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Turnaround Letter
Out-of-Favor Stocks with Real Value

June 2, 2023

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This week, we comment on earnings from Duluth Holdings (DLTH) and Macy’s (M).

We also include the Catalyst Report and a summary of the June edition of the Cabot Turnaround Letter, which was published on Wednesday. We encourage you to look through the Catalyst Report. This report is a listing of all of the companies that have reported a catalyst in the past month. These catalysts include new CEOs, activist activity, spin-offs and other possible game-changers. We source many of our feature recommendations from this list. You will find it nowhere else on Wall Street.

In this month’s Cabot Turnaround Letter: It’s no secret that a fresh fascination with artificial intelligence has ignited shares of companies like Alphabet (GOOG), Microsoft (MSFT) and Nvidia (NVDA), while “safety stocks” like Apple (AAPL) have rebounded on recession fears. Shares of more prosaic technology companies have lagged, but a few offer highly relevant albeit slow-growth products and services, making their businesses highly resilient. They are often well supported by durable balance sheets and capable management. We highlight four such companies.

As a follow-up to our April edition that featured banks, we have found additional interesting financial stocks by looking at the 13F filings of like-minded value investors. We discuss three stocks that saw sizeable new purchases or meaningful additions to already-sizeable holdings by well-respected value managers.

Our feature recommendation this month is Tyson Foods (TSN), a major producer of chicken, beef and pork products. Its earnings and shares have tumbled due to an unusual simultaneous downturn in all three protein groups. The hardest time to buy a commodity cyclical is at the bottom of the cycle, as there appears to be no end in sight to the malaise. We think this is the time to buy Tyson.

We also include our new Sell ratings on M/I Homes (MHO) and Ironwood Pharmaceuticals (IRWD).

Earnings Updates:

Duluth Holdings (DLTH) – This retailer of rugged workwear and outdoor gear struggled with a disjointed and overly aggressive store expansion strategy. Duluth ousted the CEO in September 2019, terminated the failed strategy, and hired a new, permanent CEO in May 2021. The founder continues to be a major shareholder. Duluth has immense opportunities – its challenge is to strike a successful balance between pursuit and execution.

The company reported a relatively healthy quarter, with revenues increasing even if modestly, and profits falling only a few million dollars below a year ago in a seasonally low-significance quarter. Inventories fell 5% from a year ago and appear to be in good shape. The Women’s segment grew 14% and may become a significant growth driver. Sales of the AKHG brand rose 43%, indicating some success in expanding the brand portfolio. Full-year guidance is unchanged and calls for Adjusted EBITDA of $47 million to $49 million.

The balance sheet remains debt-free other than the non-recourse TRI debt and other finance leases. Duluth trimmed its trade payables balance, adding a bit of further strength to the balance sheet and no doubt easing any concerns of its suppliers.

In the quarter, revenues rose 1% and were about 4% above estimates. The net loss of $(0.12)/share compared to a $(0.04) loss a year ago and estimates for a loss of $(0.11). Adjusted EBITDA of $5.3 million fell 33% and was about $1 million below estimates.

Operating profits fell $3.5 million – due to a $1.5 million decline in gross profits (more discounting but less freight costs) and $2 million higher overhead due to their new distribution facility. We anticipate that overhead costs will decline as the new facility ramps up and other redundant costs fall away.

Duluth remains stuck in slow-growth mode, but their efforts to improve their cost structure and create some excitement around their brands continues to provide plenty of potential. Getting customers into the stores and onto the website is a constant challenge, yet once customers see the merchandise they generally tend to be converted into customers.

Macy’s (M) – With a capable new CEO since February 2018, Macy’s is aggressively overhauling its store base, cost structure and ecommerce strategy to adapt to the secular shift away from mall-based stores. Macy’s acceleration of its overhaul shows considerable promise.

The company reported a reasonable quarter that showed discipline in merchandising and pricing. However, with sales down 7% and overhead costs up 2% mostly due to higher wages, adjusted EBITDA fell 36% (but were nevertheless meaningfully above estimates). Macy’s is executing well, with inventory only incrementally elevated relative to the lower sales but which the company is proactively working down. Full-year per-share earnings guidance was cut 24% due to inventory markdowns and an incrementally weaker sales outlook. Macy’s remains in robust shape with modest debt and strong leadership, while the shares trade at a strikingly low 2.9x EBITDA and 4.6x per-share earnings.

Some of the revenue weakness was due to slower sales of discretionary items in March and April. Sales of these items showed some encouraging improvements in May. It wouldn’t be unreasonable to attribute at least some of the weakness to consumer concerns about the safety of their banking deposits given the bank failures. Macy’s is tweaking its lineup and implementing a new $200 million cost-cutting program to help adjust. Also, Nike is returning to Macy’s stores in October after a hiatus – this should provide some boost to Macy’s traffic and thus profits.

Credit card revenues dipped 15%, reflecting an uptick in bad debts to a more normal level. Macy’s participates in the profits of its credit cards but is not the lender, which greatly limits its risk.

Investor worries seem to stem from the possibility that a recession will arrive and thus vaporize profits, requiring the company to load up on debt and cut its dividend, along with the concern that secular changes in shopping patterns are sizeable headwinds for Macy’s. We believe that Macy’s is in better shape and is better positioned with a solid consumer franchise than the consensus view.

In the quarter, revenues fell 7% and were about 2% below estimates. Same store sales of 7% matched the total sales growth as Macy’s is not changing its store count. Adjusted net income of $0.56/share fell 48% from a year ago but was 24% above estimates. Adjusted EBITDA of $468 million fell 32% but was 9% above estimates.

Friday, June 2, 2023 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 6½ minutes and covers:

  • Comments on company earnings reports
  • Comments on other recommended companies
    • Goodyear Tire & Rubber (GT) – cutting capacity in a German tire factory.
    • Frontier Group Holdings (ULCC) – buying capacity at LaGuardia.
  • Elsewhere in the markets
    • Employment reports thread the needle in a way that was ideal for stock prices.

Please know that I personally own shares of all Cabot Turnaround Letter recommended stocks, including the stocks mentioned in this note.

Please feel free to share your ideas and suggestions for the podcast and the letter with an email to either me at or to our friendly customer support team at 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.

The Catalyst Report

May was a quiet month for catalysts. As it is proxy season, most activists are either busy with current battles or waiting until votes are in to initiate new ones. New CEO announcements tend to dip in May for similar reasons. However, the month featured a relatively high number of interesting catalysts-driven ideas, several of which we highlight below. Also, in an irony for the ages, Carl Icahn’s firm Icahn Enterprises LP (IEP) was the target of a short-seller. Favorably, Elliott Management launched an aggressive campaign, backed by a 10% stake, to boost shares of our recommended company Goodyear Tire & Rubber (GT).

The Catalyst Report is a proprietary monthly report that is unique on Wall Street. It is an extensive listing of companies that have experienced a recent strategic event, such as new leadership, a spin-off transaction, interest from an activist investor, emergence from bankruptcy, and others. An effective catalyst can jump-start a struggling company toward a more prosperous future.

This list is intended to be comprehensive. While not all catalysts are meaningful, some can bring much-needed positive changes to out-of-favor companies.

One highly effective way to use this tool is to pair the names with weak stocks. Combining these two traits can generate a short list of high-potential turnaround investment candidates. The spreadsheet indicates these companies with an asterisk (*), some of which are highlighted below. Market caps reflect current market prices.

You can access our Catalyst Report here.

The following catalyst-driven stocks look interesting:

Parkland Corporation (PKIUF) Logo

Parkland Corporation (PKIUF) $4.4 billion market cap – This company is a major Canadian fuel refiner and distributor that also owns a large convenience store operation. Whether activist Engine Capital, the company itself, or someone else cuts costs and builds value, the company looks to be meaningfully undervalued.


Oatley Group AB (OTLY) Logo

Oatley Group AB (OTLY) $954 million market cap – This Swedish oat milk company continues to pile on the revenues but still can’t make a profit. Worse, Oatley seems hobbled by one operating problem after another. Hope has arrived, however, in the new CEO who brings impressive leadership capabilities honed from his years at family-run Mars, Inc.


Oatley Group AB (OTLY) Logo

Holley (HLLY) $350 million market cap – Holley is a major producer of high-performance after-market products for cars and trucks. Its post-SPAC road has been difficult, leaving the shares down 70% from the $10 merger price. The new CEO from BlueBird could re-start this iconic, brand-rich company.

Market CapRecommendationSymbolRec.
Price at
Rating and Price Target
Small capGannett CompanyGCIAug 20179.22 2.19 - Buy (9)
Small capDuluth HoldingsDLTHFeb 20208.68 5.65 - Buy (20)
Small capDril-QuipDRQMay 202128.28 23.60 - Buy (44)
Mid capMattelMATMay 201528.43 17.53 - Buy (38)
Mid capAdient plcADNTOct 201839.77 33.99 - Buy (55)
Mid capXerox HoldingsXRXDec 202021.91 14.057.1%Buy (33)
Mid capIronwood PharmaceuticalsIRWDJan 202112.02 10.88 - SELL
Mid capViatrisVTRSFeb 202117.43 9.185.2%Buy (26)
Mid capTreeHouse FoodsTHSOct 202139.43 46.90 - Buy (60)
Mid capKaman CorporationKAMNNov 202137.41 21.373.7%Buy (57)
Mid capThe Western Union Co.WUDec 202116.40 11.548.1%Buy (25)
Mid capBrookfield ReBNREJan 202261.32 30.901.8%Buy (93)
Mid capPolarisPIIFeb 2022105.78 110.60 - Buy (160)
Mid capGoodyear Tire & RubberGTMar 202216.01 13.31 - Buy (24.50)
Mid capM/I HomesMHOMay 202244.28 70.87 - SELL
Mid capJanus Henderson GroupJHGJun 202227.17 26.825.8%Buy (67)
Mid capESAB CorpESABJul 202245.64 60.621.6%Buy (68)
Mid capSix Flags EntertainmentSIXDec 202222.60 25.26 - Buy (35)
Mid capKohl’s CorporationKSSMar 202332.43 17.9911.1%Buy (50)
Mid capFirst Horizon CorpFHNApr 202316.76 10.455.7%Buy (24)
Mid capFrontier Group HoldingsULCCApr 20239.49 8.27 - Buy (15)
Large capGeneral ElectricGEJul 2007304.96 104.670.3%Buy (160)
Large capNokia CorporationNOKMar 20158.02 4.052.3%Buy (12)
Large capMacy’sMJul 201633.61 13.754.8%Buy (25)
Large capToshiba CorporationTOSYYNov 201714.49 16.256.4%Buy (28)
Large capHolcim Ltd.HCMLYApr 201810.92 12.393.6%Buy (16)
Large capNewell BrandsNWLJun 201824.78 8.203.4%Buy (39)
Large capVodafone Group plcVODDec 201821.24 9.4910.7%Buy (32)
Large capMolson CoorsTAPJul 201954.96 62.332.4%Buy (69)
Large capBerkshire HathawayBRK.BApr 2020183.18 323.12 - HOLD
Large capWells Fargo & CompanyWFCJun 202027.22 40.063.0%Buy (64)
Large capWestern Digital CorporationWDCOct 202038.47 38.97 - Buy (78)
Large capElanco Animal HealthELANApr 202127.85 8.60 - Buy (44)
Large capWalgreens Boots AllianceWBAAug 202146.53 30.326.3%Buy (70)
Large capVolkswagen AGVWAGYAug 202219.76 15.396.0%Buy (70)
Large capWarner Bros DiscoveryWBDSep 202213.13 11.35 - Buy (20)
Large capCapital One FinancialCOFNov 202296.25 106.242.3%Buy (150)
Large capBayer AGBAYRYFeb 202315.41 13.983.9%Buy (24)
Large capTyson FoodsTSNJun 202352.01 50.613.8%Buy (78)

Disclosure: The chief analyst of the Cabot Turnaround Letter personally holds shares of every 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. Please feel free to share your ideas and suggestions for the podcast and the letter with an email to either me at or to our friendly customer support team at 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.

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.