Palm Valley Capital Management, an investment management firm, has issued the second-quarter 2026 investor letter for the "Palm Valley Capital Fund." A copy of the letter can be downloaded here. In the second quarter, the fund's investor class gained 1.80%, while the S&P SmallCap 600 rose 19.7% and the Morningstar Small Cap Total Return Index returned 14.0%. The Strategy primarily focused on small-cap categories, allocating 75% to cash equivalents. This led to underperformance relative to benchmarks. The Fund is currently seeking more small-cap opportunities that meet its return criteria and will act swiftly if market conditions improve. The Index benefited from strong contributions from data center construction and biotech sectors, while the energy industry lagged. Additionally, reviewing the fund's top five holdings can reveal its best investments in 2026.
In its second-quarter 2026 investor letter, Palm Valley Capital Management highlighted LKQ Corporation (NASDAQ:LKQ). LKQ Corporation (NASDAQ:LKQ) is a leading vehicle parts distributor used in the repair and maintenance of vehicles and specialty vehicles. On July 7, 2026, LKQ Corporation (NASDAQ:LKQ) closed at $26.21 per share, reflecting a market capitalization of $6.67 billion. LKQ Corporation (NASDAQ:LKQ) posted a one-month return of 2.91%, while its shares lost 32.54% over the past 52 weeks.
Palm Valley Capital Management stated the following regarding LKQ Corporation (NASDAQ:LKQ) in its Q2 2026 investor letter:
"The stocks most negatively affecting the Fund's second quarter return were Amdocs (ticker: DOX), LKQ Corporation (NASDAQ:LKQ), and Chord Energy (ticker: CHRD). LKQ's stock declined in the second quarter after management disclosed that the sale process for the firm's Specialty division has been diminished by tightening credit conditions for potential buyers. Regardless, LKQ's overall business appears to be on the mend, with tailwinds forming for key drivers of repairable claims. Additionally, the stock has potential catalysts from a strategic review currently underway. Shares are selling for 8.5x trailing free cash flow."
LKQ Corporation (NASDAQ:LKQ) is not on our list of 40 Most Popular Stocks Among Hedge Funds Heading Into 2026. According to our database, 43 hedge fund portfolios held LKQ Corporation (NASDAQ:LKQ) at the end of the first quarter, the same as in the previous quarter. While we acknowledge the potential of LKQ Corporation (NASDAQ:LKQ) 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.