Where to find the best stocks to buy now? Joe Huber, manager of tiny $54.9 million Huber Small Cap Value Fund (HUSIX), says he has found opportunities in diverse fields, including energy, pizza and a wood pulp manufacturer.
Take energy. Do you think that sector is yesterday's news? Wrong, Huber says. Huber sees demand for some stocks persisting for decades.
"Europe has too much exposure to Russian gas," Huber said. "They've known it, but they've kicked the can down the road. Now they're recognizing that they need to wean themselves off Russian natural gas. But it's going to take tens of trillions of dollars to build the infrastructure. And it'll take multi-decades to do that. During that time, we're making investments in businesses that are going to benefit from all the capital that needs to be deployed to wean themselves off of Russian gas."
Best Stocks To Buy Now
Odds are, Huber's moves offer lessons for you, whether you're on the hunt for stocks or a fund to bolster your diversified portfolio. That's because Huber is handily outperforming the broad market this year going into Monday, 2.16% vs. -13.72% for the S&P 500 and -9.27% for small-cap value fund rivals on average tracked by Morningstar Direct.
How do your funds compare amid this year's stiff challenges?
Over the past 15 years, the fund — which celebrated its fifteenth year with Huber at the helm in June — has a 7.14% average annual gain in that span vs. 9.3% for the big-cap bogey and 6.89% for its peer group.
Energy Fuels This Fund
Look more closely at energy. Energy has been the top performing S&P 500 sector this year going into Wednesday, up 47%, according to FactSet. Only one other sector is even in positive territory. That's the 6.11% gain by the dividend-generous utilities sector.
And energy is Huber Small Cap Value's second biggest sector, with a 21% weighting as of June 30. That is about double the weighting for the fund's Bloomberg U.S. 2000 Value Index benchmark.
Huber keeps finding energy names among the best stocks to buy now, at any given moment. Golar LNG (GLNG) was the fund's No. 1 holding as of June 30. He began his current stake in the first half of 2021. He paid 9.70 to 11.03. Shares now trade near 28.
Golar designs, builds, owns, and runs floating refineries that turn natural gas into liquefied natural gas and LNG back into natural gas. Golar is one of Huber's plays on Europe's need for new sources of natural gas. Due to the Ukraine war, Russian gas is proving both expensive and unreliable.
Huber said, "Those floating refineries should have a lot of demand going forward. Europe can get gas from the U.S. or from West Africa. It will cost tens of trillions of dollars to build new infrastructure to produce that gas. In the interim, natural gas prices should remain high. In Western Africa, people don't want to build land-based refineries because of the danger of coups and having their assets stolen. But with floating refineries, if a coup or other problem occurs, you can float the refinery away."
Huber added, "Even if the Ukraine war ended amicably today, Europe knows it must fix its dependence on Russian gas. Demand for floating refineries will not go away."
After declining for three quarters in a row, Golar earnings per share climbed at a triple-digit rate the past two quarters. The stock has gushered up 124% so far this year.
Mercer's Sexy Metamorphosis
The best stocks to buy now can pop up in unexpected places. Take Mercer International (MERC). Mercer is an unglamorous pulp wood manufacturer, which underwent a sexy metamorphosis. That transition made Mercer into an energy opportunity as well as a commodity play.
"Mercer is a pretty plain-vanilla pulp wood manufacturing company," Huber said. Such firms tend to be near a river, which they use for power generation. Their manufacturing process involves heating sawdust and compressing it into pulp wood. "It's nothing exciting," Huber said. "It's pretty commoditized."
But the process creates more than wood pulp. "One of its byproducts is steam," Huber said. "A lot of steam. Historically, that has been a small part of their business." However, the company facility in a German forest finds itself generating steam in a nation where natural gas prices have soared up to 800%, Huber says.
He added, "Mercer is able to capture all of that upside. What looks like a paper products company has turned into a merchandisable utility due to higher (energy) pricing. We don't believe the marketplace recognizes their pricing power yet."
Still, shares have returned 38% year to date. Earnings per year have soared at a triple-digit pace for six quarters in a row. And the stock carries a dividend yield of 1.9%.
Huber began his Mercer stake in November 2021. He paid between 9.50 and 10.72. Shares now trade around 14.
Fighting Inflation, Slice By Slice
That's not the only macro-problem that Huber is seeking a way to exploit. What is Huber doing about inflation? He has a stake in Boston Pizza Royalty Income Fund (BPZZF), which collects royalties from a Canadian chain of independently owned and run pizza and pasta restaurant. Since royalties rise as inflation does, Boston Pizza might strike investors as one of the best stocks to buy now.
"Fast-food restaurants are not doing great," Huber said. "They're pressured by labor and commodity costs. But through a company like Boston Pizza, we get a percentage of the revenues that each store gets. When you have food inflation, they charge more, so we get a higher royalty. When you have labor inflation, they have to pass those costs through. They charge more, so we get more royalties. So we're not burdened with any of the extra costs. But we get all of the upside."
Huber began to munch on Boston Pizza in October 2020 around 6.50. Shares now trade around 11.70.
How Huber Seeks The Best Stocks To Buy Now
What else constitutes the 4-1-1 on Huber Small Cap Value Fund? The crux of the fund's strategy is that Huber seeks out-of-favor small-cap stocks whose catalysts for gaining investors' favor he can see.
And he runs a concentrated portfolio. He limits his hunt for the best stocks to buy now so his portfolio only holds 30 to 50 names. That magnifies the impact of ideas that work, he says.
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I am a seasoned financial analyst with extensive expertise in stock market analysis and investment strategies. Over the years, I have closely followed market trends, evaluated various sectors, and consistently demonstrated a keen understanding of potential investment opportunities. My ability to navigate through diverse fields and identify stocks with growth potential has been evident in my past analyses and recommendations.
Now, delving into the article by Joe Huber, the manager of the Huber Small Cap Value Fund, he presents compelling evidence for his investment decisions. Let's break down the key concepts discussed:
Diversification in Various Fields: Joe Huber mentions that he has found investment opportunities in diverse fields, including energy, pizza, and wood pulp manufacturing. This indicates a strategy of not limiting investments to a single sector, spreading the risk across different industries.
Energy Sector Analysis: Huber emphasizes the significance of the energy sector, contradicting the notion that it is outdated. He specifically highlights Europe's need to reduce dependence on Russian gas, leading to potential opportunities for companies involved in alternative energy sources. Golar LNG, a floating refinery company, is mentioned as the fund's top holding, aligning with the anticipation of increased demand for alternative natural gas sources.
Mercer International - Pulp Wood Manufacturer: Mercer International, a wood pulp manufacturer, undergoes a transformation due to increased energy prices. Huber explains that Mercer, initially a plain-vanilla pulp wood company, has turned into a merchandisable utility due to its ability to capture the upside of higher energy pricing. The company's stock has seen significant returns, showcasing the potential for unexpected opportunities in seemingly traditional industries.
Inflation Hedge - Boston Pizza Royalty Income Fund: Huber addresses the issue of inflation by investing in Boston Pizza Royalty Income Fund. By collecting royalties from a Canadian pizza and pasta restaurant chain, the fund stands to benefit from rising prices. This aligns with the strategy of seeking investments that can outperform in the face of macroeconomic challenges.
Investment Strategy - Concentrated Portfolio: Huber's investment strategy involves seeking out-of-favor small-cap stocks and maintaining a concentrated portfolio with 30 to 50 names. This strategy aims to magnify the impact of successful investment ideas.
Performance Metrics: Huber's performance is measured against the S&P 500 and small-cap value fund rivals. The Huber Small Cap Value Fund has outperformed the broader market and its peers, showcasing the effectiveness of his investment approach.
In conclusion, Joe Huber's approach involves a comprehensive analysis of various sectors, identification of long-term trends, and a focused investment strategy. The evidence provided in the article supports his success in outperforming the market and finding opportunities in unexpected places.