Trade Deal Or No, These 2 Stocks Will Outperform

Last week, I suggested that you buy bonds instead of stocks. It's the smart play.

Even after the big rally Treasury Secretary Scott Bessent managed to spark with his tariff reduction talks last week, you would still be better off collecting the coupon from bonds and in a position to cash in some sharp capital gains if the economy does weaken materially and the Fed is forced to lower rates.

Despite the feel-good talk coming out of D.C., it's highly unlikely that the trade-related volatility is over.

Even if the whole world goes to Washington ready to make a deal, it has traditionally taken more than a year to hammer out the terms. And China is denying any talks are taking place.

In times like these, income and small-cap value investments have performed the best.

Following a trade agreement, implementation usually takes a few years to execute. While there have been some discussions, no one seems to be in a rush to have talks at this point.

The major target of all this madness, China, has made it clear as of this writing that it is not talking to Washington and will not talk to Washington until President Trump and his team dial back their harsh rhetoric.

We are more than overdue for some version of a lost decade in stocks, and the uncertainty surrounding tariffs and global trade might be the starter pistol.

If that happens, collecting yield will be more critical than ever.

If you look at the 1970s and the 2000-2010 time period, owning bonds and preferred stocks worked out much better than owning or trying to trade stocks.

Small-cap value strategies also performed very well from 2000 through 2010, a period when the large-cap indexes returned negative returns.

Of course, we can never predict for certain how the world and markets will play out.

Given the economic uncertainty and elevated valuations after a long period of historical outperformance, a lost decade in stocks appears not only possible but probable.

Which brings us to the big question: What if it does not happen?

How will we fare if we position to profit in a lost decade and, instead, the bull market continues to run higher?

It is far from an impossible scenario.

If we hit the right side of the Trump policy Bell Curve and see a massive reshoring of industry, driving a construction boom along with lower taxes and interest rates, we could see a long-term rally of historic proportions.

Add in AI-driven improvements in technology and healthcare, and it could truly be a renaissance of the economy and market.

Should that happen, a portfolio full of high-yield investments and undervalued stocks with a margin of safety in their balance sheets, credit practices and operational excellence should perform at least as well as the indexes.

There would be a huge credit upgrade as companies saw their cash flows increase and balance sheets become even stronger.

The booming economy would lead to a massive M&A wave, and financially solid smaller companies would be among the targets of choice.

I am well aware that most of you read this not so much for my higher-level thoughts but for stock ideas that might be worth adding to your current portfolio.

With that thought in mind, here are two deep-value small-cap stocks worth your attention.

Laureate Education LAUR is a higher education company that runs a network of private universities, mainly in Mexico and Peru. After years of being spread out all over the globe, they’ve trimmed things down and focused on where they see the best long-term demand.

Laureate operates in places with young, growing populations and a rising middle class hungry for degrees. Their schools offer a wide range of programs, from business and engineering to health sciences, and they’re aimed at students who want a solid education without the high costs.

The company allows its universities to operate with a good deal of independence but still provides support in areas such as strategy, marketing, and technology. It’s a model that helps them keep things running efficiently while still tailoring to local markets. After selling off operations in other regions, Laureate used the cash to clean up its balance sheet and return money to shareholders. Now, they’re a leaner, more focused business with steady cash flow and solid enrollment trends in places where demand for higher education just keeps growing.

The stock is trading at just 8 times the cash produced by the business, and the company has outstanding fundamentals and a more than adequate margin of safety.

World Kinect Corporation WKC, formerly known as World Fuel Services, is essentially a global middleman for energy. Based in Miami, the company initially focused mainly on selling fuel to planes, ships and trucks around the world. But over time, it’s broadened its playbook. These days, World Kinect helps companies not only buy fuel but also manage energy costs, hedge against price swings, and determine how to meet their sustainability targets. Their customers range from airlines and shipping fleets to industrial giants and even government agencies.

The customer base is basically anyone who needs a lot of energy and doesn’t want to get burned by price spikes or supply headaches.

What’s interesting is how they’ve started leaning more into the clean energy and ESG side of things. They’re now offering services like renewable energy sourcing, carbon offsets, and energy efficiency advice. It’s still mostly a fuel business at heart, but they’ve been smart about not getting left behind as more companies go green. They run an asset-light operation that is more about logistics, relationships, and scale than owning refineries or power plants.

The bottom line: it’s a steady, cash-generating business that’s finding ways to stay relevant in a world that’s rethinking how it uses energy.

The company has outstanding fundamentals, a huge margin of safety and trades at less than nine times the cash the business generates. It also pays a sizable dividend of almost 3%.

The combination of high income and small-cap deep value should deliver outstanding returns, regardless of what happens in the markets.

If the markets do go south or sideways for a long time, the combination can help you not only survive but thrive through the turbulence.

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