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Investment management company First Pacific Advisors recently released its “FPA Queens Road Small Cap Value Fund” first-quarter 2026 investor letter. A copy of the letter can be downloaded here. In a volatile but positive quarter, the FPA Queens Road Small Cap Value Fund (“Fund”) returned 6.07%, beating the Russell 2000 Value Index’s 4.96%. The Fund expects better performance in down markets and underperformance in speculative ones due to its disciplined approach. Amid ongoing global commodity shocks, political issues, and economic fallout from the Iran conflict, the letter discusses small-caps and the firm's long-term investment strategy. In Q1, the fund continued to rebalance the portfolio towards higher-quality holdings, focusing on balance sheet strength, earnings consistency, and returns on capital. In addition, please check the Fund’s top five holdings to know its best picks in 2026.

In its first-quarter 2026 investor letter, FPA Queens Road Small Cap Value Fund highlighted Sprouts Farmers Market, Inc. (NASDAQ:SFM). Sprouts Farmers Market, Inc. (NASDAQ:SFM) is a US-based retailer of fresh, natural, and organic food products under the Sprouts brand. On May 11, 2026, Sprouts Farmers Market, Inc. (NASDAQ:SFM) closed at $81.58 per share. One-month return of Sprouts Farmers Market, Inc. (NASDAQ:SFM) was 8.50%, and its shares lost 48.52% over the past 52 weeks. Sprouts Farmers Market, Inc. (NASDAQ:SFM) has a market capitalization of $7.67 billion.

FPA Queens Road Small Cap Value Fund stated the following regarding Sprouts Farmers Market, Inc. (NASDAQ:SFM) in its Q1 2026 investor letter:

"Sprouts Farmers Market, Inc. (NASDAQ:SFM) is a supermarket chain focusing on fresh, natural, and organic products. The company has strong operating margins, attractive returns on capital, and excellent new store economics. Through April 2025, SFM’s stock performed extremely well in concert with strong revenue growth and rising earnings estimates. As SFM’s valuation increased, we trimmed our position in late 2024 and early 2025. Then, when growth slowed in the second half of 2025, SFM’s share price collapsed. Today, SFM trades at a low-teens multiple of forward earnings and we are comfortable holding a mid-sized position."

Sprouts Farmers Market, Inc. (NASDAQ:SFM) is not on our list of 40 Most Popular Stocks Among Hedge Funds Heading Into 2026. According to our database, 53 hedge fund portfolios held Sprouts Farmers Market, Inc. (NASDAQ:SFM) at the end of the fourth quarter, the same as in the previous quarter. In Q1 2026, Sprouts Farmers Market, Inc. (NASDAQ:SFM) posted $2.3 billion in sales rising $93 million from prior year's period. While we acknowledge the potential of Sprouts Farmers Market, Inc. (NASDAQ: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.

In another article, we covered Sprouts Farmers Market, Inc. (NASDAQ:SFM) and shared the list of stocks delivering eye-popping gains. Riverwater Sustainable Value Strategy initiated a position in Sprouts Farmers Market, Inc. (NASDAQ:SFM) during Q1 2026, citing confidence in the underlying business. In addition, please check out our hedge fund investor letters Q1 2026 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.