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Turnaround Letter
Out-of-Favor Stocks with Real Value

Cabot Turnaround Letter Issue: March 29, 2023

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The Bank Stocks Issue: Is It Time to Jump Back In?

This issue of the Cabot Turnaround Letter 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?

As we’ve all seen, bank stocks have sold off sharply. The typical regional bank stock has tumbled 29% this month, as measured by the SPDR S&P Regional Bank ETF (KRE). The overriding fear is that a run on any bank could wipe out that bank’s share value and risks spawning a widespread banking panic that could threaten the nation’s financial system. Adding to the worry is that no bank across the globe is theoretically safe: Wobbly Credit Suisse was forced into a competitor’s arms and Deutsche Bank may be next. Perhaps another bank in Europe or somewhere in the developing world will evaporate. Due to the human nature of panic and the highly connected system of global counter-party credit, a failure anywhere could spawn a financial crisis everywhere.

While a meltdown is a real risk – one happened a mere 15 years ago – the odds are unquantifiable. Rapidly rising interest rates may take some time to fully expose weaknesses. Near-term stock rebounds may not provide all-clear signals: The KRE ETF surged 28% in the days following Lehman Brothers’ 2008 bankruptcy filing, for example. If contagion does emerge, central banks and other government entities, having had plenty of opportunities to practice, stand ready to implement vast new programs to stanch a systemic collapse. While these programs may produce legal, moral and other problems down the road, there is little doubt that they would be effective in the short term. On the other hand, it is possible that the current turmoil has reached its limit, leaving bank shares at an unusual discount that is a bargain for long-term investors.

James Grant, publisher of Grant’s Interest Rate Observer, once said, “Progress is cumulative in science and engineering, but cyclical in finance.” He is right: The basic concepts of money and banking – lending, collateral, credit quality, leverage, margin, perception of safety – were laid out thousands of years ago and haven’t changed much since. Little if anything new has been developed, only variations on the timeless foundations. Human nature hasn’t changed either. Today’s Wall Street is no different from the 15th-century House of Medici or the ancient banks of Greece, although it perhaps is more efficient in finding strategies that produce profit growth, then pressing them ever harder until they become overdone and dangerous. The problems of Silicon Valley Bank or First Republic are standard fare in banking. So are regulators’ struggles to identify and prevent bank collapses. The National Banking Act of 1863 inaugurated a centuries-long march toward greater government control of the country’s banking industry to tamp down volatility and risk. These efforts, shall we say, are ongoing.

Pundits, analysts, consultants, politicians – all are pointing fingers and pushing some agenda. We’ve read credible proposals ranging from an immediate and full government guarantee of all deposits, to functionally nationalizing (further, at least) major banks, to leaving the industry as it is, along with a creative multitude of variants. A possible new regulatory path is for banks to mark all, rather than some, of their bond holdings to market. This would probably require dividend cuts and capital raises at many banks, although by no means all banks. The outcome of this hand-wringing is as unquantifiable as the chances of a meltdown, although they are closely related.

One trait of the current market stress is its opacity. The greatest risk to any bank – that depositors suddenly and emotionally withdraw all of their deposits – is impossible to measure. Another risk is that much of the data that can help assess, if not predict, this risk is difficult to find. We looked through “Call Reports” compiled by the Federal Financial Institutions Examination Council, or FFIEC, to find data on uninsured deposits. But this obscure government filing is almost unheard of outside of wonky banking circles. We know of it only because of our grunt work long ago in the industry. Other data, like the unrealized losses in the bank’s “held to maturity” accounts, isn’t readily available in databases. While obscure, this data is now on the leading edge of assessing bank viability. Most investors, in the face of a lack of readily available data on banks, have chosen to sell.

In our investing, we want a favorable risk/reward trade-off. With banks, given their high leverage (typically 8x their capital) and vulnerability to a catastrophic run on their deposits, we focus as much if not more on the downside than the upside, given that the downside could be a total loss. In addition to evaluating the fundamentals to gauge the risk/return trade-off, investors can control risk through position sizing. If one has no interest or capacity to accept an unfavorable outcome like a total loss, the answer to the question in the title, “Is It Time to Jump Back In?”, the answer is No. The correct investment size is zero.

For risk-tolerant investors, the sizing should match their capacity and tolerance for a total loss (only the investors and their advisors can properly answer this question). For this group of investors, the answer to the opening question is yes, although we have a cautious bias.

Why the cautious bias? Clearly, we may be missing out on some possible near-term gains. A full recovery from the 29% swoon of the KRE ETF, for example, would produce a 41% gain. This is without a doubt appealing. But more likely, bank investors will haircut that upside such that the likely rebound potential is probably only 15-20%. Why only 15-20%? Partly because of the rediscovery of deposit-run risk, but partly because of the profit squeeze from rising deposit costs and higher credit losses, and the possibility of a dividend cut or capital raise. High-quality major banks like JPMorgan and Bank of America have fallen less, so they likely have even less near-term upside potential.

We will get a lot more color on each bank’s position in the upcoming earnings season, which starts in just over two weeks, on April 14. Needless to say, these reports will be highly illuminating for bank investors.

In the short term, bank stocks will trade in a highly correlated manner, with higher-risk stocks likely having larger moves in both directions relative to lower-risk stocks. With hundreds of publicly traded bank stocks to choose from, our selection below is a necessarily limited sample but includes stocks across the risk spectrum – from moderate risk to very high risk. Our feature recommendation this month, First Horizon Corp. (FHN), is an attractive contrarian bank stock.

Our view on recommended banks Wells Fargo & Company (WFC) and Capital One Financial (COF), which we include in the table below, is to keep them. Risk-tolerant investors may want to add to their positions. Wells has a solid capital base, healthy loan quality and the protection afforded to depositors by the bank’s designation as a systemically important financial institution which should deter a bank run. Capital One has robust capital and credit strength and the relative stability of having 75% of its deposits being insured, similarly deterring a bank run. Shares of both banks trade at significantly discounted valuations, limiting the downside risk in most environments outside of a systemic meltdown.

Bank Stocks For the Risk-Tolerant Investor

MTD % ChgMarket
Cap $Bil.
Yield (%)
Capital One Financial**COF90.45-1739.
CitigroupC 43.11-1583.
First Republic BankFRC12.36-902.313.70.20
PacWest BancorpPACW9.55-661.15.40.610.5
Wells Fargo & Company**WFC36.23-23136.87.313.3

Closing prices on March 24, 2023.
* P/E based on calendar year 2023 estimates. Price/tangible book value based on fourth quarter 2022 actuals.
** Current Cabot Turnaround Letter recommendations.
Sources: Company releases, Sentieo, FFIEC, S&P Capital IQ, Nasdaq and Cabot Turnaround Letter analysis.

Citigroup (C) – Citi is one of the world’s largest banks, with over $2.4 trillion in assets. The bank’s weak compliance and risk-management culture led to Citi’s disastrous and humiliating experience in the 2009 global financial crisis, which required an enormous government bailout. The successor CEO, Michael Corbat, navigated the bank through the post-crisis period to a position of reasonable stability. Unfinished, though, is the project to restore Citi to a highly profitable banking company, which is the task of CEO Jane Fraser and her refreshed senior leadership team. Fraser is a company veteran with a broad range of technical and leadership skills. Her promotion to the CEO seat in March 2021 launched a more aggressive strategy to focus Citi on core markets, including its valuable Treasury and Trade Solutions, credit cards, wealth management and capital markets operations. The bank is well along in its exit from 14 consumer markets, including the pending sale of its large Mexico operations. Also critical to its turnaround, Citi is tightening its compliance culture, reining in its risks and upgrading its technology backbone. The bank’s CET1 capital ratio of 13.0% is healthy and a full percentage point above the new minimum of 12.0%. While its capital ratio could perhaps slip to 11% if it were to be required to take a 10% mark-to-market hit to its held-to-maturity bond holdings, we see such a requirement as unlikely. We see little to no chance of a capital raise or dividend cut, although share buybacks won’t likely resume for another year or two. Citi’s profitability appears relatively resilient. The shares currently trade at a very low 53% of tangible book value and 7.5x estimated 2023 earnings per share, and offer a likely-sustainable 4.7% dividend yield. Citi is highly unlikely to experience a bank run, as depositors should know that they will almost certainly be fully protected given Citi’s status as a systemically important financial institution. Citigroup is a current Buy recommendation in the Cabot Undervalued Stocks Advisor.

Comerica (CMA) – This Dallas-based bank, with $85 billion in assets, is the cheapest of the regionals, with a P/E multiple of only 4.2x estimated 2023 per-share earnings and a price/tangible book value (P/TBV) of 1.3x. Weighing on the valuation are all the same problems of other banks, particularly as 57% of the bank’s deposits are non-interest bearing (among the highest of its peers) and 63% of its deposits are uninsured (the highest among its peers). These point to rising deposits costs and deposit exits in future quarters. Also, Comerica has relatively high exposure to commercial real estate at 15% of total loans.

However, we see limited risk of a run on Comerica’s deposits, given its diversified customer base. All of its bond holdings are reported at market value, so its CET1 capital ratio, at a reasonable 10.0%, fully reflects unrealized losses. Credit quality remains high and is supported by a healthy 1.24% reserve ratio. Over 90% of its new commercial real estate lending is to existing customers, is backed by significant borrower equity in the properties and is short-term, lower-risk construction loans. Management just raised the dividend by 4%, suggesting some optimism on their part about the bank’s earnings outlook. If Comerica avoids a deposit run, can generate a conservative $7/share in earnings (below the current consensus of $9.60) and warrants a modest 8x P/E multiple, the resulting $56 share price offers a 40% upside potential, plus a 7% annual dividend return.

First Republic Bank (FRC) – This bank could readily become the third American bank to fail in the current banking turmoil, which would leave shareholders with a total loss. Its shares have collapsed by 90% this month, as a run on the bank has drained it of much of its $176 billion in year-end deposits. This run has forced it to raise cash, requiring it to take losses on its bond holdings, thus reducing its capital base by as much as $5 billion, or 35%. Given its CET1 capital ratio of about 9.0%, the losses mean that its capital ratio is now only about 5.6%, much too low for regulators and customers. For most banks, this downward spiral would almost certainly be the end.

But First Republic isn’t dead yet. In a nearly unprecedented act, a consortium of major banks, including JPMorgan, has deposited $30 billion with First Republic, helping it replace some of the lost deposits. We don’t know what government backstop these deposits have, but it appears that there are none, so the terms would likely be market-based rather than government-dictated. And the bank has borrowed over $30 billion from the FHLB and Federal Reserve Bank, replacing more lost deposits although at expensive interest rates of 4.75% and higher. Favorably, First Republic has said that, at least through March 15, deposit outflows have “slowed considerably” and insured deposits “have remained stable.” It also has a cash position of $34 billion, plenty to meet all but another deluge of withdrawal requests. This past weekend, regulators have discussed providing more government support to allow First Republic more time to shore up its balance sheet.

While First Republic’s deposit instability is a critical problem, its asset base appears to be very strong. Credit losses historically approached zero and there is little reason to believe that the loan book has any meaningful problems today. The bank generally avoids risky banking practices, reducing the chances that there are hidden liabilities, but there is no certainty in this regard. The bank also has a valuable wealth management arm, with $270 billion in assets under management, that generated nearly $900 million in fee income last year. To help preserve capital, the bank has suspended its dividend, thus keeping about $200 million in capital inside the bank.

In an optimistic scenario, First Republic is able to convince many of its customers to return their deposits. The bank has a remarkably strong reputation for outstanding service that would be hard to find elsewhere, providing customers with a strong incentive to come back. If the FDIC removes the $250,000 cap on deposit insurance, First Republic’s deposits would likely return in droves. With a strong deposit inflow, the bank could offload its high-cost borrowings from the FHLB and the Fed and also limit any further sales of its underwater bond holdings. The bank needs nearly everything to go right, and there are many moving parts to this scenario. But, to simplify: Assume that the bank shrinks to about two-thirds its year-end 2022 size (deposits and loans run off), and its earnings power declines to about $5.00/share (compared to its $8.25/share in 2022 profits). In this scenario, with an 8x earnings multiple, the shares could be worth as much as $40. This would be reasonably close to its tangible book value of $48/share after marking its bonds down by $5 billion to their market value. The resulting price range of $40-$48 implies gains of about 225% to 290%.

In an acquisition, the outlook is dimmer. A buyer would likely mark to market the bank’s entire balance sheet, at least for economic purposes. In its 10-K, First Republic shows that its bonds and loans would need to be marked down by a total of $27 billion. This exceeds First Republic’s tangible equity by nearly $14 billion. A buyer would need to fill this hole, plus infuse perhaps another $3 billion in new equity into the business, assuming that regulators allow favorable amortization treatment of the markdowns. This creates a negative value of $17 billion. Partly offsetting this: We estimate that the wealth management business is worth 3% of its assets under management, or about $8 billion. We estimate that the First Republic franchise value – its brand, employees, culture, relationships and other hard-to-quantify assets – is worth perhaps $9 billion, or about 9x an estimated $5.50/share in earnings (which excludes the wealth management business but includes some deal synergies), as investors apply a higher multiple based on a stronger new parent company. Recognizing that this math is exceptionally rough, the implied net value in a transaction would be around $4/share.

Darker scenarios exist and have a high likelihood of occurring. One is that the bank is unable to navigate the turmoil, and regulators lose patience, resulting in a closing and forced dismantling of the bank. This would likely leave shareholders with a total loss. Another is that the bank is required to raise equity at a discount to the current price, severely diluting current shareholders and also likely resulting in a near-total loss.

All in, First Republic shares are highly speculative. For risk-tolerant investors willing to accept the risk of a total loss, a successful outcome could be a year-maker.

KeyCorp (KEY) – Shares of KeyCorp have tumbled 35% this month and are unchanged in 15 years. The bank, based in Cleveland, is among the nation’s largest banks, with $190 billion in assets. In many ways, it is a typical regional bank, with a diversified lending book and plenty of long-term government securities. The CET1 capital ratio of 9.1% indicates adequate although not robust financial strength. Its credit reserve at 1.33% of loans is healthy. Uninsured deposits are about 51% of total deposits, and its deposits pay an average rate of 0.51%, suggesting that customers may look elsewhere for yield. But, there appears to be little risk of a run on deposits given the bank’s diversified customer base and “big enough” size, even though the bank is below the $250 billion asset threshold for official “systemically important financial institution” status that implies a full government guarantee of all deposits.

Like most regionals, Key’s share valuation tells a story. Its P/TBV of 1.4x implies that the bank’s overall asset quality is reasonable but not exceptional, while its 6.0x P/E multiple implies that its earnings estimates are too high. The dividend yield of 7.3% implies a fair chance of a dividend cut. But, looked at another way, if the bank is able to successfully navigate its way through the difficult environment, the shares offer a decent bargain, as a typical bank in a healthy environment would have a P/TBV of perhaps 1.5x, a P/E multiple of about 9-10x and a yield of perhaps 4%. Based on a 9x multiple on $2 in steady-state earnings, KeyCorp shares should return to perhaps $18 once the current malaise lifts. This would provide a respectable 50% gain plus 10% or more from dividends.

PacWest Bancorp (PACW) – Shares of mid-sized Los Angeles-based PacWest are at the deeper end of the risk spectrum. Investors rightfully worry that the bank is vulnerable to a run similar to that at Silicon Valley Bank and First Republic, given its concentration in tech-focused geographies like California, Austin, Chicago, Durham, North Carolina, Boston and New York City. So far this year, it has lost 20% of its $34 billion in year-end deposits. Venture capital deposits have tumbled to $6.4 billion, yet remain nearly a quarter of total deposits, and this balance could leave at a moment’s notice. Also, since the bank’s creation in 2000, it has made 29 acquisitions, producing exceptional growth but also considerable risks. Losses in its bond holdings were only about 6% of its CET1 capital, but PacWest’s capital ratio of 8.7% is too low to allow for further reductions. With little margin for error, more problems could result in regulatory actions that wipe out shareholders.

However, PacWest’s grim position isn’t hopeless. Most notably, the bank provided a confidence-boosting update on March 22, outlining key metrics to investors and the public that suggest that its deposits are safe. Thanks to borrowings from government agencies and a private equity firm (providing a valuable stamp of approval), the bank has more cash than uninsured deposits. Over 65% of its deposits are insured. It has raised its deposit interest rates to a competitive 2.04%. Falling bond yields have helped boost the market value of PacWest’s securities portfolio. All this suggests that depositors have little to worry about, which should help stanch customers’ urge to flee.

Strategically, PacWest has been exiting non-core operations and tightening expenses. A new CEO (internal promotion) and CFO (hired from the outside) should bring incremental change in the right direction. Overall bank credit quality has been strong, although its commercial real estate lending will likely be tested in the coming year. Profits have been healthy.

Shares of PacWest have slid 66% this month – among the worst decline in the industry. The shares are statistically cheap at 55% of tangible book value and 5.4x estimated 2023 per-share earnings. We anticipate that actual earnings will be lower than the $1.76 estimate as the high cost of its alternative sources of cash hits the income statement. And investors should expect that the $0.25/share quarterly dividend, which provides a 10.8% yield, will be cut or eliminated. Yet, if the bank survives and can stabilize its deposit base, it should be able to unwind its expensive borrowings and return to perhaps $2.00/share in earnings. A healthy future PacWest could trade at $18-$20, providing an impressive return. While the risks are high and real, the potential rewards are, too.


Purchase Recommendation: First Horizon Corporation (FHN)

First Horizon Corporation (FHN)

165 Madison Avenue

Memphis, Tennessee 38103


Market Cap:$8.5 billion
Category:Mid Cap
Business: Banking
Assets (2022):$79 Billion
EPS (FY2023e): $1.96
3/24/23 Price: 16.76
52-Week Range: 13.40-24.92
Dividend Yield:3.60%
Price target:$24

Background: First Horizon is a mid-sized regional bank with $79 billion in assets. Based in Memphis, Tennessee, the bank was founded in 1864 as the First National Bank of Memphis. Growth has come from both organic sources and acquisitions. Like many banks, First Horizon received government assistance during the 2008-2009 financial crisis. Restored to sound footing, the bank continued to selectively acquire other banks, including Capital Bank ($2.2 billion deal) in 2017, which made it the fourth-largest regional bank in the Southeast. In 2020, First Horizon completed the $2.2 billion all-stock acquisition of Louisiana-based IberiaBank, nearly doubling its assets and increasing its density in the Southeast.

First Horizon is a relatively straightforward bank. It has 412 branches across the Southeast, with an emphasis on personal and small/medium-sized business banking. About 25% of its revenues are produced by fee income, which includes traditional banking fee income sources as well as revenues from operations including wealth management, fixed income capital markets and insurance brokerage. Its loan book is composed primarily of standard commercial and industrial loans (55% of total loans), consumer mortgages (27%) and commercial real estate loans (23%). About 53% of its deposits are insured by the FDIC – a relatively high percentage. Its acquisitions have gone relatively smoothly and generally have met their performance targets.

The bank is well-capitalized with a CET1 ratio of 10.2%. Loan quality is high, as its charge-offs and non-performing assets remain modest and are well-supported by loss reserves. First Horizon’s wide net interest margin (3.89%) and high 14.4% return on common equity indicate that it is a profitable and healthy bank.

Analysis: Shares of First Horizon provide an appealing way to exploit the bank sell-off: merger arbitrage. In February 2022, First Horizon agreed to be acquired by Canada-based TD Bank Group, the parent company of the Toronto-Dominion Bank, for $25/share in an all-cash deal. TD is readily capable of paying the $14 billion price: it is one of Canada’s largest banks, with C$1.9 trillion in assets, is highly profitable and is well-capitalized (CET1 ratio of 15.5%). The funding is essentially a deployment of some of TD’s excess capital in an earnings-accretive way. Strategically, First Horizon fits well with TD’s already large $524 billion in U.S. banking assets, particularly with its Florida and Carolinas operations. TD wants to accelerate its U.S. growth, and First Horizon provides a sound vehicle for accomplishing this.

However, regulatory delays have stalled the deal’s closing. The closing date was pushed back to May 27, 2023, but TD has said that even this date won’t provide enough time for it to receive the necessary approvals. We believe that year-end is a more realistic target. Concerns that the deal will not close have driven FHN shares down to 33% below the $25 acquisition price. This offers shareholders a very appealing 49% upside, plus interim dividends that offer a 3.6% annualized yield, if the acquisition closes at the $25/share price.

There are a few moving parts to this arbitrage. First, the exact reasons for the slow regulatory approvals aren’t clear. So, the chances of a deal closing are murky, although it would seem that both banks are eager to complete the transaction and do so in a way that minimizes any changes to either banks’ operations or structure.

Second, given the recent banking industry disruptions, there is the chance that the $25 price will be reduced. While possible, this seems unlikely, as First Horizon is well capitalized with its securities portfolio almost entirely marked to market value, has a sturdy deposit base, healthy credit quality and has been well managed. Barring hidden losses, there wouldn’t appear to be any reason for a major price adjustment. At 2.4x First Horizon’s tangible book value of $10.23/share and 12.8x estimated 2023 earnings of $1.96/share, the $25/share acquisition price isn’t a great bargain for a standalone bank, but for a takeover, it is very reasonable. A 20% reduction in the price, to $20/share, would still generate a 19% return, plus interim dividends, for investors, providing meaningful participation in a banking industry rebound.

An additional risk is that First Horizon experiences a run on its deposits while the deal is pending. While First Horizon has a reasonably diversified deposit base, it is skewed (74% of deposits) toward low-yielding or interest-free deposits. So, it will likely need to pay up to keep some of those deposits, but this looks more like a profit drag than a flight risk. Importantly, only 47% of its deposits are uninsured by the FDIC, a relatively low percentage. And, with the pending backing of a major Canadian bank, customers would likely feel confident that their deposits are safe regardless of the low yield. We see a deposit run as highly unlikely.

If the deal doesn’t close, First Horizon shares have relatively limited downside. The current valuation, at 1.6x tangible book value and 8.6x expected earnings, is only modestly above its peers, indicating that a reasonable downside would be to perhaps $15/share, or about 11%. First Horizon would need to address investor and community concerns as to why a deal collapsed and replace the likely loss of talent, but these hurdles would seem readily surmountable. If the deal is terminated solely because of regulatory issues, TD could convert its First Horizon preferred shares into a 3-4% common stock position, and First Horizon in certain cases like violating its no-shop clause would have to pay TD a $436 million break-up fee. We see these as either minor or unlikely issues.

Favorably, if a deal with TD is terminated, First Horizon shares may still rebound from their depressed levels along with other bank shares. And, given its strong franchise and in-play situation, First Horizon could become a takeover candidate by another firm, although we see this as unlikely.

All-in, the shares offer an attractive risk/return opportunity among bank stocks. Our target price of 24 offers some leeway to exit without waiting for the full $25, as that value would be received only if held to an actual closing.

We recommend the purchase of First Horizon Bank (FHN) shares with a 24 price target.

Ratings Changes

On March 7, following Organon’s (OGN) complicated fourth-quarter earnings report, we moved the shares from Buy to Sell.

We had expected that Organon would produce at least stable and large free cash flows supported by at least modest revenue growth. It had the traits of a modern-era “cigar butt” – a dull but undervalued asset worthy of a higher share price. However, revenue growth remains elusive. Management is spending aggressively to both develop and buy revenue growth, even as gross margins are being pressured, and is also buying back shares merely to offset stock awards. All these problems are weighing on free cash flow. We see little opportunity for a contrarian play despite the low valuation.

A large proportion of spin-offs are not successful. Most investors know this but make the mistake of avoiding all spin-offs. This dichotomy creates the contrarian opportunity that we look for. While Organon was an unsuccessful investment, we escaped with a reasonably small negative (15%) total return loss, including dividends, from our initial recommendation in the July 2021 Cabot Turnaround Letter at 30.19.

The widely respected Dr. Kerr L White once said, “Good judgment comes from experience, and experience comes from bad judgment.” The Organon recommendation seemed like good judgment at the time and now adds to our experience base. See our March 7 note for more color on the Organon exit.

On March 7, we moved shares of Brookfield Asset Management (BAM) from Unrated to Sell. Investors in our Buy-rated Brookfield Re (BNRE) received shares of Brookfield Asset Management in its December 12, 2022 spin-off. BAM shares were “Unrated” as the company is not in a turnaround situation, and as such, we anticipated moving our rating to Sell in the near future. Brookfield Asset Management is a high-quality company with exceptional management and an impressive business model. Our move to sell is in no way a reflection of the merits of this company. The shares rebounded to a satisfactory degree following their post-spin sell-off, thus driving our move to Sell. The shares produced a 5% total return since their first-day closing price of 32.40.

On March 10, we moved shares of ZimVie (ZIMV) from Hold to Sell. We had reduced the rating to Hold in our March 3 Friday Note, waiting for a possible bounce to exit following the company’s weak quarterly results and dismal earnings outlook for 2023 and beyond. However, the shares did not bounce even a little, contrary to our expectations, so we exited this position with a large loss. Please see our March 10 note for more color on the ZimVie exit.

Disclosure: The chief analyst of the Cabot Turnaround Letter personally holds shares of every company on the Current Recommendations List. The chief analyst may purchase securities discussed in the “Purchase Recommendation” section or sell securities discussed in the “Sell Recommendation” section but not before the fourth day after the recommendation has been emailed to subscribers. However, the chief analyst may currently hold and may purchase or sell securities mentioned in other parts of the Cabot Turnaround Letter at any time.


The following tables show the performance of all our currently active recommendations, plus recently closed out recommendations.

Large Cap1 (over $10 billion) Current Recommendations

Price at
Return (3)
Rating and Price Target
General ElectricGEJul 2007304.9691.37-40***0.4%Buy (160)
Nokia CorporationNOKMar 20158.024.63-240.4%Buy (12)
Macy’sMJul 201633.6116.94-304%Buy (25)
Toshiba CorporationTOSYYNov 201714.4916.80+253.8%Buy (28)
Holcim Ltd.HCMLYApr 201810.9212.22+313.6%Buy (16)
Newell BrandsNWLJun 201824.7811.63-357.9%Buy (39)
Vodafone Group plcVODDec 201821.2410.85-309.5%Buy (32)
Molson CoorsTAPJul 201954.9650.70+13.0%Buy (69)
Berkshire HathawayBRK/BApr 2020183.18298.92+630%HOLD
Wells Fargo & CompanyWFCJun 202027.2236.23+412.8%Buy (64)
Western Digital CorporationWDCOct 202038.4735.26-80%Buy (78)
Elanco Animal HealthELANApr 202127.858.82-680%Buy (44)
Walgreens Boots AllianceWBAAug 202146.5332.70-235.8%Buy (70)
Volkswagen AGVWAGYAug 202219.7616.11-95.4%Buy (29)
Warner Brothers DiscoveryWBDSep 202213.1614.00+60%Buy (20)
Capital One FinancialCOFNov 202296.2590.45-52.7%Buy (150)
Brookfield Asset MgtBAMSpin-off32.4033.66*+54%SELL
Bayer AGBAYRYFeb 202315.4115.03-22.8%Buy (25)

Mid Cap1 ($1 billion - $10 billion) Current Recommendations

Price at
Return (3)
Rating and Price Target
MattelMATMay 201528.4316.28-300%Buy (38)
Adient plcADNTOct 201839.7737.89-40%Buy (55)
Xerox HoldingsXRXDec 202021.9114.63-237%Buy (33)
Ironwood PharmaceuticalsIRWDJan 202112.0210.69-110%Buy (19)
ViatrisVTRSFeb 202117.439.33-415%Buy (26)
Organon & Co.OGNJul 202130.1923.74-15*4.7%SELL
TreeHouse FoodsTHSOct 202139.4348.86+240%Buy (60)
Kaman CorporationKAMNNov 202137.4121.5-393.7%Buy (57)
The Western Union Co.WUDec 202116.410.86-258.7%Buy (25)
Brookfield ReinsuranceBNREJan 202261.3230.09-36**1.9%Buy (93)
Polaris, Inc.PIIFeb 2022105.78107.13+42.4%Buy (160)
Goodyear Tire & Rubber Co.GTMar 202216.0110.1-370%Buy (24.50)
M/I HomesMHOMay 202244.2860.61+370%Buy (67)
Janus Henderson GroupJHGJun 202227.1725.57-26.1%Buy (41)
ESAB CorporationESABJul 202245.6456.59+242.8%Buy (68)
Six Flags EntertainmentSIXDec 202222.6023.89+60%Buy (35)
Kohl’s CorporationKSSMar 202332.4321.48-329.3%Buy (50)

Small Cap1 (under $1 billion) Current Recommendations

Price at
Return (3)
Rating and Price Target
Gannett CompanyGCIAug-1716.991.83-40%Buy (9)
Duluth HoldingsDLTHFeb-208.686-310%Buy (20)
Dril-QuipDRQMay-2128.2826.95-50%Buy (44)

Most Recent Closed-Out Recommendations

At Buy
At Sell
AlbertsonsACIMidAug 202014.95*Sept 202128.56+94
Meredith CorporationMDPMidJan 202033.01*Nov 202158.30+78
Signet Jewelers LimitedSIGSmallOct 201917.47*Dec 2021104.62+505
General MotorsGMLargeMay 201132.09*Dec 202162.19+122
GCP Applied TechnologiesGCPMidJul 202017.96*Jan 202231.82+77
Baker Hughes CompanyBKRMidSep 202014.53*April 202233.65+140
Vistra CorporationVSTMidJun 202116.68* May 202225.35+56
Altria GroupMOLargeMar 202143.80*June 202251.09+27
Marathon OilMROLargeSep 202112.01*July 202231.68+166
Credit SuisseCSLargeJun 201714.48* Aug 20225.11-58
Lamb WestonLWMidMay 202061.36*Sept 202280.72+35
Shell plcSHELLargeJan 201569.95*Dec 202256.82+16
Kraft Heinz CompanyKHCLargeJun 201928.68*Dec 202239.79+60
GE Heathcare Tech.GEHCLargeSpin-offna*Jan 202358.95na
ConduentCNDTMidFeb 201714.96*Mar 20234.17-72
Meta PlatformsMETALargeJan 2023118.04*Mar 2023186.53+58
DowDowLargeOct 202243.90*Mar 202360.09+38

Notes to ratings:
1. Based on market capitalization on the Recommendation date.
2. Total return includes price changes and dividends, with adjustments as necessary for stock splits and mergers.
* Indicates mid-month change in Recommendation rating. For Sells, price and returns are as-of the Sell date.
** BNRE return includes spin-off value of BAM shares.
*** GE total return includes spin-off value of GEHC shares at January 6, 2023 closing price to reflect our sale.

The next Cabot Turnaround Letter will be published on May 3, 2023.

Bruce Kaser has more than 25 years of value investing experience in managing institutional portfolios, mutual funds and private client accounts. He has led two successful investment platform turnarounds, co-founded an investment management firm, and was principal of a $3 billion (AUM) employee-owned investment management company.