Top Performing Value Investor Explains Why the Market Isn’t Overvalued and Hasn’t Hit the Blowoff Top Phase | Charles Lemonides | ValueWorks LLC

Charles Lemonides said the market is more fully valued than it was, but not necessarily overvalued: excessive valuations are concentrated in a handful of companies rather than spread across the market. He noted that the market had risen for 18 years without a correction greater than 25%. He does not think the bull market has reached its final blowoff phase. Although the strongest returns often come in a bull market’s last years, he sees this cycle as still lacking that final lift-off. Investors should be ready for a turn but stay invested, he said, because the expansion could last another two, four, or five years.

Lemonides said strong earnings growth has supported rising share prices even as market multiples contracted over roughly the past year. He views higher rates as a reflection of strong growth and sees no sign that growth will weaken within six months. Rates are weighing on residential real estate and autos, while data-center investment and chip purchases are driving growth that he does not expect to slow soon. He described the advance as investment-led rather than consumer-led, with industrial and emerging-market strength still heavily driven by technology and AI; Korea and Taiwan are powering much of emerging markets’ outperformance.

He defines value investing as buying a dollar’s worth of assets for 50 cents, including growth businesses available at value prices. When investors begin to recognize a company as a growth business, that shift in perception can create two- to fourfold upside, he said. ValueWorks typically builds core positions of roughly 5%–7% of the fund, with secondary or tertiary positions about half that size, and reduces exposure when a sector swells to 40%–60% after a strong run. Lemonides said roughly 18% of equity exposure, or 12% of total long exposure, was sufficient for AI, within a portfolio spanning a dozen or more themes and about 15 types of investments.

Micron exemplified the strategy when operating upside coincided with low valuations relative to book value and cash flow. Lemonides said the stock rose from 70 to 1,000 over about a year and a half. ValueWorks has scaled back but retains it as a core holding; he expects strong earnings for another couple of years, while saying he is less confident in the stock at its current price than two years ago. He sees Intel as another potential value opportunity in CPUs and AI-related foundry capacity. He argued that chip supply is constrained by manufacturing capacity rather than design knowledge, and cited Intel’s added capacity and improved yields over the past year and a half. ValueWorks bought near $55, added around $47–$45, and scaled back around $100–$120; after a later pullback, Intel remained a substantial position, despite the difficulty of making money in foundry operations.

Lemonides also favors smaller growth companies trading well below industry leaders: Lyft was valued at roughly one-quarter of Uber, and Instacart at roughly one-quarter of DoorDash. He sees both as growing businesses with sufficient scale, arguing that rideshare and delivery are not winner-take-all markets because drivers, shoppers, and groceries remain marginal costs. Customer distribution, he said, is a harder challenge than access to driverless vehicles. Lyft has consistently grown and generated cash flow, while Instacart has grown consistently with much better margins than DoorDash. He thinks investor fatigue after weak share-price performance may be holding back Lyft and Instacart, and to a lesser degree Rivian, despite company results. That fatigue could ease within two to five years, and Lyft and Instacart could return twofold or fourfold in a year sometime over the next three to five years.

In energy, ValueWorks built a large position during the pandemic and trimmed it after stocks surged; Lemonides still sees a good story despite their retreat. He called domestic independent E&Ps CORD and UNIT attractive: CORD trades at roughly three to four times estimated forward cash flow, while UNIT has a $300 million equity capitalization, about $100 million in net cash, and estimated cash flow of $75 million over the next year. He also sees value in offshore supply vessels, citing tightened supply and the need for four or five support vessels per offshore drill ship. Rebuilding Tidewater’s fleet would cost about twice its current price, he said, and he expects substantial cash flow from the fleet. He assesses investments against replacement cost, expects offshore production to keep growing for five to ten years, and builds exposure over time rather than trying to call a cycle bottom.

Lemonides described shorts as security-specific and idiosyncratic, including positions in energy and growth exposures. He is short Texas Pacific Land, arguing that investors may double-count its roughly one million acres and the businesses enabled by that land when valuing the company. At $2,500 per acre, he estimates the land at about $2.5 billion, with mineral rights potentially adding a few billion; he acknowledged ValueWorks opened its short at half the current price and that the host was more right about the stock. He still considers it overvalued, especially because the royalty business’s worth depends on yield and interest rates. Elsewhere, he considers Casey’s Stores expensive at 35–40 times earnings as fuel margins turn down, and has shorted Walmart based on valuation, growth prospects, and excessive enthusiasm. In contrast, he called Boeing very cheap at a $175 billion valuation, with potential to triple if new management succeeds, while emphasizing that the outcome depends on execution.