Under the Radar: The Quiet Path to Investment Success

Allow me to reiterate one very important point:

I have no idea where markets will close next year.

I cannot tell you which stock will be the top performer.

I do not know how many times the Fed will cut interest rates.

I may have an opinion about what interest rates will do next year, but I would not bet on it.

Before you think all this prediction stuff is easy and worth backing with bets, remember that this time last year, pretty much everyone thought we would see five or six interest rate cuts this year.

AI was the big story, but how many of us knew that a company that generates electricity, one that owns land in Texas, and a legacy airline would be among the top-performing stocks?

How many people predicted that blue chips like Walgreens WBA and Intel INTC would collapse by more than 50%?

Wall Street’s average prediction was for the S&P 500 index to close around 4900.

It is over 6000 as I write this.

Here is what I can tell you about the markets with a great deal of conviction and am willing to bet on:

Historically, deep-value stocks have beaten the indexes.

Buying companies that trade at low multiples of the cash produced by the business, have solid credit, and are actively repaying debt tends to provide outsized returns over time.

Consider it a combination of Ben Graham and the best private equity managers.

Take good businesses trading at bargain valuations and use cash to reduce debt.

It’s a recipe that has delivered huge returns for patient, aggressive investors willing to ignore the headlines and avoid the popularity contests of day-to-day market activity.

StealthGas GASS is a perfect example of a company to which Wall Street is paying no attention, and the opportunity for long-term profits is massive.

StealthGas is in the tanker business, specifically Pressurized LPG Carriers.

The company’s fleet specializes in transporting various petroleum and petrochemical gas products in liquefied form, including propane, butane, butadiene, isopropane, propylene, and vinyl chloride monomer, all of which are byproducts of natural gas and crude oil production.

While you may not be familiar with these chemicals, they are used in everything from cooking and heating homes to refrigeration, aerosol propellants, and making ammonia.

Wall Street is looking elsewhere, and StealthGas is doing well.

StealthGas reported strong financial results in the most recent quarter, with revenues increasing 17% year-over-year to $40.4 million. The improved earnings were driven by higher charter rates and the addition of larger vessels to the fleet, which offset a slight decline in fleet size.

The company is generating cash and using it to pay down debt.

StealthGas reported strong liquidity on the balance sheet with $77.4 million in cash and short-term investments. The book value of its fleet increased to $605 million, reflecting the addition of two medium gas carriers (MGCs). Meanwhile, equity rose by $60 million (an 11% increase) over nine months, showcasing a strengthened capital structure.

This is a business that is getting better and, more importantly, becoming financially stronger.

The company scores very high on my credit ranking system, and the debt load will likely continue to shrink.

No one is paying any attention, and the stock is currently trading for less than the value of the assets it owns and less than five times the cash generated from operations.

The two largest shareholders are an investment firm controlled by the CEO and a special situation firm, Glendon Capital, which has a strong track record and history of successful energy-related investing.

Between the two, they own about 35% of the company.

I have no idea what the stock will do in the short term. If history is any guide, it will probably go down before it goes up, as has been the case with my deep value picks over the years.

In the long term, I expect this stock to trade back to the value of its assets at some point over the next few years.

That is about three times the current stock price.

Much as is the case for the stock market, I have no idea what the gold markets will do in 2025.

Gold will probably go higher if we have higher inflation and global uncertainty.

If we pull off an economic miracle, have a soft landing with decent growth and no inflation, and do not have a good old-fashioned trade war, prices may come down slightly.

I have no idea what prices will do.

I do know that shares of Harmony Gold Mining HMY are cheap.

This one is even more interesting than domestic miners as it is based in South Africa, the land of peace and domestic tranquility.

Harmony Gold Mining Company Limited is a South African gold mining and exploration company with operations primarily in South Africa and Papua New Guinea. The company is one of the largest gold producers in South Africa, with a diverse portfolio of underground, open-pit, and surface mines, related assets, and exploration projects.

I have no idea what the price of gold will be or what the political situation in South Africa will be like next year. I know it’s a good company with growing earnings and revenues and a solid credit profile.

Very few analysts follow the stock, which, as a result, is trading at a single-digit multiple of the business’s cash flow.

I do not have to predict what the economy or market will do over the next year.

Peter Lynch spent close to zero time thinking about the economy and market while building the best track record of any mutual fund manager.

Walter Schloss did not spend any time worrying about where the indexes might go on a day-to-day basis during the 47 years he averaged 20% gains annually for his clients.

Both of them focused on buying good businesses at reasonable prices that were under Wall Street’s radar screen.

We should do the same.