Remember when everyone was obsessed with growth stocks and AI? Yeah, that party’s winding down. Bill Smead—the guy who runs a value fund that’s crushed 97% of its competition over 15 years—is basically saying “I told you so” right now, and honestly, he’s earned it.
Here’s the deal: after years of watching tech stocks moon while value plays gathered dust, the rotation is finally happening. Energy, industrials, and small-cap stocks are having their comeback tour, and it’s because investors are slowly waking up to a simple truth—maybe spending hundreds of billions on AI infrastructure won’t magically print money forever.
But here’s where it gets spicy. Even with this shift underway, valuations are still bonkers. Smead uses the Warren Buffett Indicator (total market cap divided by GDP) to measure this, and it’s sitting at an all-time high of 216%. Translation: the market is still expensive, and concentration is at historic levels. The S&P 500 is basically being carried by a handful of mega-cap tech stocks, which is exactly the kind of setup that leads to mediocre returns for the next decade—something Goldman Sachs and Morgan Stanley have been warning about.
“Most everybody owns too much of their money in 70% of the S&P that’s not going to do well in the next 10 years,” Smead said. Ouch.
So where’s he putting his money? Three picks that are genuinely cheap:
DR Horton and Lennar (the homebuilders): After years of mortgage rates freezing the housing market, things are thawing. Here’s the kicker—there are more 20-to-40-year-olds than ever before, but fewer of them own homes than ever before. When they finally get their shot, we’re going to need a ton of new houses. Plus, Smead thinks prospective buyers will cash out their bloated tech gains to fund down payments. “You’d rob the S&P 500 and tech stocks,” he said. “Notice, the last couple months, money is coming out of those, and mortgage rates have been coming down.” Subtle flex.
U-Haul (UHAL): Smead calls these shares “very depressed,” and he thinks the market is sleeping on the company’s balance sheet strength. Here’s his wild take: “The entire market capitalization of U-Haul is represented by their storage units, and you’re getting a $5 billion leasing business for free.” When people start buying homes and moving, U-Haul wins. It’s that simple.
The broader point? Value investing isn’t dead—it’s just been napping. And after 15 years of growth stock dominance, the market’s finally remembering that boring, cheap stocks can actually make you money. Smead’s been saying this since September, and the data is backing him up.
If you’ve been sitting in mega-cap tech waiting for the next leg up, maybe it’s time to look around. The value rotation is real, and it’s just getting started.