July 3, 2025

*Note: Your weekly Cabot Turnaround Letter update is arriving a day early, on Thursday, July 3, due to the market holiday on Friday, July 4, in observance of Independence Day.

In today’s note, we discuss pertinent developments for some of the stocks in the portfolio, including Alcoa (AA), Bloomin’ Brands (BLMN), GE Aerospace (GE), Intel (INTC), Paramount Global (PARA) and Toast (TOST).

GE Aerospace (GE) strength driven by record backlogs in its commercial aerospace segment.

Paramount Global (PARA) gains despite ongoing obstacles to its merger with Skydance Media.

Comments on Portfolio Holdings

Alcoa (AA) announced Tuesday it has completed the sale of its 25% ownership stake in the Ma’aden Joint Venture to Saudi Arabian Mining Company for approximately $1.35 billion in combined shares and cash.

The transaction, which closes a 16-year partnership, provides Alcoa with approximately 86 million Ma’aden shares valued at $1.2 billion and $150 million in cash. Alcoa expects to record a gain of approximately $780 million in other income for the third quarter of 2025, which will be reported as a special item.

Under the agreement terms, Alcoa must hold the Ma’aden shares for a minimum of three years, with permission to sell one-third of the shares after each of the third, fourth, and fifth anniversaries of the closing. The company is allowed to hedge and borrow against these shares during the holding period under certain conditions. Following the transaction, Alcoa now owns approximately 2% of Ma’aden’s current outstanding shares, according to Investing.com.

AA remains a Hold in the portfolio.

Shares of our latest portfolio addition, Bloomin’ Brands (BLMN), surged by as much as 15% on Tuesday “as traders suddenly viewed the restaurant stock favorably,” per a Seeking Alpha report, which also observed:

“The restaurant stock now trades at its highest level since the late part of February and could be seeing some short squeeze action, with short interest on BLMN at a notably higher level than its restaurant sector peers.”

As I noted last week in the July issue of the Cabot Turnaround Letter, “Perhaps not surprisingly, short interest in [BLMN] is well above the 10-year average with around 11% of the float currently sold short. With a negative sentiment backdrop like this, it wouldn’t take much, in my estimation, to kickstart a potentially meaningful short-covering rally. (It should be added by way of caveat that this is strictly a speculative consideration with minimal implications for the longer-term recovery outlook.)”

Indeed, short-covering rallies have been on the increase of late, as a combination of lingering pessimism over the global trade war, abnormally high short interest levels across many sectors and bullish seasonal tendencies converge to create the ideal backdrop for this phenomenon.

BLMN remains a Buy in the portfolio.

According to Seeking Alpha, GE Aerospace (GE) was ranked among the top 10 S&P 500 stocks experiencing the biggest percentage gains of the first half of 2025. The stock was up 54% year-on-year as of June 30, which, of course, has been supportive for our portfolio.

The stock’s strength to date has been supported by strong double-digit order and revenue growth, driven primarily by the company’s commercial jet engine and aircraft maintenance services, with commercial aerospace backlogs continuing to support the outlook. (Specifically, the company’s commercial services backlog currently exceeds $140 billion, providing a solid base for future revenue.)

Additionally, the steps the outfit has taken to mitigate supply chain issues through its “FLIGHT DECK” program have helped, including strategic investments of nearly $1 billion in U.S. manufacturing and technology for 2025 (which are aimed at boosting production and future initiatives).

On a related note, GE Aerospace declared a quarterly dividend of 36 cents a share last week, payable to shareholders of record July 7 at a current yield of 0.6%.

GE remains a Hold in the portfolio.

It was reported last week that Intel (INTC) is preparing to shut down its automotive unit and lay off the majority of the employees within the unit, according to The Oregonian/OregonLive.

“Intel plans to wind down the Intel architecture automotive business,” the semiconductor company said in a memo viewed by the news outlet. The memo added that Intel will fulfill existing commitments to customers.

Intel doesn’t break down revenue from its automotive business, but it still owns a majority stake in the autonomous driver tech company Mobileye Global (MBLY) after spinning off a portion of the company in an IPO in October 2022. In Q1, Intel generated $900 million in revenue from its All Other segment, which includes Mobileye.

INTC remains a Buy in the portfolio.

Paramount Global (PARA) is back in the news once again, as the “good faith, advanced settlement negotiations” between the company and President Donald Trump are apparently making progress to settle the 60 Minutes lawsuit.

As reported by Reuters, a senior Paramount executive expressed a sanguine view of the settlement and said the consensus within the company is that “the civil suit will be resolved.”

The report, citing a court filing, said lawyers on Monday asked a Texas judge to delay all proceedings on the case until July 3.

The lawsuit continues to stall Paramount’s pending $8 billion deal with Skydance Media. Brendan Carr, the Trump-appointed FCC Chair, is still withholding approval for the transaction beyond the 180-day informal deadline after beginning review in January, according to Seeking Alpha.

PARA remains a Hold in the portfolio (with our 14 a share upside target in view).

Toast Inc. (TOST) has lately come across Wall Street’s radar after Cathie Wood’s ARKK ETF disclosed its daily trades for last week, highlighting notable activity in the technology sector.

Of particular interest, the ARKK ETF also added 70,000 shares of Toast to its portfolio last week.

Additionally, a major investment bank just maintained its Buy rating on the company, with analysts at UBS highlighting Toast’s total annual recurring revenue (ARR) growth, which it said remains the firm’s important metric, particularly when considered in view of Toast’s strong payback periods (which fall in the mid-teens months range).

UBS further noted that Toast’s SaaS ARR continues to compound at approximately low-30s percentage rates, a growth trajectory that aligns with its 27% revenue growth over the last twelve months.

TOST is a Buy in the portfolio.

RATINGS CHANGES: None this week.

NEW POSITIONS: None this week.

Thursday, July 3, 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 7 minutes and covers:

• Despite the market’s bullish summer seasonal tendency, potential storm clouds are on the horizon.
• Three factors related to the White House’s tariffs could upend the market later this year.
• Currently, stocks remain in great shape with short interest still a positive factor.
• Final note
  
  • Bloomin’ Brands (BLMN) received the benefit of high short interest this week.

Market Outlook

July is here, and with its onset, we’re seeing the early stages of what looks like a classic summer rally. Granted, the perceived inevitability of the summer stock market climb is something of a myth—the summer months being just as much subject to potential selling pressures as any other time of the year—but there’s at least a ring of truth to that bromide.

Not that rallies are guaranteed in the summer months, but because trading volumes tend to be lighter when participants are on vacation, it’s easier for buyers to push stocks higher during the laid-back summer milieu. That is, of course, assuming liquidity is abundant and the sentiment backdrop isn’t too frothy.

Thankfully, liquidity isn’t an overriding concern right now. And with investors still psychologically recovering from the shock of the recent tariff war’s early stages, market sentiment is also supportive. So, it’s not surprising to see equities on the move higher as we head into the vacation season’s “sweet spot.”

Jeffrey Hirsch of Stock Trader’s Almanac informs us that the first day of July is historically regarded as the most bullish day of the year (up 91% of the time since 2004, according to STA). And he was right on the money this year, as July 1 saw an across-the-board rally which benefited even the laggards of recent months.

As a caveat, Hirsh notes that while trading tends to be bullish in the days leading up to July 4, the market tends to decline on the day after that, with the Dow down in 10 of the last 14 years. However, this is merely a micro-term statistical consideration and not a forecast for the entire month of July.

That said—and even despite the market’s currently benign backdrop—I think it would behoove us to at least consider the possibility there could be some storm clouds on the horizon. And on that score, there are at least three major variables that have the potential (though this is by no means inevitable) to upset the market’s uptrend in the coming months.

The first one is the most obvious—and the one closest on the horizon. It’s the July 9 tariff deadline set by the White House earlier this year. Treasury Secretary Scott Bessent warned this week that countries negotiating trade deals with the U.S. “could still face steep tariff hikes on July 9, even if talks are ongoing,” as reported by Newsweek.

Moreover, he told Bloomberg: “We have countries that are negotiating in good faith, but they should be aware that if we can’t get across the line...we could spring back to the April 2 levels.” Such an outcome carries the potential to serve as a catalyst for volatility’s return, so it’s something to consider.

The next factor, which is really an ex post facto consideration, is somewhat related to the first one, namely, the massive corporate layoffs across Europe. According to the economic tracking agency Creditreform, Germany alone experienced its highest levels of corporate bankruptcies in a decade during the first half of this year, with nearly 12,000 German companies going bust in the first six months.

“Germany remains in a deep economic and structural crisis,” said Creditreform chief economist Patrik-Ludwig Hantzsch, as reported by Reuters.

Approximately 141,000 employees were affected, and various news outlets blamed the problem on the 20% tariffs on all EU goods imposed by the White House (including 25% on steel, aluminum and cars).

Some of Europe’s major bourses appear to be relatively nonplussed by the insolvencies to date, with Germany’s DAX index up over 30% year-on-year as of July 1, and Spain’s IBEX 35 up by a similar percentage. (It should be noted, however, that France’s CAC 40 index is down by around 1% for the year to date.)

With that said, it should be kept in mind that Trump pledged to enact the latest round of tariffs in late January—several weeks before their actual imposition—and equity markets largely shrugged it off until the actual D-day arrived in early March.

Moreover, Trumps initial tariff imposition in March 2018 was largely ignored by equity markets until later that year when their economic impacts were more palpable. Thus, just because stocks are shrugging off the tariffs right now doesn’t necessarily mean they will continue to do so ad infinitum.

The third and final consideration I wish to bring to your attention is also tariff-related, namely the port congestion problem in Europe. Major European ports in Rotterdam, Antwerp and Hamburg are experiencing significant congestion right now, with tariffs blamed for it.

According to Port Technology International, global port congestion reached “crisis levels” in June, with delays increasing by up to 300% compared to normal levels. Moreover, 96% of major container ports are currently facing operational disruptions, with vessel wait times exceeding 10 days at the critical hubs mentioned above.

The congestion is creating supply chain bottlenecks that many industry analysts believe could feed into future consumer price inflation. Wait times are also exceeding 10 days at ports like Singapore, Cape Town and Ningbo-Zhoushan, with fears that disruptions may extend well into summer.

Of course, how exactly this plays out—and what the tariffs’ impact on equity prices will ultimately be this summer—is anyone’s guess right now. I recommend that we continue taking the tariff issue in stride and evaluate our portfolio holdings on a week-by-week basis, making adjustments as market conditions dictate.

For now, the market remains in good shape based on the indicators I look at, with internal strength still evident, liquidity abundant and market sentiment supportive (from a contrarian perspective). I’m bullish, but I’m also prepared to shift my market stance should the negative variables mentioned here turn out to be more problematic than anticipated.

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.

Portfolio

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