Issues
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.
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.
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.
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.
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.
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
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.
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.
Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the September 2022 issue.
One of our more productive methods for finding attractive turnaround stocks is to see what other like-minded investors are holding. We culled the list of hundreds of positions held by our evolving list of 50 or so preferred managers, as reported in the quarterly 13F filings, and discuss three of the most promising.
We also combed through the roster of stocks trading at low prices – another great source for turnaround stock ideas – and review four that have particular appeal.
Our feature recommendation this month is Warner Brothers Discovery (WBD). While most investors view this company as a “play” on streaming, we view it as an undervalued turnaround of the poorly managed WarnerMedia assets that it recently acquired from AT&T.
We note our recent ratings change of Lamb Weston Holdings (LW) from Buy to Sell.
One of our more productive methods for finding attractive turnaround stocks is to see what other like-minded investors are holding. We culled the list of hundreds of positions held by our evolving list of 50 or so preferred managers, as reported in the quarterly 13F filings, and discuss three of the most promising.
We also combed through the roster of stocks trading at low prices – another great source for turnaround stock ideas – and review four that have particular appeal.
Our feature recommendation this month is Warner Brothers Discovery (WBD). While most investors view this company as a “play” on streaming, we view it as an undervalued turnaround of the poorly managed WarnerMedia assets that it recently acquired from AT&T.
We note our recent ratings change of Lamb Weston Holdings (LW) from Buy to Sell.
Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the August 2022 issue.
When considering turnaround situations, our most-preferred catalyst is a chief executive officer change. When a business is sliding backwards, this could be exactly the change needed to restore its prosperity. For frustrated shareholders, the change can bring immense potential. We discuss six new CEO situations that look appealing.
Long ago, astute investors noticed that the stocks with the highest dividend yields in the Dow Jones Industrial Average tended to become the index’ best performers in future years. Following the recent market sell-off, we re-visited this group to look for interesting opportunities. We review six of the highest dividend yielding Dow stocks, and leave out three that have immense strategic and profit pressures.
Our feature recommendation this month is Volkswagen AG (VWAGY). The shares have plummeted after our timely sale last year for a 182% total return and we take this opportunity to repurchase them at the current low price. The financially sturdy company has a new CEO and another possible catalyst from a Porsche initial public offering.
We note our recent ratings change of Credit Suisse (CS) from Buy to a Sell.
When considering turnaround situations, our most-preferred catalyst is a chief executive officer change. When a business is sliding backwards, this could be exactly the change needed to restore its prosperity. For frustrated shareholders, the change can bring immense potential. We discuss six new CEO situations that look appealing.
Long ago, astute investors noticed that the stocks with the highest dividend yields in the Dow Jones Industrial Average tended to become the index’ best performers in future years. Following the recent market sell-off, we re-visited this group to look for interesting opportunities. We review six of the highest dividend yielding Dow stocks, and leave out three that have immense strategic and profit pressures.
Our feature recommendation this month is Volkswagen AG (VWAGY). The shares have plummeted after our timely sale last year for a 182% total return and we take this opportunity to repurchase them at the current low price. The financially sturdy company has a new CEO and another possible catalyst from a Porsche initial public offering.
We note our recent ratings change of Credit Suisse (CS) from Buy to a Sell.
Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the July 2022 issue.
As we approach the mid-point of the calendar year, we provide our traditional mid-year update for the stock market and high-yield bond market. Our commentary on stocks reviews what sectors worked (only one), what sectors and stocks stood out as the weakest, how the value vs. growth shift has played out so far, and what helped developed markets outside the United States limit the depth of their selloffs. We also discuss the state of two key drivers of future stock market performance, the role of the two “Easts,” and offer some advice on what not to do in this market, as well as a suggestion about what value investors might want to do.
Our call last year to avoid high-yield bonds, cousins of sorts to turnaround stocks, was spot-on. We walk through the effects of inflation on the two components of high bond yield prices, provide some historical perspective on yield spreads, and describe how only two of the three ingredients for a bankruptcy cycle are in place. We also suggest that while high-yield bonds are more attractive today than a year ago, it is still a time to be selective.
Our feature recommendation this month is ESAB Corporation (ESAB). This high-quality company was recently spun off from Colfax Corporation and checks nearly all of our boxes for an appealing turnaround stock, yet it is being overlooked as investors migrate to familiar stocks.
We note our recent ratings change of Marathon Oil (MRO) from Buy to a Sell.
As we approach the mid-point of the calendar year, we provide our traditional mid-year update for the stock market and high-yield bond market. Our commentary on stocks reviews what sectors worked (only one), what sectors and stocks stood out as the weakest, how the value vs. growth shift has played out so far, and what helped developed markets outside the United States limit the depth of their selloffs. We also discuss the state of two key drivers of future stock market performance, the role of the two “Easts,” and offer some advice on what not to do in this market, as well as a suggestion about what value investors might want to do.
Our call last year to avoid high-yield bonds, cousins of sorts to turnaround stocks, was spot-on. We walk through the effects of inflation on the two components of high bond yield prices, provide some historical perspective on yield spreads, and describe how only two of the three ingredients for a bankruptcy cycle are in place. We also suggest that while high-yield bonds are more attractive today than a year ago, it is still a time to be selective.
Our feature recommendation this month is ESAB Corporation (ESAB). This high-quality company was recently spun off from Colfax Corporation and checks nearly all of our boxes for an appealing turnaround stock, yet it is being overlooked as investors migrate to familiar stocks.
We note our recent ratings change of Marathon Oil (MRO) from Buy to a Sell.
Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the June 2022 issue.
While the stock market has surged since its pandemic low, shares of many companies have sold off sharply and now trade below their March 23, 2020 level. We touch on several different types of situations behind these sell-offs and highlight five stocks backed by reasonably healthy companies yet trade at attractive valuations. We also mention one additional stock that has significant potential but not under the current value-destroying management.
We delve into the investment management industry and highlight four stocks of companies that look appealing but are not generally on investors’ radar screens. Our featured recommendation this month is investment firm Janus Henderson Group (JHG). The company produces strong free cash flow, has a fortress balance sheet, offers an attractive 5.7% dividend yield and is under pressure from activist investor Trian Partners to improve its results.
We note our recent ratings change of Altria Group (MO) from Buy to a Sell.
While the stock market has surged since its pandemic low, shares of many companies have sold off sharply and now trade below their March 23, 2020 level. We touch on several different types of situations behind these sell-offs and highlight five stocks backed by reasonably healthy companies yet trade at attractive valuations. We also mention one additional stock that has significant potential but not under the current value-destroying management.
We delve into the investment management industry and highlight four stocks of companies that look appealing but are not generally on investors’ radar screens. Our featured recommendation this month is investment firm Janus Henderson Group (JHG). The company produces strong free cash flow, has a fortress balance sheet, offers an attractive 5.7% dividend yield and is under pressure from activist investor Trian Partners to improve its results.
We note our recent ratings change of Altria Group (MO) from Buy to a Sell.
Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the May 2022 issue.
One of the enduring features of the stock market is that near-term share prices are driven by momentum and narratives. While this may yield huge money-making stocks on the way up, losses can be devastating on the way down. Fortunately for value investors, downturns driven by negative momentum and unfavorable narratives can create impressively attractive opportunities.
We discuss two groups of stocks that fit this bill: homebuilders and stocks with valuations below 5x EV/EBITDA. Our featured recommendation this month is homebuilder M/I Homes (MHO), which trades at a large discount to its liquidation value despite what may be a reasonably steady industry over the next several years.
We note our recent move of Vistra Energy (VST) from a Buy to a Sell.
One of the enduring features of the stock market is that near-term share prices are driven by momentum and narratives. While this may yield huge money-making stocks on the way up, losses can be devastating on the way down. Fortunately for value investors, downturns driven by negative momentum and unfavorable narratives can create impressively attractive opportunities.
We discuss two groups of stocks that fit this bill: homebuilders and stocks with valuations below 5x EV/EBITDA. Our featured recommendation this month is homebuilder M/I Homes (MHO), which trades at a large discount to its liquidation value despite what may be a reasonably steady industry over the next several years.
We note our recent move of Vistra Energy (VST) from a Buy to a Sell.
Updates
Other than the buyout of Kaman (KAMN), it’s been a relatively quiet week for company-specific news.
Regarding Kaman, the company announced that it will be taken private for $1.8 billion, or $46/share, a huge 100%-plus premium over the prior day’s closing price. The market has had little confidence in Kaman’s turnaround, despite what we saw as evidence that impressive changes are underway, led by its capable new CEO. The huge premium is at a discount to our $57 price target, but we’re fine with the deal as it produces a reasonable return, in cash, today, compared to a slog for a year or more while the turnaround plays out.
Regarding Kaman, the company announced that it will be taken private for $1.8 billion, or $46/share, a huge 100%-plus premium over the prior day’s closing price. The market has had little confidence in Kaman’s turnaround, despite what we saw as evidence that impressive changes are underway, led by its capable new CEO. The huge premium is at a discount to our $57 price target, but we’re fine with the deal as it produces a reasonable return, in cash, today, compared to a slog for a year or more while the turnaround plays out.
In today’s note, we discuss the earnings reports from Wells Fargo (WFC). Please note that our comments on Well’s earnings didn’t make it into the podcast.
In today’s note, we discuss the recent earnings reports from Walgreens Boots Alliance (WBA). Our note also includes the monthly Catalyst Report and a summary of the January edition of the Cabot Turnaround Letter, which was published a week ago Wednesday.
There were no earnings reports or ratings changes this week. Due to the holidays, we will not be publishing a Friday note or podcast next week. The Cabot Turnaround Letter will be published next Wednesday, and our Friday note and podcast will resume on January 5, 2024.
There were no earnings reports or ratings changes this week.
There were no earnings reports or ratings changes this week.
In today’s note, we discuss the recent earnings reports from Duluth Holdings (DLTH) and Kohl’s (KSS). Our note also includes the monthly Catalyst Report and a summary of the December edition of the Cabot Turnaround Letter, which was published on Wednesday.
This week’s note includes our comments on earnings from Advance Auto Parts (AAP), Macy’s (M), Tyson Foods (TSN) and Vodafone (VOD). The earnings season is winding down, with Kohl’s (KSS) reporting next Tuesday (Nov. 21) and Duluth Holdings (DLTH) reporting on November 30.
This week’s note includes our comments on earnings from Adient (ADNT), Ammo, Inc (POWW), Bayer AG (BAYRY), Berkshire Hathaway (BRK/B), Brookfield Re (BNRE), Elanco Animal Health (ELAN), Goodyear Tire & Rubber (GT), L.B. Foster (FSTR), TreeHouse Foods (THS) and Warner Bros Discovery (WBD). The earnings deluge continues next week.
This week’s note includes our comments on earnings from 10 of our companies. The deluge continues next week.
The note also includes the monthly Catalyst Report and a summary of the November 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.
The note also includes the monthly Catalyst Report and a summary of the November 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.
This week’s note includes our comments on earnings from Nokia (NOK). Next week, the deluge starts, with earnings from as many as ten companies.
Alerts
We are moving shares of Altria (MO) from Buy to Sell. While the shares remain 21% below our $66 price target, the risk/return trade-off has become unfavorable.
We are moving shares of Baker Hughes (BKR) to a Sell. The shares have surged above our previously raised 31 price target (originally 23). Using optimistic yet realistic assumptions, we are hard-pressed to justify a BKR share price meaningfully above the current price.
We are moving shares of GCP Applied Technologies (GCP) to a Sell.
This morning, GCP Applied Technologies (GCP) announced a definitive agreement to be acquired by French construction materials company St. Gobain for $32/share in cash. This price is 14% above our $28 price target.
This afternoon we are moving shares of Signet Jewelers (SIG) from BUY to SELL.
This afternoon we are moving Albertsons (ACI) from BUY to SELL.
Oaktree reported a reasonably strong quarter, with net investment income (adjusted for the merger with Oaktree Strategic Income) of $0.19/share, sharply higher than $0.12 a year ago and the consensus estimate for $0.14. Net asset value, or NAV, increased 2% from the prior quarter and 19% from a year ago (despite paying out roughly 8% of its NAV in dividends during this period).
The company is executing on its turnaround, led by the relatively new CEO. However, after our more detailed review of the company’s future prospects, the shares appear to fully discount a robust profit recovery and are trading at our price target. Their Investor Day was uninspiring – while the company is operating much better and has at least a temporary cyclical tailwind, the management is talking about pursuing their growth ambitions, going so far as to outline as much as $4 billion in buying power over the next several years. For perspective, $4 billion in cash flow compares to the company’s current $2.7 billion market cap.