At the 2025 Ben Graham Conference, the panel “Value Selection in the US Stock Market” examined how seasoned value investors are navigating elevated market concentration, shifting consumer trends, and valuation extremes. Moderated by Paul La Monica, Senior Markets Analysis Writer at Barron’s/Dow Jones, the panel featured insights from Michael Gallant, Portfolio Manager and Director of Research at Schafer Cullen Capital Management; Francis D. Gannon, Co-Chief Investment Officer and Managing Director at Royce Investment Partners; Curtis Jensen, Portfolio Manager at Robotti & Company; Charles Lemonides, Chief Investment Officer at ValueWorks; and Macrae Sykes, Portfolio Manager at GAMCO.
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2025 Ben Graham Conference – Michael Gallant, Francis Gannon, Curtis Jensen, Charles Lemonides, and Macrae Sykes
Valuation and Market Concentration
Michael Gallant states that he has been a value investor for over 20 years and while growth has largely outperformed value since around 2010, he believes a shift is now nearing. He points to stretched valuations across various metrics like price-to-earnings (PE), price-to-sales, price-to-book value, and price-to-free cash flow. He particularly favors the market cap to GDP metric (Wilshire 5000 vs. US GDP), noting it was 140% at the dot-com bubble peak and is currently 200%, indicating a very stretched market.
Francis D. Gannon echoes this sentiment, mentioning he’s been “praying for” a broadening of the market and views the current extreme market concentration as a major risk. He compares it to historical periods like the Nifty 50s and the tech bubble, noting the “Magnificent 7” stocks’ significant size, with some being larger than the entire Russell 2000 index. He highlights that at the end of the first quarter, the Russell 2000 was only 4.4% of the Russell 3000, starkly contrasting with its typical 8%??.
Francis also points to earnings as a key factor for market broadening, specifically noting an “earnings recession” in the small cap space that he believes is changing. He states that when the three-year return for the Russell 2000 is low (like the 52 basis points at the end of Q1), historical data suggests strong outperformance of about 600-700 basis points over the next three years. He believes small caps, especially small cap value, will participate in this outperformance.
Curtis Jensen admits that he has been “wrong for nine years” since joining Robotti in 2016 regarding the value pendulum, but now sees “cracks starting to show”. He suggests that the S&P 493 (S&P 500 excluding the Magnificent 7) is outperforming.
Charles Lemonides acknowledges that value has had “short periods” of outperformance over the past 15 years. However, he questions the current relevance of historical market cap to GDP comparisons (like Warren Buffett’s measure from the 1990s), arguing that today, much of the market cap is in global exposure, not solely US exposure (as it was in the 1990s). He gives examples like Nvidia, which he states is “not a US company in any meaningful way” but would be included in the Buffett metric. Lemonides suggests that market cap should be compared to global GDP. He does not have the figure off the top of his head but believes it would be closer to 50% when adjusting for this fact.
Charles believes it’s “impossible to know if… last week was the top,” but he “don’t see anything that would argue we don’t get to a richer fuller more bubbly more exuberant more overextended top over the next 3 to 5 years”. He warns that value stocks “will not outperform into a bubbly top” because such peaks are driven by “bubbly stocks,” not value.
Value Investing Strategy and Downside Protection
Charles Lemonides describes his firm’s strategy as finding “value stocks today or price like value stocks and that could be that could get reassessed into growth stocks”. He gives an example of a PE multiple potentially going from 7 to 38 in “bubbling times”, compared to a normal 11 to 16.
Regarding downside protection, Charles recalls that value was historically seen as a safeguard. This held true after the dot-com bubble burst (2000-2003), where value “crushed it” because stocks were cheap and not overextended. However, value did not outperform during the Great Recession (2006-2009) because “everything was super cheap” and “weaker business may not be around” in such a severe crisis.
Consumer Spending
Macrae Sykes suggests potential tailwinds from inflation, stating that 80% of GDP is consumer spending, and with $169 trillion of net assets, the consumer is in “good shape” and people want to spend once volatility subsides, creating growth opportunities.
Change in “Mag 7” Business Models
Michael Gallant highlights a “fundamental shift” in the “Magnificent 7” or “hyperscalers” (Google, Meta, Amazon, Apple). Their capital expenditures (capex) have “tripled over the last three years” and “doubled over the last two years” on data centers and GPUs. This means they are “no longer asset light business models” that generated tremendous free cash flow, and their free cash flows have “dependent” (likely meaning decreased or depleted) over the last year, which could be a catalyst for their underperformance.
Individual Stock Ideas
Macrae Sykes: W R Berkley Corp (NYSE:WRB) – Long Idea
Macrae presents WR Berkley, a Greenwich-based insurance company, as a long idea. He notes its $28 billion market cap.
The company has been around for 50 years and has generated a 23% Compound Annual Growth Rate (CAGR) for shareholders over that time, outperforming the S&P 500 (12.5%) and even Berkshire Hathaway.
It was founded by Bill Berkley and is now run by his son, who owns 23% of the outstanding shares.
The stock trades around 15 times earnings, which Macrae notes is a “growth multiple for an insurance company,” but highlights its strong performance through various economic cycles.
A recent catalyst is a Japanese firm, Mitsui, announcing its intention to buy up to 15% of WR Berkley, indicating confidence and potential synergies.
Macrae suggests that Berkshire Hathaway could potentially be a buyer, given their focus on insurance, though he believes WR Berkley would likely prefer to remain independent. He also mentions that private companies selling through stock could offer tax benefits to heirs, which Berkshire Hathaway could facilitate.
Charles Lemonides: Instacart (NASDAQ:CART) – Long Idea
Charles highlights Instacart as a long opportunity, noting that many people use it but don’t consider it an investment.
Instacart facilitates grocery delivery to homes with 600,000 shoppers who collect items from stores and deliver them within 30-45 minutes. Charles emphasizes it was “super super hard to create,” built over 15 years.
The company has a revenue run rate of $3.5-4 billion. Instacart generates revenue from transaction volume (about 10% of the order value) and from advertising, with roughly one-third of its revenues coming from product suggestions.
Instacart has ties to 9,000-10,000 physical stores and 2,000 brands, positioning it as a powerful “middleman between all independent retailers and the customer” for online grocery purchases.
The company has an $11 billion market cap and is “always profitable” with “pretty wide margin”. Despite stock option expenses that make financials look less profitable at times, its basic operations are “highly highly profitable”.
Charles contrasts Instacart with DoorDash, noting that DoorDash primarily delivers from restaurants, which is a simpler model, while Instacart handles complex grocery shopping.
He sees Instacart as “the future,” having achieved scale, trading at roughly 20 times this year’s earnings and 10 times cash flow.
Charles Lemonides: Texas Pacific Land Corp (NYSE:TPL) – Short Idea
Charles admits to having spoken about Texas Pacific Land previously and losing money on it.
He previously valued its assets (860,000 acres in the Permian Basin and mineral rights) at approximately $4 billion, against a market cap of $12 billion at the time.
The stock increased by 50% upon midcap index inclusion and “soared again” after being added to the S&P 500, reaching a $30 billion market cap.
Though the stock has been coming down, it is still over $20 billion.
He highlights a recent transaction where Landbridge bought acreage at $5,000 an acre, but the seller also had to pay $25 million a year in rights to use the land for water, which Charles notes is about “twice what what everyone else… charge”. He suggests the seller got a “very very full price” and the buyer paid a “very very full price,” but it made economic sense for the buyer by applying a PE to those revenues.
Curtis Jensen: U-Haul Holding Co (NYSE:UHAL) – Long Idea
Curtis favors U-Haul because it is a family-controlled business, which allows for long-term (generational) investing without external pressure and typically leads to conservative financing.
U-Haul recently celebrated its 80th anniversary. It was founded by a Naval veteran after WWII to address the need for moving goods, and today, it is the largest DIY moving and storage company in North America. The founder’s son is the current chairman.
The business has two main divisions: moving equipment and self-storage.
U-Haul has 93 million owned and managed square feet of self-storage, a business segment characterized by low maintenance capex and resilience. It benefits from the “four Ds”: death, divorce, dislocation, and downsizing, which drive demand regardless of the economy. Rent increases are easily implemented due to customer inelasticity.
While COVID-19 created a tailwind for moving, it also strained U-Haul’s rental fleet, leading to higher capex and operating expenses due to an aging fleet. However, Curtis expects this capex cycle to moderate in 1-2 years.
He points to significant “earning power in their unoccupied storage,” as the average occupancy is around 70%.
Curtis considers U-Haul an “irreplaceable business” that innovates, such as with its U-Box program (pods for driveway moving or self-storage), where they are #2 in the field.
Valuation is “tricky” because its 10x EBITDA seems “not super cheap,” but the EBITDA is currently “depressed”. Using comparable transactions in the self-storage industry (Public Storage bought a business for $240/foot, another for $160/foot), an average of $200/foot for U-Haul’s 93 million square feet equals $18 billion, which is close to U-Haul’s current market cap. This implies you are getting the “massive moving equipment business… for free”.
Curtis also judges investments by their “sleep at night ability,” implying U-Haul fits this criterion.
Francis D. Gannon: Aon PLC (NYSE:AON) – Long Idea
Francis discusses an HVAC company, AON (noted as a $5.8 billion company in the audio, but the note mentions $40B), as a long idea. He believes quality businesses like AON will provide liquidity to private equity, as small-cap companies are buying businesses from PE at discounts due to PE’s need for liquidity.
AON is an “asset light business” benefiting from two key trends:
- The EPA banned “global warming potential refrigerants” at the beginning of the year, driving demand for replacement parts and appliances for cooling systems.
- AI servers generate “8 to 10 times more heat” than typical server racks. A McKinsey report suggests that 70% of global data centers will need to redo their thermal management by 2030 (note states 40%).
The company has a new CEO who recently “lowered expectations,” causing the stock to drop. Despite this, Francis expects “pretty significant earnings over the next several years”.
Michael Gallant: VICI Properties Inc (NYSE:VICI) – Long Idea
Michael introduces VICI Properties, a Real Estate Investment Trust (REIT), as a long idea. It has a market cap of approximately $34 billion (note) and trades around $32 per share, with a 5.3% yield.
VICI is the largest casino gaming REIT, owning 49 casino properties, about half in Las Vegas and half in regional US locations.
The company emerged from the Caesar’s bankruptcy in 2015 and IPO’d in 2017.
Michael highlights the “consistency of its earnings and its funds from operations,” which are “almost to the penny what the consensus estimate is,” showing “very little variability”.
An illustration of this consistency is during COVID-19 in 2020: casinos were “completely shut down for three full months” and then operated at 50% capacity (with actual volumes at 20-25%). Yet, “not one of VICI’s tenants missed a single lease payment”. This contrasts with other REITs that saw occupancy drops and tenants asking for breaks.
The reason for this reliability is that VICI’s assets are “mission critical”: unlike retail tenants, casino operators cannot simply move down the street. VICI has maintained 100% on-time payments since its IPO in 2017.
VICI has a significant growth opportunity: there are roughly 500 commercial casinos in the US, and about half are large enough and own their real estate to be potential targets for VICI. This represents an opportunity set of around 250 casinos for VICI to acquire (currently owning 49). These sale-leaseback transactions provide casino operators with a “large cash infusion” to remodel, pay dividends, and operate an “asset light business model”.
Additionally, VICI is an “inflation beneficiary” because over half of its lease contracts have annual escalators tied to CPI (or a minimum increase, whichever is higher).
General Discussion Points
Global Market Cap to Global GDP:
When asked about global market cap to global GDP, Charles Lemonides admits he doesn’t have exact numbers but estimates it’s “half or less” based on US GDP being 20-30% of global GDP and US companies representing a large percentage of global market cap.
Macrae Sykes adds that the comparison is “not apples to apples” with historical data because the Return on Equity (ROE) for US corporations is “significantly higher” today, and a “much higher” percentage of earnings come from overseas sales.
Value Traps:
Curtis Jensen rejects the term “value trap,” stating, “there’s no such thing as a value trap only bad analysis.” He suggests investors should be “more worried about a growth trap”.
Macrae Sykes cites PayPal as an example of what might appear to be a value trap. He explains that while the stock got cheaper, the core product was becoming “less competitive in the industry,” highlighting the importance of digging into a company’s competitive position.
Michael Gallant advises against being “too quick to determine that something is a value trap,” noting that many “best performers were the worst performers over the preceding couple years”. He uses AT&T as an example, which underperformed for several years but has done “great under [its] new CEO”.