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Turnaround Letter
Out-of-Favor Stocks with Real Value
Issues
Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the September 2023 issue.

The attention of most investors, commentators and analysts has been on the winners, notably the Magnificent Seven, driving this year’s stock market rally. As contrarians, we are fine with letting a few overpriced trendy stocks capture the spotlight. One place that draws our attention is the other end of the spectrum – those with the worst performance. While most of these stocks fully deserve the market’s dour judgment, some have favorable changes underway. We look into four large and mid-cap stocks that fit this description and one that does not. We also discuss a tactic to help improve one’s success in investing in out-of-favor stocks.

Our feature recommendation this month is Advance Auto Parts (AAP), one of the four major auto parts retailers. The shares have fallen sharply out of favor, but a comprehensive and much-needed overhaul is now starting.

We also include our recent Sell recommendations: Toshiba (TOSYY), Holcim AG (HCMLY), First Horizon (FHN) and ESAB Corporation (ESAB), and our suspension of our rating of shares of Kopin Corporation (KOPN).
Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the August 2023 issue.

In this letter, we include our Mid-Year 2023 updates for our stock market and high yield bond market outlooks. After being totally wrong with our stock market outlook for 2023, what do we see for the rest of the year, and why? We were nearly spot-on with our high yield bond market outlook. How does this market look to us now?

Our feature recommendation this month is Kopin Corporation (KOPN), an obscure optical display company that previously was run like a hobby by a brilliant scientist. Its primary output was a chronic stream of operating losses and share offerings that heavily diluted its investors. Now, under completely new leadership, the company is being run like a for-profit commercial enterprise with a vast market opportunity ahead.
Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the July 2023 issue.

While much of our emphasis is on mid-cap and large-cap turnarounds, there are often attractive turnarounds in the small-cap segment of the market. Companies in this group, with market values generally below $1 billion, can offer worthwhile investment opportunities. This month, we are focusing our research exclusively on small-cap turnarounds and discuss eight names with interesting potential.

Our feature recommendation this month is L. B. Foster Company (FSTR), a small-cap manufacturing and distribution company focused on the railroad, precast concrete structures and customized steel fabrication, coatings and measurement industries. After years of difficulties, a diligent and impressive turnaround effort is underway and starting to show progress, even as investors overly discount its prospects.
Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the June 2023 issue.

It’s no secret that a fresh fascination with artificial intelligence has ignited shares of companies like Alphabet (GOOG), Microsoft (MSFT) and Nvidia (NVDA), while “safety stocks” like Apple (AAPL) have rebounded on recession fears. Shares of more prosaic technology companies have lagged, but a few offer highly relevant albeit slow-growth products and services, making their businesses highly resilient. They are often well-supported by durable balance sheets and capable management. We highlight four such companies.

As a follow-up to our April edition that featured banks, we have found additional interesting financial stocks by looking at the 13F filings of like-minded value investors. We discuss three that saw sizeable new purchases or meaningful additions to already-sizeable holdings by well-respected value managers.

Our feature recommendation this month is Tyson Foods (TSN), a major producer of chicken, beef and pork products. Its earnings and shares have tumbled due to an unusual simultaneous downturn in all three protein groups. The hardest time to buy a commodity cyclical is at the bottom of the cycle, as there appears to be no end in sight to the malaise. We think this is the time to buy Tyson.
Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the May 2023 issue.

Capital market conditions have tightened in the past year, making companies that hold excess cash more valuable and less reliant on fickle external financing. Our search for cash-rich companies that have real products and services with proven and enduring demand whose shares are out-of-favor turned up three promising stocks. Several currently recommended Cabot Turnaround Letter names would also make this list.

Our research process involves looking at a large number of possible turnaround ideas. As investing legend Peter Lynch once said, “The person that turns over the most rocks wins the game.” We uncovered six stocks that have both promising turnarounds ahead yet also have discounted share prices.
Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the April 2023 issue.

This issue focuses exclusively on the banking industry. Given the recent turmoil and the second- and third-largest bank failures in U.S. history, we examine the question on the minds of value and contrarian investors: is it time to jump back into bank stocks?

Our feature recommendation this month is First Horizon Corp (FHN), a relatively plain mid-sized regional bank that provides an appealing way to exploit the bank sell-off: merger arbitrage. Due to regulatory delays, the bank’s shares trade at a 33% discount to the $25/share all-cash offer from TD Bank Group, a large and well-capitalized Canadian bank. We believe that the deal will close at the $25 price, providing an attractive return, even as the shares’ discounted valuation offers considerable downside protection.
Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the March 2023 issue.

While large restaurant companies cruised through the pandemic, smaller companies struggled. Some, however, are now undertaking promising turnarounds. We highlight four new ideas and provide updates on two previously discussed small-cap restaurants.

For struggling companies, free cash flow is their lifeblood. By using free cash flow yield, we can identify undervalued companies with plenty of cash flow that provides a margin of safety. We discuss three interesting stocks.

Our feature recommendation this month is a high free cash flow yield situation. Retailer Kohl’s (KSS) is viewed by investors as a broken company left behind by time, trends and technology, with unsettled leadership, further pressured by bloated inventory, a possible recession, and rising labor and goods costs. We see a company with a history of stable revenues and cash flows, that now has a highly capable operator at the helm, whose shares have a free cash flow yield of 13%. The generous dividend pays out close to half of this cash flow, producing a 6.2% dividend yield.
Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the February 2023 issue.

While many initial public offerings (IPOs) have a quick price “pop” on their debut, most are speculative companies whose share performance is more accurately described as “pop and drop.” Our search for enduring post-IPO companies whose shares trade at attractive prices turned up four promising ideas.

We also take a look at our research process using an approaching opportunity in shares of Fidelity National Information Services (FIS).

Our feature recommendation this month is a European company that investors are avoiding due to its conglomerate structure and potentially large legal liabilities related to a disastrous acquisition several years ago. But shares of Bayer AG (BAYRY) trade at an excessive discount to the likely liabilities, while the core business is stable and resilient. Shareholders are beginning to press for major changes to unlock the company’s value.
Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the January 2023 issue.

In this issue, we discuss our Top Five Stocks for 2023. While we like all of our recommendations, these five have what we believe are the most favorable combinations of risk/return potential and timeliness.

We also review this past year’s capital markets and grade our 2022 outlook. We also provide our outlook for 2023, acknowledging the wisdom of Yogi Berra’s advice that “predictions are difficult, especially about the future.”

Like nearly all asset classes, high-yield bonds had weak performance this past year. However, conditions are more favorable, and investors may want to nibble on new high-yield investments.

Our feature recommendation this month is one of the most disliked stocks in the market, social media company Meta Platforms (META). The company’s core fundamentals are strong but are being obscured by the immense waste of capital that is its metaverse investment. Any relenting on this mission could lead to an impressive turnaround of the company and its remarkably inexpensive stock.
Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the December 2022 issue.

While investment losses are everywhere this year, we highlight two ways to harvest these losses and discuss seven stocks that have strong appeal as year-end bounce trades.

We also highlight four attractive stocks held by highly-regarded long-term value investment funds that we found in our analysis of the recent 13F regulatory filings.

Our feature recommendation this month is theme park operator Six Flags Entertainment (SIX). This company is aggressively working to improve its profit structure under a completely new leadership team but the turnaround is taking longer than investors would prefer, leaving its shares overly depressed. For patient long-term investors, the shares offer an attractive, asymmetric potential return.
Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the November 2022 issue.

At it most basic, investing is a mental game supplemented by a calculator. Our articles use one or both aspects to find attractive investing ideas.

Our first group covers enduring companies with out-of-favor stocks with theses well supported by a calculator. Our other articles discuss companies with deeper issues but whose shares have been so heavily sold that their risk/return trade-offs are highly attractive, even if their theses rely less on a calculator and more on pure contrarian instincts.

Our feature recommendation this month is a high-quality, well-capitalized bank that emphasizes credit card loans
Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the October 2022 issue.

As stock prices tumble under the twin pressures of rising interest rates and the likely arrival of an economic downturn, just about every new stock pick is destined to be a disappointment. How does one select stocks in such an environment? While most fresh ideas will be near-term duds, there is an important purpose to picking new ideas. And, one doesn’t need to buy full positions right away. We screen for low P/E stocks on depressed 2023 earnings, with estimates for those earnings that are increasing. These make good stocks in which to take starter positions.

We also sorted through stocks with high dividend yields and highlight two picks and two pans (with enticing yields yet have serious dividend risks).

Our feature recommendation this month is Dow (DOW). Its shares have been sold by fearful investors, but the company’s low valuation doesn’t recognize the improvements in its financial strength and cost structure since the dark days of early 2020, nor the attractive yet sustainable dividend yield.
Updates
This week there were no earnings reports or ratings changes.
This week there were no earnings reports or ratings changes.
This week, we comment on results from Duluth Holdings (DLTH), the last of our companies to report this earnings season.

We also include the Catalyst Report and a summary of the September edition of the Cabot Turnaround Letter, which was published on Wednesday. We encourage you to look through the Catalyst Report. This report is a listing of all of the companies that have reported a catalyst in the past month. These catalysts include new CEOs, activist activity, spin-offs and other possible game-changers. We source many of our feature recommendations from this list. You will find it nowhere else on Wall Street.
We include our comments on earnings from Macy’s (M) and Kohl’s (KSS). Duluth Holdings (DLTH) will report on August 31.

Earlier this week, due to circumstances beyond our control, we suspended our rating on shares of Kopin Corporation (KOPN). This means that the shares have no rating: They are not a Buy, Sell, Hold or any other rating, but are in essence unrated. We apologize for this unusual situation.
There were no earnings reports this week. Macy’s (M) is now scheduled to report earnings next Tuesday, August 22. Kohl’s (KSS) will report the following day, August 23. Duluth Holdings (DLTH) will report on August 31.

Today we are moving shares of four companies, Toshiba (TOSYY), Holcim AG (HCMLY), First Horizon (FHN) and ESAB Corporation (ESAB) from BUY to SELL.
We comment on earnings from Bayer AG (BAYRY), Berkshire Hathaway (BRK/B), Brookfield Reinsurance Ltd (BNRE), Elanco Animal Health (ELAN), Kopin Corporation (KOPN), L.B. Foster (FSTR), Six Flags Entertainment (SIX), TreeHouse Foods (THS), Tyson Foods (TSN) and Viatris (VTRS).
We comment on earnings from Adient (ADNT), Dril-Quip (DRQ), ESAB Corp (ESAB), Frontier Group Holdings (ULCC), Gannett (GCI), Goodyear Tire (GT), Janus Henderson Group (JHG), Kaman Corporation (KAMN), Warner Bros Discovery (WBD) and Western Digital (WDC).
This week, we comment on results from General Electric (GE), Mattel (MAT), Polaris (PII), Vodafone (VOD), Volkswagen AG (VWAGY), Western Union (WU) and Xerox Holdings (XRX).

Next week, twelve companies are scheduled to report.

We also include the Catalyst Report and a summary of the August edition of the Cabot Turnaround Letter, which was published on Wednesday. We encourage you to look through the Catalyst Report. This report is a listing of all of the companies that have reported a catalyst in the past month. These catalysts include new CEOs, activist activity, spin-offs and other possible game-changers. We source many of our feature recommendations from this list. You will find it nowhere else on Wall Street.
We comment on earnings from Capital One (COF), First Horizon (FHN) and Nokia (NOK). Next week, the deluge starts, with ten companies reporting.
Wells Fargo & Company (WFC) reported second-quarter results this morning, and we comment on the report.

Shares of ESAB Corp (ESAB) have crossed our $68 price target so we are now formally reviewing the rating and price target.
This was a quiet week for our stocks. Earnings season starts next Friday, with Wells Fargo (WFC) reporting, followed by Nokia (NOK) and First Horizon (FHN) the next week. Based on the preliminary calendar, the earnings deluge starts on Tuesday, July 27.
This week, we comment on earnings from Walgreens Boots Alliance (WBA). We also include the Catalyst Report and a summary of the July edition of the Cabot Turnaround Letter, which was published on Wednesday. We encourage you to look through the Catalyst Report. This report is a listing of all of the companies that have reported a catalyst in the past month. These catalysts include new CEOs, activist activity, spin-offs and other possible game-changers. We source many of our feature recommendations from this list. You will find it nowhere else on Wall Street.
Alerts
Moving Ironwood Pharmaceuticals (IRWD) to Sell
Moving Ironwood Pharmaceuticals (IRWD) to Sell
Moving M/I Homes (MHO) to Sell
Moving Brookfield Asset Management (BAM) to Sell
Moving Organon (OGN) to Sell
Moving Conduent (CNDT) to Sell
Moving Kraft Heinz (KHC) to Sell
Moving Kraft Heinz (KHC) to Sell
Moving Shell plc (SHEL) from Buy to Sell
oday, we are moving shares of Lamb Weston Holdings (LW) from Buy to Sell.
We are moving shares of Credit Suisse (CS) from Buy to Sell.
We are moving shares of Marathon Oil (MRO) from Buy to Sell.