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.
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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 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. 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, 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.
Follow Paul Katzeff on Twitter at @IBD_PKatzeff for tips about personal finance and strategies of the best mutual funds.
