While I generally shy away from thematic investing, two compelling sectors stand out as we look toward 2025: energy and regional/micro-cap banks, particularly those showing strong insider buying and attractive yields. Let me explain why these areas deserve special attention.

 Banking has been a cornerstone of my investment approach for nearly four decades, consistently generating substantial returns for myself, my clients, and my readers. The sector’s appeal stems from our early 1990s discovery of the remarkable opportunity in small and regional bank investing, focusing on valuation and margin of safety principles, enhanced by dividend factors.

Banks are emerging from what I call the “proverbial winter” of the Biden administration, which maintained a notably unfriendly stance toward financial services, particularly regarding merger and acquisition activity. Regardless of one’s political views, the anticipated Trump administration promises a markedly different approach, featuring bank-friendly policies, reduced corporate taxes, and lighter regulatory oversight. While interest rate trajectories remain uncertain, these factors collectively paint an optimistic picture for the banking industry. The energy sector presents an equally compelling investment case. While natural gas typically dominates our discussions due to its crucial role in home heating and electricity generation, today I want talk about oil and refined products in today’s world.

The market’s premature dismissal of traditional combustion engines in favor of electric vehicles has created interesting opportunities. Despite widespread predictions, the transition to EVs hasn’t materialized as rapidly as projected. The reality is stark: we won’t achieve 100% renewable energy by 2030, and attempting to do so could prove catastrophically disruptive.

Our power grid remains unprepared for mass EV adoption, charging infrastructure is inadequate, and millions of traditional vehicles will continue operating well into the 2030s.

HF Sinclair (Ticker: DINO)
Following their Sinclair Oil acquisition, this company has emerged as an energy sector powerhouse. Their assets include:

• Seven refineries across Mid-Continent, West, and Pacific regions
  
• 678,000 barrels daily refining capacity
  
• 1,500 branded retail stations plus 300 licensed sites
  
• 4,400 miles of pipeline infrastructure
  
• 18.3 million barrels of storage capacity
  
• Growing renewable diesel operations

Trading at 12x earnings and 70% of book value, offering a 5.54% dividend yield, DINO presents compelling value. Recent insider buying, particularly from the CFO and CEO, adds confidence to the investment thesis. The company maintains a shareholder-friendly stance, having returned $954 million through dividends and buybacks as of September 2024, with a new $1 billion repurchase program announced.

Financial Institutions Inc. (Ticker: FISI)
This parent company of Five Star Bank, operating throughout western New York, presents an interesting turnaround story. After addressing low-yielding securities through a strategic stock offering, raising $95 million to restructure their portfolio, FISI stands poised for improved performance. Their business model features:

• 49 branches across key western New York markets
  
• $6 billion in total assets
  
• Strong indirect auto lending business (19% of loans)
  
• Conservative lending practices
  
• Solid deposit base with reduced reliance on brokered deposits

Trading at 8x earnings with a 4.69% dividend yield, FISI has attracted significant insider buying, particularly during their recent offering. The management team’s substantial personal investment signals confidence in their portfolio restructuring strategy.

Both companies represent undervalued opportunities in sectors positioned for strong performance regardless of broader economic or political developments. Their combination of insider confidence, attractive yields, and fundamental value creates a compelling investment case for 2025.

This analysis exemplifies our continued focus on identifying opportunities where insider buying, attractive valuations, and strong dividend yields converge in sectors with favorable long-term prospects.