MW The market is at the last stage of the bull cycle - but that may take a while. Here are three stocks from this value-focused manager.

By Barbara Kollmeyer

A potentially treacherous 'bubbly period' looms, says Charles Lemonides

Charles Lemonides, founder and chief investment officer at ValueWorks recalls his advice 12 years ago as the world was emerging from the global financial crisis "just go buy stocks, it's all great, it's all cheap, you're not going to go wrong."

But he says 2025 is setting up to be the "first year of the last leg of the bull run," in our call of the day. And that final stage often "ends with an overextended, speculative market top," the manager of the $300 million-plus New York hedge fund said in a recent client letter.

Much like what happened between 1996 and March 2000, the next three to five years will be a "bubbly period," Lemonides told MarketWatch in a Tuesday interview. "It's going to be tough for value investors, generally unloved companies are not the ones that bring you to crazy market peaks."

His goal is to own a "diverse group of stocks that are different from each other, but that all have a sense of the stuff that they own in the real world is worth more than you're paying for today." And navigating tough years ahead will be about owning "stocks that are unloved today that could become loved tomorrow," and could also draw investor buzz.

While investors could be tempted to ride technology stocks for the next three years to the top, Lemonides said "you're dead if you do that," because there's no way to rebalance and get out at the right time.

His firm earned investors a 5.5% net rate of return last year, after double-digit returns in the previous three years. He says some shorts didn't work, such as one in landowner Texas Pacific Land $(TPL)$, which soared 111% in 2024, and it didn't make all the right tech bets and had too much energy exposure.

But 2024 was a year to reload the portfolio and lay the groundwork for making money in the years ahead, he says. One savvy move he made was to buy Amazon $(AMZN)$ last August, catching a $160 to $230 share zoom. Its $1.6 trillion valuation at the time caught his attention, as his team figured retail, AWS and media and other assets units were worth about a trillion dollars each. "So we felt there was $2.5 [to] $3 trillion worth of assets there, and we were paying $1.7 trillion to get them."

He also bought Cadeler $(CDLR)$, a $1.6 billion owner of a fleet of wind turbine installation vessels set to benefit from offshore wind growth.

In a normal environment, cheap stocks might trade at 11 times earnings and expensive ones at 16, but during extended market tops, pricey stocks trade at 33 times and cheap ones at 7, he says. "What we try to do is find 25 of those stocks that are [between] 7 and 10 times earnings and could easily get revalued as the 30 times stock."

Hyster-Yale $(HY)$, a lift-truck and aftermarket parts maker he flagged in 2023 fits this bill, he says. Hyster sells $5 billion worth of forklifts and warehouse-type equipment, with a potential excitement around electrification, a supply chain build out, and its technology position. Shares fell 18% in 2024 after a 145% run in 2023, and are up around 6% so far this year.

Rivian Automotive $(RIVN)$ is another holding he flags. "Trading at $12-$13 a share for a $12-$13 billion equity cap they are by far the second-largest stand-alone EV maker in the U.S.," he says. According to Kelley Blue Book, Rivian had the most sales among pure-play EV makers in 2024 after Tesla $(TSLA)$.

He says Rivian's risk-reward potential far better than Tesla, noting the latter's $1.1 trillion-plus market cap as well as hefty valuation.

"The order of magnitude of upside in Rivian is totally different and the downside protection is totally different. Because if you are a viable automaker and you have a balance sheet and you've invested in your plant and equipment, and you're generating sales, it's not going to trade at much less than $12 billion. Whereas can Tesla trade to $500 billion, can it get cut in half? Absolutely."

The manager says all of his stock picks have one thing in common: "The things that they own are worth more than today's share price, and that they are really high-quality assets, and that those assets could be growing in value and those stocks could go from being unloved secondary names to super-loved, high momentum names."

Read: 20 companies expected to put up numbers to back investors' new 'growth mindset'

The markets

U.S. stock futures (YM00) (ES00) (NQ00) are tilting south, with Treasury yields BX:TMUBMUSD10Y BX:TMUBMUSD02Y steady. Gold (GC00) continues to climb.

   Key asset performance                                                Last       5d      1m      YTD     1y 
   S&P 500                                                              6129.58    1.04%   2.22%   4.22%   22.46% 
   Nasdaq Composite                                                     20,041.26  1.66%   2.09%   3.78%   27.04% 
   10-year Treasury                                                     4.549      -8.00   -6.70   -2.70   22.84 
   Gold                                                                 2951.5     0.50%   8.05%   11.83%  45.72% 
   Oil                                                                  72.05      -0.58%  -5.66%  0.25%   -7.91% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

President Trump said he would likely impose import tariffs of 25% or more on autos, semiconductors and pharmaceuticals.

Home builder Toll Brothers $(TOL)$ missed earnings expectations.

Analog Devices $(ADI)$ announced $10 billion in stock buybacks.

Health-equipment maker Philips $(PHG)$ is warning, again, on sales in China.

Elon Musk's X is reportedly looking to raise money at a $44 billion valuation.

Housing starts coming at 8:30 a.m., with minutes of the Federal Open Market Committee's January meeting due at 2 p.m.

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Top tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.:

   Tickers  Security name 
   NVDA     Nvidia 
   TSLA     Tesla 
   SMCI     Super Micro Computer 
   PLTR     Palantir Technologies 
   GME      GameStop 
   INTC     Intel 
   ADTX     Aditxt 
   BABA     Alibaba 
   TSM      Taiwan Semiconductor Manufacturing 
   AMD      Advanced Micro Devices 

Random reads

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-Barbara Kollmeyer

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February 19, 2025 06:50 ET (11:50 GMT)

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