beverage segment continuing to gain share, KDP could return to its historical earning growth pattern of 8%–10% annually. With KDP shares trading at 14x EPS (a 30% discount to beverage peers), we increased our position in KDP during 1H 2024 to become our largest name in Consumer Staples. Signs of stabilization on the coffee side started to appear on the 2Q update from KDP, which allowed shares to outperform its Consumer Staples peers this quarter. As management continues to execute and the market gains confidence in a return to historical annual earnings growth, we believe there is more upside to come in the shares of KDP given its relative discount to peers and earnings growth prospects. We therefore continue to hold KDP shares as one of our top positions in the portfolio.”
A conveyor belt filled with assorted K-Cup pods, ready for packaging.
Keurig Dr Pepper Inc. (NASDAQ:KDP) is not on our list of 31 Most Popular Stocks Among Hedge Funds. As per our database, 38 hedge fund portfolios held Keurig Dr Pepper Inc. (NASDAQ:KDP) at the end of the third quarter which was 41 in the previous quarter. While we acknowledge the potential of Keurig Dr Pepper Inc. (NASDAQ:KDP) 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 cheapest AI stock.
In another article, we discussed Keurig Dr Pepper Inc. (NASDAQ:KDP) and shared the list of best brewery stocks to buy according to hedge funds. In addition, please check out our hedge fund investor letters Q3 2024 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.
