The Market is at the Last Stage of the Bull Cycle – Here’s How to Navigate it with Valued Stocks
Charles Lemonides, founder and chief investment officer at ValueWorks, has stated that the financial landscape is approaching a critical point. Drawing from his experiences during the aftermath of the 2008 financial crisis, he advised investors to take advantage of market conditions then, declaring emphatically, “just go buy stocks, it’s all great, it’s all cheap, you’re not going to go wrong.” Fast forward to today, he believes that 2025 symbolizes the “first year of the last leg of the bull run,” suggesting that investors should prepare for a tumultuous market ahead.
Understanding the ‘Bubbly Period’
Lemonides is predicting a “bubbly period” that may span the next three to five years, reminiscent of the exuberant market that occurred between 1996 and March 2000. In a recent client letter and subsequent interview with MarketWatch, he pointed out that this final phase of the bull cycle often culminates in “an overextended, speculative market top.” As such, this phase poses particular challenges for value investors, as stocks that are generally undervalued are unlikely to yield returns in a market that increasingly favors speculative bids.
Investment Strategy Going Forward
To navigate the potentially hazardous upcoming years, Lemonides emphasizes the importance of owning a “diverse group of stocks that are different from each other.” His investment philosophy hinges on the notion that the assets owned by these companies are worth significantly more than their current market price. Lemonides articulates a future where investors should “own stocks that are unloved today that could become loved tomorrow,” as these are likely to draw attention and investor interest.
Avoiding Traps in the Tech Sector
While many investors may look to continue riding the momentum of technology stocks, Lemonides cautions against this strategy. He states, “you’re dead if you do that,” due to the unpredictable nature of tech stocks and the difficulty in rebalancing a portfolio at the right time. His firm achieved a solid 5.5% net rate of return last year, although not all investments were successful. For instance, a short position on Texas Pacific Land (TPL) turned out poorly, with the stock soaring 111% in 2024.
Successful Portfolio Adjustments
Lemonides reflects on 2024 as a year for portfolio realignment, laying the groundwork for future gains. One notable investment was Amazon (AMZN), which he acquired last August when its share price surged from $160 to $230. He highlighted Amazon’s impressive valuation at approximately $1.6 trillion, arguing that its numerous business segments, including retail, AWS, and media, could be conservatively valued at $2.5 trillion to $3 trillion, making it an attractive investment opportunity.
Highlighted Stock Picks for the Future
In his strategy of identifying undervalued stocks, Lemonides spotlighted a few key companies that he believes fit his investment criteria. One of these is Hyster-Yale (HY), a company that manufactures lift trucks and aftermarket parts, boasting $5 billion in annual sales. Despite a hefty drop of 18% in stock value during 2024 after a 145% surge in 2023, the company is viewed as having strong potential due to growing electrification trends and advancements in technology.
Another notable mention is Rivian Automotive (RIVN), which operates as the second-largest stand-alone electric vehicle (EV) manufacturer in the U.S. Trading at around $12-$13 per share, Rivian presents a significantly different risk-reward dynamic when compared to Tesla (TSLA), which carries an extensive $1.1 trillion market cap. Lemonides believes that Rivian’s more modest valuation – relative to its viability as an automaker – offers a more favorable outlook for upside potential.
Conclusion: Value Investing in Uncertain Times
The key takeaway from Lemonides’ insights is that investors should focus on high-quality assets with growth potential during this predicted bubbly phase of the market. As he succinctly summarizes, “the things that they own are worth more than today’s share price.” By identifying undervalued stocks poised for appreciation, investors can position themselves to ride the waves of this last bull cycle effectively while steering clear of treacherous speculative traps.
