MW Forget the wealthy. Why this value manager is betting on average Americans, and the stocks he's buying now.

By Barbara Kollmeyer

Bill Smead is taking the long view with some out-of-favor sectors

When stocks start to crumble, Smead Capital Management's Bill Smead says investors need to stick to stocks that serve average Americans.

When time runs out on this AI-fueled stock market rally, it's the average American who will save your portfolio.

That's our call of the day from Smead Capital Management's founder and chief investment officer Bill Smead, who co-manages the $4.5 billion Smead Value Fund SMVLX. The fund's mandate is to buy "meritorious businesses when they fall deeply out of favor," and then just hang on.

"We're basically looking for a business that's demonstrated very consistent behavior from a balance sheet and profit and free cash flow standpoint that has a defendable market position," Smead told MarketWatch on Wednesday.

The fund's top sectors are consumer discretionary and energy, and not popular tech. His fund is trailing the Russell 1000 Value Benchmark Total Return index this year and over three years, though ahead on an five and 10-year basis.

Smead, who got his start in 1980, says he doesn't "envy people who make money in the racy stuff," and his concerns are summed up by this quote in a third-quarter letter: "Money is being spent building out AI capabilities like drunken sailors on leave."

The value manager expects a "lost decade" for stocks, mirroring what happened between the dot-com bust and after the global financial crisis, and two major bear markets in the next seven to eight years. "Our job is to make money in that by avoiding the center of what's going to do the worst when those bear markets come," he said.

One big worry surrounds his massive baby boomer generation - "when the markets turn sour, their spending will go down dramatically," he said, though his 43-year old son Cole, who co-manages the value fund believes his generation will "carry the game." Smead said the $10 million to $20 million houses popping up in his hometown of Paradise Valley, Arizona are "being built with stock market wealth."

His solution is to buy companies that rely on average Americans, such as D.R. Horton $(DHI)$, bought in 2020, and Lennar $(LEN)$, owned since 2018. "D.R. Horton is the Costco $(COST)$ of home building, but it trades at one-fourth of the price/earnings multiple of Costco," he said. Home builders have been correcting, but he sees that as temporary until the next leg arrives.

"We've settled in at a level of home building that is way below historical average, and part of that has to do with the fact we have a large group of people between 20 and 40 that are much slower to get married and much slower to have children, so the necessity of buying a home hasn't emerged as quickly, but it will," he said.

Another "average American" stock they own is Target (TGT) - Walmart $(WMT)$ is "too expensive," which will hurt it in a stock correction, he said. "Well educated women walk in there to get three things they need, and walk out with three things they don't need," the latter of which is at the core of Target's profit margin, he said.

His fund is also exposed to healthcare, "the most out-of-favor sector relative to the S&P 500 it's been since 1993." They own Merck $(MRK)$ - "very much a bargain"- and Amgen $(AMGN)$, in the fund almost since inception. "Even though it's gone up a lot, it trades at about 13 or 14 times earnings with returns on equity that are very similar to Apple," he said of the latter.

The fund is also overweight oil and gas, with stocks like Diamondback $(FANG)$, Occidental Petroleum $(OXY)$ and ConocoPhillips $(COP)$. Smead said they mistakenly entered this year as economic optimists, getting "hit hard" by the tariff tantrum. Still he believes the oil-producing Permian Basin is "starting to roll over," and will become the biggest detractor to oil supplies in the next 10 years, driving up energy stocks.

His fund does have one toe in technology - Qualcomm $(QCOM)$, owned since 2018. "Nobody has any interest in Qualcomm because they're not at the center of the AI conversation," but the chip designer "has generated 40% and 50% return on equity consistently for the last 10 years," and it's cheap.

"If their earnings grow 10% a year the next 10 years that's going to be a spectacular stock, even if it just has a 15 [times price/earnings] multiple," Smead said.

The markets

U.S. stock futures (ES00) (YM00) (NQ00) are trading higher, with tech lifted by Taiwan Semiconductor earnings. Treasury yields BX:TMUBMUSD10Y BX:TMUBMUSD02Y are down, gold (GC00) and silver (SI00) are aiming at fresh records and crude (CL00) is higher.

   Key asset performance                                                Last       5d      1m      YTD      1y 
   S&P 500                                                              6671.06    -1.22%  1.07%   13.42%   14.18% 
   Nasdaq Composite                                                     22,670.08  -1.62%  1.84%   17.40%   23.43% 
   10-year Treasury                                                     4.03       -11.40  -7.80   -54.60   -6.60 
   Gold                                                                 4244.9     6.36%   15.41%  60.83%   56.74% 
   Oil                                                                  58.82      -4.39%  -7.09%  -18.16%  -16.87% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

Charles Schwab $(SCHW)$, Bank of New York Mellon $(BK)$, U.S. Bancorp $(USB)$ and Travelers Cos. $(TRV)$ earnings are ahead.

Taiwan Semiconductor $(TSM)$ stock is rising after the chip maker beat forecasts and raised guidance.

Salesforce (CRM) is up after the software company boosted guidance for the next few years.

United Airlines' $(UAL)$ revenue missed expectations for a third-straight quarter, and the stock is down.

J.B. Hunt Transport Services stock $(JBHT)$ is climbing after the logistics group reported higher profit.

NIO stock $(NIO)$ is tumbling after a lawsuit was filed against it by a Singapore sovereign-wealth fund.

UnitedHealth stock $(UNH)$ is rising. Soros Fund Management and Appaloosa Management bought more of it in the second quarter.

The Philly Fed manufacturing survey is due at 8:30 a.m. and a home-builder confidence index at 10 a.m. There's lots of Fedspeak, including appearances by Fed governors Stephan Miran and Christopher Waller at 9 a.m. and Fed governor Michelle Bowman at 10 a.m.

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The chart

Beware of the Halloween dip, says Citadel Securities' Scott Rubner, whose chart shows we're in one of the choppiest months for stocks. On average, Oct. 26 tends to mark the fourth-quarter low for the S&P 500 and Oct. 27 for the Nasdaq-100 NDX, he said. "Late October dips typically set up powerful year-end rallies," so treat those as "buy opportunities," said Rubner.

Also read: This record number shows just how aggressively retail traders bought the dip on Friday

Top tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.:

   Ticker  Security name 
   NVDA    Nvidia 
   TSM     Taiwan Semiconductor Manufacturing 
   TSLA    Tesla 
   AMD     Advanced Micro Devices 
   NIO     NIO 
   GME     GameStop 
   PLTR    Palantir Technologies 
   AAPL    Apple 
   AMZN    Amazon 
   PLUG    Plug Power 

Random reads

One man's quest to become a millionaire in 90 days.

Polar research station staffed by polar bears, of course.

-Barbara Kollmeyer

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October 16, 2025 06:49 ET (10:49 GMT)

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