Mar Vista's U.S. Quality Strategy Sold PepsiCo (PEP) Despite Its Resilient Nature

Mar Vista Investment Partners, LLC, an investment management company, released the “Mar Vista U.S. Quality Select Strategy” first quarter 2025 investor letter. A copy of the letter can be downloaded here. US stocks suffered their worst quarter in three years, with the steepest losses since 2022, due to tariff concerns and economic stagnation fears. In the first quarter, the strategy returned -3.05% net-of-fees compared to -4.49% and -4.27% returns for the Russell 1000® Index and the S&P 500® Index, respectively. Stock selection within healthcare, communication services, and consumer staples detracted from the fund’s performance during the quarter. In addition, please check the fund’s top five holdings to know its best picks in 2025.

In its first-quarter 2025 investor letter, Mar Vista U.S. Quality Select Strategy highlighted stocks such as PepsiCo, Inc. (NASDAQ:PEP). PepsiCo, Inc. (NASDAQ:PEP) is an American multinational company that manufactures, markets, and distributes various beverages and convenient foods. The one-month return of PepsiCo, Inc. (NASDAQ:PEP) was -9.59%, and its shares lost 23.42% of their value over the last 52 weeks. On April 24, 2025, PepsiCo, Inc. (NASDAQ:PEP) stock closed at $135.31 per share with a market capitalization of $185.552 billion.

Mar Vista U.S. Quality Select Strategy stated the following regarding PepsiCo, Inc. (NASDAQ:PEP) in its Q1 2025 investor letter:

"Despite PepsiCo, Inc.'s (NASDAQ:PEP) stock trading at a modest discount to fair value, the absence of clear actions for immediate improvement in Frito-Lay’s and carbonated soft drink (CSD) trends makes it challenging to foresee a narrowing of the valuation gap. While the business remains resilient, we recycled the capital into better opportunities within the portfolio.

From a broader perspective, PepsiCo faces increasing fundamental pressures. The U.S. Department of Health’s push for stricter regulations on artificial ingredients and carbonated soft drinks in schools adds to the already significant challenge posed by GLP-1-driven shifts in consumer behavior. While PepsiCo is better positioned than many peers to navigate the artificial ingredient issue, the lost beverage volume is unlikely to be recovered. This structural change creates a difficult financial outlook despite the company’s strong brand portfolio.

Our initial decision to trim our position a year ago at higher prices was based on these concerns, and today, the thesis appears even more challenging. While valuation and bearish sentiment provide some support, the main concern is intrinsic value growth. PepsiCo encounters challenges in reaching its ambitious 8-10% growth target over the next two years. These obstacles include the headwinds posed by GLP-1, regulatory risks, and the potential for product boycotts stemming from tariff-related tensions.

The stock’s value rose by 10% intra-quarter, partly due to the trend towards investing in defensive companies. Taking advantage of that staples’ outperformance period, we decided to sell our investment."

PepsiCo, Inc. (NASDAQ:PEP) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 69 hedge fund portfolios held PepsiCo, Inc. (NASDAQ:PEP) at the end of the fourth quarter, compared to 58 in the third quarter. While we acknowledge the potential of PepsiCo, Inc. (NASDAQ:PEP) 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 covered PepsiCo, Inc. (NASDAQ:PEP) and shared the list of best large-cap value stocks to buy as the recession hits. In addition, please check out our hedge fund investor letters Q1 2025 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.