April 11, 2025

In today’s note, we discuss pertinent developments for some of the stocks in the portfolio, including Agnico Eagle Mines (AEM), Centuri Holdings (CTRI), GE Aerospace (GE), Paramount Global (PARA), SLB Ltd. (SLB), Teladoc Health (TDOC) and UiPath (PATH).

Gold miner Agnico Eagle Mines (AEM) continues to lead the portfolio after making a new record high on Thursday.

The U.S. natural gas outlook should prove supportive for SLB Ltd. (SLB).

Comments on Portfolio Holdings

The comment of the week was made by Ed Yardeni, who observed, “It’s too late to panic.” I share his assessment of the current market environment and believe this isn’t the time to sell, although we may use any rallies from here to trim some of our exposure to one or two of the more vulnerable stocks in our portfolio. But for the most part, I’m okay with where the portfolio is, and I can see a certain level of insulation against the economic climate in many of the turnaround candidates among our holdings.

The star performer in the portfolio this week, as has been the case for the last few weeks, was Agnico Eagle Mines (AEM). The gold miner hit a record high on Thursday on broad flight-to-safety demand for all things gold-related.

Driving gold is a combination of safe-haven demand from the obvious uncertainties surrounding the global trade/economic outlook. Then there’s gold’s currency component, which is pushing additional safety-related demand due to inflation being an ongoing concern.

Specifically, the development of the BRICS (Brazil, Russia, India, China and South Africa, plus other countries) currency is another major, and overlooked, demand driver. BRICS could especially drive gold substantially higher longer-term if gold ends up backing the new currency, as many have speculated will be the case. And as the BRICS nations move toward de-dollarization presumably accelerates in the face of trade disputes with the U.S., investors both at home and abroad might begin to look askance at the dollar and look to gold to hedge against a potentially weaker dollar in the coming years.

Aside from broad gold-related demand, Agnico has lately announced a series of strategic developments that have underscored the stock’s momentum. The company unveiled expectations for a stable first quarter with an estimated EBITDA of $1 billion and earnings per share of 40 cents. A major investment bank has increased its price target for Agnico to 140, maintaining a Buy rating based on bullish gold price forecasts and anticipated stable mining and processing operations.

In other news, Agnico Eagle has also expanded its stake in Canadian gold exploration company Cartier Resources (ECRFF) through a private placement, increasing its ownership to approximately 28% undiluted. The stake further allows Agnico to nominate individuals to Cartier’s board of directors.

AEM maintains a Hold rating in the portfolio.

This week, shares of utility infrastructure services provider Centuri Holding (CTRI) were given a consensus recommendation of Moderate Buy by an aggregate of eight Wall Street firms. Two of the eight ratings firms gave a Buy recommendation, while two issued a Strong Buy recommendation on the company, including recent upgrades from JPMorgan Chase and Robert W. Baird.

Several hedge funds and other institutional investors have also lately made changes to their positions in Centuri, including FMR LLC increasing its stake in Centuri by 96% in the fourth quarter, with State Street Corp increasing its stake in Centuri by 37%.

I like the way the stock has been able, so far, to hold up against the broad selling pressure, and it looks to me like the widespread institutional support is working to CTRI’s advantage. The stock retains a Hold rating in our portfolio.

According to analysts at Citi, the increasingly bullish global spending environment favors defense contractors. This includes a nearly $1 trillion military budget for the U.S. and a predicted doubling of defense expenditures over the next decade for European nations. Consequently, the aerospace and defense sector made it to the top of the investment bank’s stock rankings as first-quarter earnings season kicks off.

In a detailed preview release, Citi said defense companies are “well positioned for outperformance, buoyed by rising U.S. and European military budgets, minimal tariff exposure and increasing global geopolitical tensions.”

Jason Gursky, research analyst at Citi, said in an April 10 report to clients, “We materially change the rank order of our stock picks, moving our defense coverage to the top of the list given our positive view on the outlook for global defense spending.”

The Citi analysis further observed that, “Airlines want to get ahold of new aircraft to lower operating costs and protect long-term competitiveness,” adding that they’re likely to retire older aircraft, a trend that should benefit GE Aerospace (GE).

When the company reports earnings on April 22, Wall Street expects it to report a 55% increase in earnings per share, while a lower guide for revenue could make for an easy beat. The shares remain a Hold in our portfolio.

As usual, there’s no dearth of news this week as it pertains to Paramount Global (PARA). The $8 billion merger agreement between Paramount and Skydance Media has been extended by 90 days following its initial expiration on April 7, with a new target of July 7. A second 90-day extension may be triggered, to October 4, if needed.

The extension pertains to legal challenges surrounding a class-action lawsuit filed by New York City pension funds in Delaware, which alleges that the merger undervalues public shareholders and prioritizes the interests of Paramount’s controlling shareholder, Shari Redstone.

After taking a one-quarter profit, the stock retains a Hold rating in the portfolio.

Oilfield service companies have been among the targets of the bears during the recent sell-off, and that includes shares of SLB Ltd. (SLB). In view of this, let’s take a look at the broader energy sector outlook.

After the White House increased tariffs on China to 125%, just a day after a 104% hike took effect, new tariffs on other countries were paused for 90 days while China’s tariffs remained in place. The sharp escalation with the world’s top oil importer subsequently prompted worries among investors about weaker fuel demand.

Crude oil futures prices fell this week to levels not seen since the 2021 Covid era of minimal global demand, hitting a low of 55 a barrel on Wednesday before closing at 60 on Thursday.

Natural gas prices, meanwhile, remain closer to multi-year highs, which should provide some support for SLB as it has a healthy footprint in this part of the broader sector. Last month, natural gas futures rallied to a two-year high on news that domestic gas storage levels could remain tight ahead of the summer air-conditioning season. According to projections by BloombergNEF, U.S. natural gas storage will be 10% below the five-year average this summer.

Moreover, a notable jump in domestic electricity output—especially as it pertains to the ongoing AI data center buildout—is another support for natural gas demand from utility providers. The Edison Electric Institute reported Wednesday that total U.S. electricity output in the week ended April 5 rose 4% year-on-year to 74,475 gigawatt hours (GWh) and was also up 4% on a 52-week basis.

And as energy sector analyst Rich Asplund noted this week, “In a bullish longer-term factor for natural gas prices, President Trump lifted the Biden administration’s pause on approving gas export projects in January, thus moving into active consideration a backlog of about a dozen LNG export projects. Increased U.S. capacity for exporting LNG would boost demand for U.S. natural gas and support natural gas prices.”

Additionally, recent Energy Information Administration (EIA) reports point to tighter natural gas supplies. Each of the aforementioned factors should provide SLB with a demand boost on an intermediate-to-longer-term basis.

On the financial front, SLB is in the midst of a business restructuring, which includes a new performance function and continued workforce reductions as part of a cost-saving initiative. It’s also focused on digital and integration margins in the wake of some recent acquisitions.

In company news, the United Kingdom’s Competition and Markets Authority (CMA) said it may accept the remedies offered by SLB and oilfield services company ChampionX (CHX) for their planned merger.

The CMA said that there are “reasonable grounds” to believe that the undertakings offered by SLB and ChampionX may be accepted by the CMA under the Enterprise ACT 2002, according to a statement the regulator made on Thursday.

The CMA has until June 11 to make a final decision on the deal, though it can be extended until Aug. 8.

SLB retains a Buy rating in the portfolio.

It was a rough week for Teladoc Health (TDOC), which struggled under the recent broad market selling pressure, as well as profitability concerns for the overall telehealth sector, and fell to a 52-week low. But several Wall Street analysts have lately upped their share price guidance for the healthcare tech provider, noting that the shares are trading below fair value.

The company recently announced a partnership with Gifthealth, a pharmacy provider for Eli Lilly’s (LLY) direct-to-consumer platform, LillyDirect. The partnership is aimed at enhancing the program’s marketability by providing a more integrated care approach, and analysts believe it can provide an intermediate-term boost to Teladoc’s strategic growth plan.

As part of that plan, Teladoc is also focused on expanding its international footprint and on stabilizing its BetterHelp segment, which saw a sequential increase in average paying users during last year’s fourth quarter.

Earlier this week, the company announced its next-generation Cardiometabolic Health Program to improve population health and prevent the progression of diabetes, hypertension and obesity. The program includes a number of new benefits for members and customers, including medical nutrition therapy and personalized nutrition planning, access to expert health coaches and insights from Teladoc Health’s connected devices, blood glucose meters, blood pressure monitors and connected scales, as well as CGM devices to help empower better outcomes.

After taking a one-quarter profit, TDOC retains a Hold rating in our portfolio.

Enterprise automation leader UiPath (PATH) announced this week the launch of its latest product, the generative AI-based UiPath Medical Record Summarization agent, powered by Google Cloud Vertex AI and Gemini models.

The UiPath Medical Record Summarization AI agent allows both payer and provider organizations a more efficient and accurate platform for analyzing medical documents, with potential outcomes including a 50% reduction in prior authorization turnaround time. It further provides a clinician-level, multi-point summarization of voluminous records at lower cost and with higher quality and accuracy than manual data entry, completing in just a few minutes a process that typically takes a medical professional an average of 45 minutes.

The agent is part of UiPath’s strategy to provide vertical AI solutions tailored to specific industry needs. The company also recently expanded its partnership with Google Cloud to help customers facilitate their AI-powered automation journey through Google Workspace business collaboration offerings.

PATH remains a Buy in the portfolio.

RATINGS CHANGES: None this week.

NEW POSITIONS: None this week.

Friday, April 11, 2025 Subscribers-Only Podcast:

Covering recent news and analysis for our portfolio companies and other topics relevant to value/contrarian investors.

Today’s podcast is about 17 minutes and covers:

• Stocks got a much-needed reprieve from selling pressure with this week’s tariff pause, while the U.S. likely dodged a major credit event.
• Market internals remain weak, however, with much work needed before the bulls are back in control.
• Consumer staples providers and gold miners remain the relative strength leaders.
• Updates on several portfolio holdings, including the latest developments for oilfield services provider SLB Ltd. (SLB).
• Final note
  
  • Cenutri Holding (CTRI) is seeing some encouraging institutional support of late.

Market Outlook

How close did the U.S. come this week to having a major credit event? According to several noted economists and fund managers, we came very close indeed to having a credit crisis before the market’s abrupt U-turn on Wednesday.

Ark Invest’s Cathie Wood worried there were “serious liquidity issues in the U.S. banking system.” And in a high-profile interview with CNBC, Wall Street economist Ed Yardeni said, “I think we were about to have a credit event [and] that’s the sure way to create a recession.” He went to say that past credit episodes and recessions were caused by tight monetary policy, but this time around, tariff policy has been the culprit. In response to this potential peril, the bond market was showing signs of anticipating a crisis.

Earlier this week, Yardeni had warned that the “Trump administration may be playing with liquid nitro” and that “Something may be about to blow up in the capital markets” as a result of the stress created by the administration’s trade policies.

In response to those policies, the 10-year Treasury yield index rose from 3.9% to 4.5% during the stock market sell-off earlier this week, prompting widespread concern among credit analysts. That development was, of course, atypical bond market behavior since bond prices normally rise while yields fall during equity market declines as investors turn to government bonds for protection against market turbulence.

But since investors were presumably in dire need of cash, they were briefly selling even the highest-quality issues and safe-haven instruments, including gold, before Wednesday’s big announcement turned the tide.

That announcement pertained to Trump dropping tariffs to 10% for 90 days on all countries except for China. And several sources opined that it wasn’t the stock market’s negative reaction that ultimately caused Trump’s (temporary) policy reversal, but rather, the bond market’s response.

However, while the market was clearly relieved by the tariff pause announcement, enabling investors to use it as an excuse to cover short positions, the tariff issue remains an obstacle. There was also some initial confusion as to whether or not the 10% tariff pause was negotiable, but it turns out that most countries will be allowed to negotiate the tariff (though some economists think the negotiating process could take months).

More importantly, the trade dispute with China remains intact, which is a significant longer-term consideration for stocks. But for now, at least, it looks like the market has likely gotten a much-needed reprieve that should allow investors to make some necessary portfolio adjustments while also taking advantage of some near-term bargain buying opportunities.

In the immediate aftermath of this week’s market storm, the market was trying to settle itself on Thursday after the big rally the previous day, but the market’s internal condition showed considerable improvement. After nearly 800 new NYSE 52-week lows on Wednesday and an astounding 1,400 new lows on Monday, that number shrank to the double digits on Thursday (but still at an unhealthy level above 40), while the gap between new highs and lows conspicuously narrowed. This is certainly a step in the right direction for the market, although a lot more work remains before we can say the market is completely out of the danger zone.

As far as buying opportunities, I recommend that we keep them to an absolute minimum right now since the market is still unsettled. Wall Street’s favorite “fear gauge,” the CBOE Volatility Index (VIX), is still at abnormally high levels (currently 40 as of Thursday’s session), and levels this high aren’t well suited for aggressively purchasing stocks. Ideally, we should see VIX come back down to below 25 before we can decisively enter the market as buyers.

As for where I’m seeing most of the relative strength right now, perhaps somewhat tellingly, it’s in economically sensitive industries like consumer staples providers (e.g., DG, DLTR and WMT), as well as in the traditional safe haven of gold miners (AEM, GOLD, KGC). When the market’s volatility backdrop improves, our next portfolio additions will likely be in these two areas, but perhaps others as well (depending on the overall level of improvement).

Finally, as I mentioned last week, the fact that the latest market slide was entirely the result of a news-induced panic should make recovery, once it begins, fairly swift in coming—assuming the market isn’t hit with another unexpected tariff war escalation. News-driven panics are historically quick to recover their losses since it’s easy for the market to diagnose the problem, while financial policy makers should have no trouble addressing the underlying issues involved.

Please know that while I don’t yet personally own shares of all Cabot Turnaround Letter recommended stocks, this will materially change in the coming weeks as I become fully integrated as your new chief analyst.

Please feel free to share your ideas and suggestions for the podcast and the letter with an email to either me at cdroke@cabotwealth.com or to our friendly customer support team at support@cabotwealth.com. Due to the time and space limits we may not be able to cover every topic, but we will work to cover as much as possible or respond by email.

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