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Turnaround Letter
Out-of-Favor Stocks with Real Value

October 27, 2021

Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the November 2021 issue.

Consumer staples stocks were pandemic beneficiaries, but now that the worst has passed, many of these stocks have been sold off fairly hard, even as the stock market continues to reach record highs. While investor concerns regarding negative year-over-year sales, tighter margins due to inflation, and the degree to which companies can raise prices have merit, we make our case for four stocks that have been discarded and now look like bargains.

Bank stocks have been strong performers following the pandemic stock market trough, including those we highlighted in late April 2020. Yet, not all have fully participated. We found four that have good fundamentals yet trade at price/earnings multiples below 10x, considerably lower than the peer average of 14.5x.

Attractive Turnaround Stocks

Post-Pandemic Bargains in Consumer Staples Stocks
Consumer staples companies were beneficiaries of the pandemic, as stay-at-home orders prompted a surge in purchases of food, batteries and other necessities. With the surge fading, investors are seeing negative growth rates and wondering what the future will bring for these products. Will some of the uplift be enduring, or will sales slip back into uninspiring pre-pandemic trends? Can producers raise prices, or will retailers and consumers push back? Will inflationary pressures be a permanent drag on profit margins?

As consumer staples stocks slide backwards, the stock market continues to reach record highs. Tech, meme and other trendy stocks may make for more exciting investing, but their stretched (or beyond) valuations leave little room for fundamental disappointments or macro headwinds. At the same time, many consumer staples stocks have been ground down and are starting to look like bargains.

Our group of four staples stocks, discussed below, are among the hardest-hit. Each has their own story, but in general, revenues have remained steady, and the companies are improving their ability to innovate with new products while winnowing out losers. To this list we would add Cabot Turnaround Letter-recommended Kraft Heinz (KHC), Lamb Weston Holdings (LW), Molson Coors (TAP), Altria (MO) and TreeHouse Foods (THS).

Regarding inflation, these companies are at the front end of the inflation cycle, where they have to absorb higher costs now but are only starting to pass through these costs as price increases. We believe they have latent pricing power, so when prices catch up, margins should be largely restored. Elasticity – how much will volumes decline as consumers trade down due to higher prices – will likely be limited. But, to the extent that consumers trade down, the previously mentioned TreeHouse Foods should benefit. Another feature of consumer staples stocks: They are likely to provide a defensive haven should the overall market become more turbulent.

Calavo Growers (CVGW) – Based in California, Calavo is a leader in the avocado industry, serving grocery, foodservice and food distribution companies worldwide. Founded as a co-op in 1924, Calavo converted to a for-profit public company in the early 2000s. Recently, its shares have unraveled and are 51% below their 2018 peak. The problem: The company is a middleman, rather than a producer. Sometimes this is an asset, but currently the cost of buying avocados is surging, squeezing Calavo’s margins. Also, Calavo’s costs are relatively fixed, so lower volumes from Mexico are further weighing on profits, as are elevated freight and labor costs. All this has left Calavo with near-zero margins. Not helping the stock was the surprise departure of the short-tenured (18 months) CEO, which followed the CFO’s exit. Yet, as investors give up, Calavo’s outlook is improving. It is implementing price increases and seeing better avocado volumes, while efficiency initiatives provide incremental benefits. The company has plenty of credit availability and its debt burden is low. A new CFO has just been hired and the board is actively searching for a permanent CEO. While risky, this stock may be ready to pick.

Post-Pandemic Consumer Staples Bargains
% Chg Vs 52-
Week High
Cap $Bil.
Yield (%)
Campbell SoupCPB40.70-2412.310.73.7
Calavo GrowersCVGW42.09-510.715.30.0
Energizer HoldingsENR37.02-302.59.83.4
Utz BrandsUTZ15.40-492.114.91.2

Closing prices on October 22, 2021.
* EV/EBITDA is Enterprise value to Earnings before interest, taxes, depreciation and amortization, a proxy for cash operating earnings. Valuations based on estimates for fiscal years ending in calendar 2022.
Sources: Company releases, Sentieo, S&P Capital IQ and Cabot Turnaround Letter analysis.

Campbell Soup Company (CPB) – Campbell is best known for its condensed soups, but more than half of its revenues come from valuable snack brands like Pepperidge Farms, Cape Cod potato chips and Snyder’s pretzels as well as the Prego, Pace and V-8 brands. Campbell’s sales remain steady, as overall organic (net of acquisitions and divestitures) sales have grown at a 3% pace over the past two years, a period which nets out the pantry-loading from the pandemic. While rising costs will probably pull their full-year profits to perhaps 6% below a year ago, the company is pushing through mid-single-digit price increases and improving its operating efficiency. Free cash flow is large and steady, which readily supports the dividend, a new buyback program and the reasonable debt load. Strategically, the company has offloaded its misguided foray into fresh foods, and the new CEO (January 2019) has replaced nearly the entire executive suite to bring in new ideas and capabilities. Campbell’s shareholder base is interesting: The founding Dorrance family still holds about 32%, activist Dan Loeb has sold his shares, but Engine No. 1 (who deposed some of ExxonMobil’s board) holds some shares. The December 14 investor day may provide a catalyst for the shares.

Energizer Holdings (ENR) – Maker of the eponymous batteries, Energizer Holdings has been on an acquisition spree in recent years, including its purchase of Rayovac battery as well as the deal for ArmorAll and STP brands from Spectrum Brands in 2019. Its battery segment comprises 75% of company sales, and is essentially in a duopoly with Duracell, which is owned by Berkshire Hathaway. While the Lighting segment (flashlights) makes sense in the portfolio, the collection of car care products (20% of sales) seems less logical. Nevertheless, overall sales continue to march forward, with organic revenues growing 5.8% in the most recent quarter. Management has guided for 8-9% revenue growth for the rest of the year. Gross margins have been modestly squeezed by higher costs, which has disappointed investors, but the EBITDA margin at 20% seems sustainable through price increases and cost-cutting. This past January, the company promoted the president to CEO. Debt is elevated due to the recent acquisitions, but Energizer is confident enough to initiate an accelerated program to repurchase 2.5% of their shares.

Utz Brands (UTZ) – This old-line, high-quality company makes the widely recognized Utz brand of potato chips. It also has a portfolio of other national and regional pretzel, tortilla chip, pork rind and other snack brands. Utz is the #2 salty snack company in its core geographies and #4 nationally, with a long history of steady organic growth in this attractive industry. Utz became a public company in August 2020 through a combination with the Collier Creek SPAC. After surging to over 30, the shares have fallen nearly 50%, derailed by two consecutive disappointing earnings reports due largely to rising costs. Investors also worry about the elevated debt. But the company has good leadership, overseen by the former chairman of the successful Pinnacle Foods. Utz generates plenty of free cash flow to cover its obligations, will offload peripheral brands while acquiring more “power brands,” expand its markets while boosting efficiency, and build a more valuable national snack company. With the discounted stock price, it might be time to put some chips on Utz.

Attractive Bank Stocks with P/Es Under 10x
After the market troughed in March 2020, bank stocks have been among the best performers, with the average name jumping 145%. The biggest worry – credit losses from a sharp economic downturn – all but evaporated as the economy rebounded sharply. Shortly after the group hit bottom, the Cabot Turnaround Letter highlighted in late April 2020 five regional banks which, on average, went on to more than fully participate.

Today, with their strong credit positions and healthier earnings, the average stock in our 166 bank universe trades at a healthy 14.5x next year’s earnings. However, some bank stocks have been overlooked by investors. In our search, we discovered four worthwhile banks whose stocks trade below 10x next year’s expected earnings.

Three of our selection are community or regional banks, which are in a different league from their mega-bank peers. These independent banks have wider net interest margins, as their loans are too small for private lenders or large banks to bother with. They also generally have modestly higher loan losses due to this small-customer focus. A strategic issue for smaller banks is the rising cost of technology. Combined with the endemic acquisition-driven mindset of bank executives, especially when stock prices are high, this tech-spend imperative may be behind a rising tide of acquisitions. Smaller banks with low valuations could make appealing targets.

Amalgamated Financial Corporation (AMAL) – This New York City bank, with $6.6 billion in assets, prides itself on being “America’s largest B Corp bank.” Its charter allows it to balance purpose and profit. As such, Amalgamated emphasizes customers with an interest in supporting sustainable organizations, progressive causes and social justice. The bank was founded in 1923 by the Amalgamated Clothing Workers of America labor union, and remains 41% union-owned. The Yucaipa Companies owns a 12% stake, a carry-over from a capital infusion in 2012 that helped the bank recover after the financial crisis. The bank has a respectable 2.75% net interest margin (its profit margin on loans), and its sizeable investment management business that oversees labor union pension funds adds stability. Credit quality is weaker than its peers, and its reserves look low, although its 13.6% capital ratio provides a good buffer against future losses. Overall, though, the bank isn’t generating adequate profits. However, the CEO and CFO were changed out earlier this year, bringing in high-quality new leadership that is emphasizing a much-needed boost in profitability. The bank’s geographic expansion strategy appears intact: After acquiring a bank in San Francisco in 2018 and opening a new office in Boston last year, the new leadership team recently announced a deal to acquire Amalgamated Bank of Chicago. The shares trade at only 15% above their August 2018 IPO price of 15.50.

Attractive Banks with P/Es Under 10x
Cap $Bil.
Yield (%)
Amalgamated FinancialAMAL17.760.
Hope BancorpHOPE14.831.
Horizon BancorpHBNC18.770.

Closing prices on October 22, 2021.
Note: P/E is based on estimated calendar 2022 earnings. Price/TBV is price/tangible book value, based on most recent quarter.
Sources: Company releases, Sentieo, S&P Capital IQ and Cabot Turnaround Letter analysis.

Citigroup (C) – Despite numerous restructurings, Citigroup’s shares have appreciated only about 50% in the past eight years – rather lackluster compared to industry leaders like JPMorgan (+230%) and Bank of America (+250%). Citi shares were a previous Cabot Turnaround Letter recommendation that generated a 79% return at its sale at 81 just before the pandemic sell-down cut the price in half. Former CEO Michael Corbat did an admirable job of stabilizing the bank’s capital and profits, yet while Citi retrenched, competitors grew stronger. Now led by Jane Fraser (since February 2021), a capable strategic thinker with strong operational experience, the bank is more aggressively focusing on its most attractive businesses. Her goal is to narrow the return on capital gap between Citigroup and its major peers. She wants to focus on wealth management and global institutional banking, particularly Treasury and Trade Solutions. Currently on the selling block are its far-flung retail banking in 13 countries. Near-term headaches include sluggish revenue growth, a slim 1.93% net interest margin and higher expenses, although fortunately credit quality and capital are strong. Investors worry about its operational risks – and so do regulators. Last October the bank was hit with several consent orders due to its “serious ongoing deficiencies,” so Citi is working (and spending) hard to buff up its internal controls and tech infrastructure. Fraser will provide investors with a more detailed strategy update next March, and is assuaging investors with generous capital returns that total $11 billion year-to-date. With a cheap stock and better results, plus an eventual consent order lifting, Citi shares could be quite rewarding.

Hope Bancorp (HOPE) – With $17.5 billion in assets, Los Angeles-based Bank of Hope describes itself as “the first and only super regional Korean-American bank in the United States.” It has a national reach, with 53 full-service branches in eight states including Texas, Illinois and New York, many of which were added through mergers with competitors. The pandemic hit the bank hard, as its sizeable loans to hotels and motels suffered during the lockdowns. And its reserves against bad loans could be larger to provide more of a cushion. Nevertheless, its capital remains robust at 11.3%, so the bank isn’t in imminent danger by any stretch. It is generally well-run, with impressively low operating expenses which help it produce a healthy 1.25% return on assets. Like its small community bank peers, its net interest margin is wide, at 3.11%. Hope Bancorp is confident in its future, as it recently launched a $50 million share repurchase program.

Horizon Bancorp (HBNC) – Based in Michigan City, Indiana, this community bank, with 73 branches and $6 billion in assets, has a strong franchise in Indiana and Michigan. This region of the country has a surprisingly robust small business lending market, due partly to its close proximity to Chicago and major universities including Purdue, Notre Dame, Michigan and Michigan State. Horizon’s net interest margin of 3.14% is impressive. The bank keeps its expenses low even as it invests in modern digital capabilities. Credit costs are modestly elevated but comparable to peers and look readily manageable, backed by robust capital. Overall profits are healthy, as the bank generates a 1.46% return on assets, well above the 1.0% rule-of-thumb target. Horizon grows partly by acquisitions, including its recent purchase of 14 branches from regional powerhouse Huntington Bancshares. This quality bank doesn’t deserve its cheap valuation.

New Recommendation, Updates and Performance


Purchase Recommendation: Kaman Corporation (KAMN)

Kaman Corporation (KAMN)
1332 Blue Hills Avenue
Bloomfield, Connecticut 06002
(860) 743-7100

Symbol: KAMN
Market Cap: $1.1 Billion
Category: Mid Cap
Business: Defense
Revenues (2021e):$737 Million
Earnings (2021e):$52 Million
10/22/21 Price:37.41
52-Week Range: 33.93-59.80
Dividend Yield: 2.1%
Price target: 57


Kaman Corporation is a defense and aerospace company that produces highly-engineered components, specialty fuzes (mechanical fuses) for missiles, and various assemblies. Founded in 1945 by aviation pioneer Charles Kaman, the Connecticut-based company was originally an innovative and successful maker of military helicopters. Over time, it leveraged its in-house technology to produce specialty bearings, materials, and other advanced components for manufacturers in the commercial aerospace, medical and other industries. Today, about 52% of its sales, of which fuzes are more than half, are to the defense industry. Commercial markets generate 48% of total sales, with Boeing providing an estimated 18% of total sales while other aerospace, medical and industrial customers comprise the rest of commercial revenues. Kaman maintains a global manufacturing footprint, as about half of its sales are to non-U.S. customers.

Kaman’s shares have declined 50% from their early 2018 peak and now trade essentially unchanged from their 2007 price and their pandemic low. Part of the reason is the company’s reliance on Boeing, which suspended production of the 737MAX in 2018 and then suffered from order cancellations and reduced demand due to the pandemic. Kaman’s shares have declined 35% since early June, coinciding with the sell-off in airline stocks related to renewed Covid concerns. Also, Kaman’s Joint Programmable Fuzes (JPF) program has shrunk over the past few years and is increasingly at risk of being replaced by a competitor, further weighing on the shares.

More generally, the value of Kaman’s highly-engineered product operations is being obscured by peripheral and likely low-margin businesses, such as military aircraft wing and cockpit assembly. The K-MAX helicopter, may have interesting potential but appears to be an expensive distraction that further hides the precision engineering group’s value. Kaman breaks out segment revenues but doesn’t share segment profits, so investors have little ability to accurately assess exactly where and how much value is being created, or destroyed, and so the shares get a discount for this lack of transparency.

With investors seeing Kaman as little more than a low-margin aerospace contractor tied to the soft commercial jet market and a fading JPF program, perhaps it’s not a surprise that they have thrown in the towel.

Kaman’s board of directors appears to be ready for a new direction. This past year, the nine-person board was reduced to eight members, installed a new lead independent director, and replaced three members with well-qualified executives. In September 2020, the company hired a new CEO, Ian Walsh, who previously was CEO at REV Group, held senior leadership roles at Textron, and is a former Marine Corps officer. Walsh recently promoted a new CFO, and has hired several key senior executives from Textron. It appears that he is importing many of Textron’s impressive processes to Kaman – likely bringing more efficiency, effectiveness and speed – through the new Operations Excellence initiative. Kaman’s heightened willingness to improve disclosures should help investors understand the company better, which should boost the shares’ valuation.

Walsh has stated clearly that he prioritizes the highly-engineered products segment over the others. He is accelerating the company’s internal innovation pace, and is likely to use some of Kaman’s sturdy balance sheet to acquire similar companies. Also top priorities: generating higher margins, stronger free cash flow and better returns on capital, as well as returning cash to shareholders. Implicit in his strategy appears to be selective divestiture of low-margin businesses.

Even as investors have somewhat written off the entire JPF fuze business as sales to the U.S. government may fade away after the recently-extended contracts expire in 2023, the international customer base is sizeable and appears more enduring.

Recent financial results have been encouraging. Organic sales in the second quarter grew 5.4% and profit margins showed strong expansion. The company reduced its full-year revenue guidance, but this may be a positive as it is largely due to weakness in low-margin businesses. Guidance for profits was increased. The outlook for next year is for more commercial aerospace recovery and continued strength in the medical and industrial segments.

Kaman should generate positive free cash flow this year. Its balance sheet is sturdy and underleveraged with only $187 million in debt (about 2x EBITDA), and $98 million in cash. Investors should anticipate that acquisitions could temporarily raise leverage to about 3.5x. Helping to reduce its liabilities: Kaman froze its defined benefit pension plan and is making $10 million annual contributions to whittle away the remaining obligations.

Like all defense contractors, many of Kaman’s businesses are subject to its customers’ changing priorities and budgets. Yet, it seems like the world is becoming a more dangerous place with an increasing need for better-armed militaries.

Trading at a modest 9.8x next year’s EBITDA, and providing a 2.1% dividend yield, Kaman shares look attractive for patient investors.

We recommend the purchase of Kaman Corporation shares (KAMN) with a 57 price target.

Price Target and Ratings Changes
On October 15, we moved shares of Meredith Corporation (MDP) to SELL, following the company’s agreements to sell its two businesses. Shareholders will receive a total of $59.17/share in cash – meaningfully above our 52 price target – following the completion of these two deals, so with the stock trading essentially in line with this price, and only a slim chance of a higher bid from another group, investors should exit their positions. The Meredith investment produced a 78% total return from our initial recommendation in January 2020.

This investment showed the merits of having a longer-term perspective and anchoring one’s view on a stock to its underlying value, not the current price. Shortly after our recommendation at 33, the shares plummeted to below 11 during the pandemic, and stayed there until as recently as last November, even as the rest of the market rebounded. However, the economic recovery caught up to Meredith, and it completed successful exits from its businesses, all leading to a remarkable 400% share price gain since last November, and an overall very profitable investment.

On October 22, we raised our price target on Wells Fargo & Company (WFC) from 49 to 55. The shares had moved above our original target, prompting our change. Third-quarter results were good enough, with more improvements ahead, and the shares remain undervalued, particularly if the bank gets relief from the asset cap.

You can find more details by visiting our website at

Disclosure: The chief analyst of the Cabot Turnaround Letter personally holds shares of every “Buy” rated recommendation. 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 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. For additional details, please visit

Large Cap1 (over $10 billion) Current Recommendations

Price at
Return (3)
Status (2)
General ElectricGEJul 2007304.96104.05-420.3%Buy (160)
General MotorsGMMay 201132.0957.77+1080.0%Buy (69)
Royal Dutch Shell plcRDS/BJan 201569.9548.89+13.9%Buy (53)
Nokia CorporationNOKMar 20158.025.88-150.0%Buy (12)
Macy’sMJul 201633.6126.59-42.3%HOLD
Credit Suisse Group AGCSJun 201714.4810.51-212.1%Buy (24)
Toshiba CorporationTOSYYNov 201714.4921.20+543.0%Buy (28)
Holcim Ltd.HCMLYApr 201810.929.79+54.5%Buy (16)
Newell BrandsNWLJun 201824.7822.64+34.1%Buy (39)
Vodafone Group plcVODDec 201821.2415.48-157.1%Buy (32)
Kraft HeinzKHCJun 201928.6836.38+414.4%Buy (45)
Molson CoorsTAPJul 201954.9644.44-153.1%Buy (69)
Berkshire HathawayBRK/BApr 2020183.18289.24+580.0%HOLD
Wells Fargo & CompanyWFCJun 202027.2250.66+881.6%Buy (55)
Baker Hughes CompanyBKRSep 202014.5324.64+762.9%Buy (26)
Western Digital CorporationWDCOct 202038.4757.05+480.0%Buy (78)
Altria GroupMOMar 202143.8048.22+167.1%Buy (66)
Elanco Animal HealthELANApr 202127.8533.90+220.0%Buy (44)
Walgreens Boots AllianceWBAAug 202146.5349.00+53.9%Buy (70)

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

Price at
Return (3)
Status (2)
MattelMATMay-1528.4320.45-160%Buy (38)
ConduentCNDTFeb-1714.966.87-540%Buy (9)
Adient plcADNTOct-1839.7742.91+90%Buy (55)
Meredith CorporationMDPJan-2033.0158.30*+78*0%SELL*
Lamb Weston HoldingsLWMay-2061.3659.09-11.60%Buy (85)
GCP Applied TechnologiesGCPJul-2017.9622.68+260%Buy (28)
Xerox HoldingsXRXDec-2021.9120.74-14.80%Buy (33)
Ironwood PharmaceuticalsIRWDJan-2112.0213.03+80%Buy (19)
ViatrisVTRSFeb-2117.4313.94-193.20%Buy (26)
Vistra CorporationVSTJun-2116.6819.11+163.10%Buy (25)
Organon & Co.OGNJul-2130.1935.66+193.10%Buy (46)
Marathon OilMROSep-2112.0116.58+381.20%Buy (18)
TreeHouse FoodsTHSOct-2139.4338.6-20%Buy (60)
Kaman CorporationKAMNNov-2137.4137.41--2.10%Buy (57)

Small Cap1 (under $1 billion) Current Recommendations

Price at
Return (3)
Status (2)
Gannett CompanyGCIAug-179.225.98+200%Buy (9)
Signet Jewelers LimitedSIGOct-1917.4790.07+4210.80%Buy (94)
Duluth HoldingsDLTHFeb-208.6814.69+690%Buy (20)
Dril-QuipDRQMay-2128.2825.03-110%Buy (44)

Most Recent Closed-Out Recommendations

At Buy
At Sell
Trinity IndustriesTRNLargeSep 201917.47*Mar 202132.35+92
Valero EnergyVLOLargeNov 202041.97*Apr 202179.03+93
Volkswagen AGVWAGYLargeMay 201715.91*Apr 202142.33+182
Mohawk IndustriesMHKLargeMar 2019138.60*June 2021209.49+51
Jeld-Wen HoldingsJELDMidNov 201816.20*Jul 202127.45+69
BiogenBIIBLargeAug 2019241.51*Jul 2021395.85+64
BorgWarnerBWAMidAug 201633.18*Jul 202153.11+70
The Mosaic CompanyMOSLargeSep 201540.55*Jul 202135.92-4
Oaktree Specialty LendingOCSLSmallOct 20154.91*Sept 20217.09+69
AlbertsonsACIMidAug 202014.95*Sept 202128.56+94

Notes to ratings:
1. Based on market capitalization on the Recommendation date.
2. Price target in parentheses.
3. Total return includes price changes and dividends, with adjustments as necessary for stock splits and mergers.
4. SP - Given the higher risk, we consider these shares to be speculative.
5. * - Indicates mid-month change in Recommendation rating. For Sells, price and returns are as-of the Sell date.

The next Cabot Turnaround Letter will be published on November 24, 2021.