Twelve years ago, when the globe was still recovering from the global financial crisis, Charles Lemonides, founder and chief investment officer of ValueWorks, recalled his advice: “Just go buy stocks, it’s all great, it’s all cheap, you’re not going to go wrong.”
However, he claims that 2025 is poised to be the “first year of the last leg of the bull run,” according to our call this morning. And that last phase frequently “ends with an overextended, speculative market top,” according to a recent client letter from the manager of the New York hedge fund, which has over $300 million.
In an interview with MarketWatch on Tuesday, Lemonides said the next three to five years will be a “bubbly period,” similar to what transpired between 1996 and March 2000. “It’s going to be tough for value investors, generally unloved companies are not the ones that bring you to crazy market peaks.”
His objective is to buy 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.” Owning “stocks that are unloved today that could become loved tomorrow,” as well as generating investor buzz, will be crucial for managing the challenging years ahead.
Lemonides stated that “you’re dead if you do that,” as there is no way to rebalance and exit at the appropriate moment, even though investors would be enticed to ride technology stocks to the top for the next three years.
Following three years of double-digit returns, his company’s net rate of return to investors was 5.5% last year. A short in landowner Texas Pacific Land (TPL), which surged 111% in 2024, didn’t work, he claims, since it didn’t make all the proper tech investments and had too much energy exposure.
However, he claims that 2024 was a year to replenish the portfolio and create the foundation for future profits. Purchasing Amazon (AMZN) in August of last year at a $160 to $230 share zoom was one of his astute moves. He was interested in its $1.6 trillion valuation at the time since his team estimated that the retail, AWS, media, and other asset segments were individually worth around a trillion dollars. “So we felt there was $2.5 [to] $3 trillion worth of assets there, and we were paying $1.7 trillion to get them.”
Additionally, he purchased Cadeler (CDLR), a $1.6 billion company that owns a fleet of wind turbine installation ships that will profit from the expansion of offshore wind.
According to him, during prolonged market peaks, expensive stocks trade at 33 times earnings and cheap stocks at 7, while in a typical setting, low companies may trade at 11 times earnings and expensive ones at 16. “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.”
He claims that Hyster-Yale (HY), a manufacturer of lift trucks and aftermarket parts that he identified in 2023, meets this requirement. Forklifts and other warehouse-related equipment are sold by Hyster for $5 billion. The company may be excited about electrification, supply chain expansion, and its technological position. After a 145% run in 2023, shares sank 18% in 2024, and they are currently up about 6% this year.
Another company that raises concerns is Rivian Automotive (RIVN). “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.,” according to him. After Tesla (TSLA), Rivian had the highest sales of pure-play EV manufacturers in 2024, according to Kelley Blue Book.
He claims that Rivian has a much superior risk-reward ratio than Tesla, pointing to the latter’s substantial value and market capitalization of over $1.1 trillion.
Read: Nikola declares bankruptcy, another EV manufacturer fails
“The downside protection with Rivian is completely different, as is the order of magnitude of the upside. Because it won’t trade at much less than $12 billion if you are a profitable automaker with a balance sheet, investments in your plant and equipment, and sales. Can Tesla be cut in half, even though it can trade for $500 billion? Of course.”
The manager claims that every one of his stock recommendations has one shared trait: “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.”
