In the world of investing, patience is often the key to success. Much like green bananas that need time to ripen, some investments require time to reach their full potential.
It seems that nowhere is that truer right now than in the U.S. value equities. Over the past several years, the asset class has experienced a prolonged downturn, causing frustration for investors who have been waiting for a turnaround. However, recent signals suggest that the value landscape may finally be starting to change. Low interest rates and the surge in technology investments have fueled the outperformance of growth stocks over the last decade. But as economic conditions shift and interest rates begin to stabilize, we believe value investing could be poised for a comeback—and those who have been patient in their approach to value stocks may be rewarded.
Below we look at a few compelling examples of sectors in which value-oriented investors might find attractive opportunities emerging, driven by improving economic conditions (despite recent fluctuations), industry-specific recoveries, and overlooked management-driven transformations.
Cyclical Plays—Waiting for the Tide to Turn
Cyclical industries are prime examples of sectors that can potentially benefit from a value-oriented investment strategy. The trucking and recreational vehicle (RV) industries, for example, have seen significant downturns after being hit hard by the broader economic cycle. Now, thanks to shifts in demand and economic conditions, they could be positioned for strong rebounds.
Currently, signs of recovery in trucking are emerging.
The trucking industry has experienced significant volatility over the past three years. Factors such as excess capacity, soaring fuel prices, labor shortages, and softer freight demand created a challenging environment, leading to reduced profitability and operational stress.
Trucking, which is highly sensitive to broader economic shifts, tends to face sharp downturns during economic slowdowns. However, these periods of distress have the potential to set the stage for compelling investment opportunities as market conditions eventually improve.
Currently, we believe signs of recovery are emerging. Demand for freight services is rising, mainly due to improved supply chains and restocking of depleted inventories. Simultaneously, the industry’s previous oversupply issues are easing, as fleet sizes have been reduced and fewer new trucks have entered the market during the downturn.
This tightening of capacity, combined with rising demand, is pushing freight rates higher. Such dynamics exemplify a classic mean reversion scenario, offering investors potential for robust returns as the industry moves from prolonged underperformance toward sustained growth.
As economic conditions stabilize, consumer confidence typically strengthens, leading to renewed interest in RVs.
Similarly, the RV industry has faced considerable headwinds in recent years, driven by factors such as rising interest rates, high inventory levels, and declining consumer spending amid economic uncertainty.
During economic downturns, RVs - often considered discretionary luxury items - may experience sharp declines in sales as consumers usually tighten their spending. However, this cyclical pattern also creates opportunities for value-oriented investors.
As economic conditions stabilize, consumer confidence typically strengthens, potentially leading to renewed interest in RVs as people feel more secure about discretionary spending. Additionally, shifting consumer behaviors, such as the sustained popularity of domestic travel and remote work flexibility, have positioned RVs as attractive options for vacationing and working on the go. Inventory normalization and improved dealer conditions further support the recovery scenario.
We believe RV companies like Winnebago are particularly well-positioned to benefit from these emerging trends, as they have streamlined operations during the downturn, optimized production processes, and innovated product lines to align with evolving consumer preferences. As the broader economy recovers, these proactive measures could translate into significant revenue growth and improved margins for RV manufacturers, making them potentially appealing targets for investors seeking exposure to cyclical rebounds.
Management Adding Value—But the Market Hasn’t Caught On Yet
We believe one hallmark of successful value investing is recognizing when a company’s leadership actively creates value that the broader market overlooks. This mispricing can present an opportunity to investors who identify such management-led transformations early.
We believe Cracker Barrel exemplifies this scenario well. By implementing strategic operational shifts, such as leveraging value-based pricing and early-dining promotions, management has positioned the restaurant chain for improved profitability. While these efforts haven't been fully priced in by the market, early recognition could lead to outsized returns as investors begin to acknowledge this transformation.
One textbook publisher has leveraged its leadership in intellectual capital by licensing content to LLMs.
Similarly, textbook publisher John Wiley & Sons has shifted its focus toward strengthening its highest margin businesses, divesting non-core assets, and streamlining internal operations. Although the company’s future initially appeared uncertain due to potential disruption from artificial intelligence (AI), we believe Wiley may have repositioned itself as a more profitable and efficient entity. Additionally, it has leveraged its leadership in intellectual capital by licensing content to large language models (LLMs), enhancing the value of its assets. Despite recent improvements in Wiley’s stock price, it still trades well below its 10-year average forward price-to-earnings multiple, indicating that the market has yet to give it credit for these initiatives.
Identifying such scenarios, where management-driven value enhancements are overlooked, is central to our investment approach.
The Market’s Rotation Toward Value—Becoming More Sustainable?
The market’s rotation toward value investing has been happening in fits and starts over the past year. We saw several periods of surging value stocks in 2024—such as in July and November—but these rallies lacked staying power. The momentum was short-lived, and many value stocks retraced their gains as quickly as they had made them. However, recent developments suggest that the shift toward value may be more sustainable in 2025.
We believe a particularly telling event was the "DeepSeek Day" market move, characterized by a sharp pullback in high-performing growth and momentum sectors, especially technology and AI-driven stocks, which had dominated the market narrative. We believe this retreat created a clear opening for value strategies as investors began reevaluating their portfolios, shifting focus toward undervalued sectors with stronger fundamentals and more reasonable valuations.
We believe the “DeepSeek Day” retreat created an opening for value strategies.
The broader corrections in commodity-linked and energy-adjacent industries further underscored this rotation. Historically fertile ground for value investments, these sectors saw valuations become increasingly attractive after prolonged underperformance.
Moreover, investor attention is increasingly turning toward earnings revisions and underlying fundamentals. Value stocks showing tangible improvements in earnings prospects, driven by operational efficiencies and disciplined management, are potentially better positioned to sustain performance. This marks a significant shift away from the speculative optimism that previously propelled high-growth, high-multiple peers, whose momentum appears to be moderating, further strengthening the outlook for a sustainable rotation toward value.
How Our Value Approach Stands Apart
Our disciplined approach at William Blair Investment Management sets us apart in the value investing landscape in several ways:
- Market-cap discipline: Unlike many peers who have migrated toward larger companies, drifting into the $5 billion to $7 billion market cap range for small-cap investments, we have maintained discipline by consistently targeting companies with market caps near $3 billion. This positions us to potentially capture significant returns from undervalued opportunities in the small-cap value segments.
- Strict valuation discipline: While competitors seem to have relaxed valuation standards, often chasing stocks at higher multiples, our approach focuses on buying only when stocks are genuinely undervalued. This vigilance helps us mitigate risk and potentially enhance long-term performance.
- Low turnover and diversified approach: We differ markedly from peers who rely on frequent turnover and concentrated bets. Our low-turnover, diversified portfolio focuses on stability and risk reduction, aiming to maintain a steady approach even in volatile markets.
Are You Prepared to Bite?
Investors frequently chase momentum after the market has already recognized value—often too late. A more successful strategy, we believe, is to identify potential early and wait patiently for opportunities to mature. Like green bananas that eventually ripen, the hard landing for value stocks appears to be coming to an end, setting the stage for meaningful gains.
Matthew Fleming, CFA, partner, is the head of William Blair’s U.S. value equity team, on which he also serves as a portfolio manager.
