June 20, 2025

In today’s note, we discuss pertinent developments for some of the stocks in the portfolio, including Alcoa (AA), Centuri Holdings (CTRI), Intel (INTC), Kenvue (KVUE), Paramount Global (PARA) and SLB Ltd. (SLB).

Alcoa (AA) is navigating tariff-related challenges relating to aluminum pricing and sourcing.

SLB Ltd. (SLB) is well positioned to benefit from anticipated oil and natural gas price increases arising from the Iran/Israel conflict.

Comments on Portfolio Holdings

On Tuesday, Alcoa (AA) participated in the Wolfe Research 2nd Annual Materials of the Future Conference, with CFO Molly Bierman discussing Alcoa’s strategic moves in the face of recent tariff hikes on Canadian aluminum imports, along with the firm’s proactive measures to mitigate the higher costs.

Bierman said the Midwest premium on the metal “rose sharply” after the recent tariff increase, which has so far benefited U.S. smelters while challenging Canadian producers.

She said Alcoa has further managed to decrease a potential $30 million tariff increase to $10 million by redirecting Canadian metal exports. The company saw a 5% shift in shipments to duty-unpaid Midwest premiums.

On the financial front, the outfit said its current net debt target is $1 billion to $1.5 billion, and with this new target, it’s on track to reduce debt from $2.1 billion.

Additionally, Alcoa is exploring growth opportunities in India and Southeast Asia in the face of slowing Chinese industrial demand. However, the company said it’s also “actively seeking tariff relief” and “is willing to invest in U.S. operations” should market conditions warrant.

The overall takeaway from the company’s presentation is that while it still faces significant potential headwinds from the tariffs and lower alumina prices, Alcoa “remains optimistic about future growth opportunities,” especially in the U.S. and emerging markets.

Alcoa remains a Hold in the portfolio.

Centuri Holdings (CTRI) announced earlier this week the commencement of an underwritten secondary public offering of 9.5 million shares of its common stock by Southwest Gas Holdings as the selling stockholder. Additionally, Southwest expects to grant the underwriters (which include J.P. Morgan, UBS and Wells Fargo, which served as the joint lead book-running managers) a 30-day option to purchase up to an additional 1.4 million shares of Centuri’s common stock.

While this transaction increases the stock’s liquidity, it obviously had at least a temporary impact on the share price this week, with the stock dropping 6% on Tuesday and Wednesday to 20.75 (where it remains as of this writing).

The coming weeks will ultimately determine whether the increased liquidity will serve to attract institutional interest in the stock or whether it will increase near-term volatility.

However, a potential positive development for Centuri was the announcement that activist investor Carl Icahn’s Icahn Partners and Icahn Partners Master Fund LP has signaled its confidence in Centuri’s long-term prospects by announcing its intent to purchase an aggregate of $22 million in shares of Centuri’s common stock from Southwest Gas in a concurrent private placement at a price per share equal to the offering price per share—a deal that could serve to further stabilize liquidity.

It should be noted that Centuri itself isn’t selling any shares of common stock in the proposed offering or the concurrent private placement, nor will it receive any proceeds from the sale of the shares being offered by Southwest Gas.

CTRI remains a Hold in the portfolio.

Intel (INTC) on Wednesday appointed Greg Ernst as chief revenue officer, while Srinivasan Iyengar, Jean-Didier Allegrucci and Shailendra Desai have been appointed to key engineering leadership roles.

Ernst has been leading Intel’s Sales and Marketing Group (SMG) since May after having formerly led SMG across the Americas. Allegrucci, meanwhile, has been named VP of AI System on Chip (SoC) Engineering and will be in charge of developing multiple SoCs that will be part of Intel’s AI roadmap, the company said.

Additionally, Intel appointed Desai as VP of AI Fabric and Networking, and he’ll lead the development of SoC architectures for Intel’s AI GPUs and forward-looking roadmap. He joins from Google, where he led silicon engineering, architectural design and platform solutions across multiple mobile SoCs.

On a related note, it was announced by Nikkei Asia earlier this month that Intel and Japanese tech conglomerate SoftBank (SFTBY) are planning to launch Saimemory, a new AI-focused memory company.

INTC remains a Buy in the portfolio.

As part of its broader restructuring efforts, Kenvue (KVUE) is considering the sale of some of its skin health and beauty brands.

Citing various sources, Reuters reported that Kenvue’s Clean & Clear, Maui Moisture and Neostrata are among the brands up for consideration as sale candidates. Bebe, a German baby care brand, and Japanese brand Dr.Ci:Labo could also be included, according to Reuters.

It was also reported that Kenvue plans to retain its core brands, Neutrogena and Aveeno, while “focusing on improving profitability in weaker segments.”

The proposed move, which comes in the wake of a 5% decline in organic sales for the firm’s skin health and beauty unit in Q1, was prompted by activist investors like Starboard Value, Third Point and Toms Capital, which are pressing Kenvue to streamline its portfolio and boost returns.

The divestment process is being handled by Goldman Sachs, but no deal has been finalized yet.

KVUE is currently rated a Buy in the portfolio.

Nielsen’s monthly Gauge report for May showed that television viewership via streaming platforms eclipsed broadcast and cable viewing combined for the first time ever.

The Gauge report provides an overview of total broadcast, cable and streaming trends each month, and the latest one highlighted that time spent streaming accounted for 45% of total TV viewing in May. Cable, meanwhile, comprised 24% of total TV watch time, while broadcast’s share was 20%.

“Streaming reached a historic milestone in May as its share of total television usage outpaced the combined share of broadcast and cable for the first time ever,” said Nielsen. The company added that TV viewing via streaming has risen 71% over the last four years, while broadcast has declined 21% and cable has collapsed 39% over the same time frame.

Of significance for our portfolio, Paramount Global’s (PARA) ad-supported streaming TV service PlutoTV, along with the Roku Channel and Tubi, accounted for 6% of total TV viewership in May, which is “larger than any individual broadcast network this interval.”

Elsewhere on the cinema front, Paramount’s latest installment of the “Mission: Impossible” film franchise rounded out the latest week’s top five box office hits, earning $10 million in its fourth weekend. Per Seeking Alpha, “Tom Cruise’s latest stunt-filled entry has now grossed $166.3 million domestically.”

After recently selling half our position, the remaining half remains a Hold in the portfolio.

According to various news reports, Iran is still publicly considering the possibility of closing key global shipping gateway, the Strait of Hormuz, but “it’s framing such a move as a conditional threat rather than an imminent action,” according to the U.K. Telegraph newspaper.

Other news outlets reported this week that Iran could shut the Strait of Hormuz as a way of “hitting back against its enemies,” in the words of a senior Iranian lawmaker, though a second member of Iran’s parliament said this would only happen “if Tehran’s vital interests were endangered.”

According to Behnam Saeedi, a member of the parliament’s National Security Committee presidium, “If the United States officially and operationally enters the war in support of [Israel], it is the legitimate right of Iran in view of pressuring the U.S. and Western countries to disrupt their oil trade’s ease of transit.”

Already, tanker rates have doubled as shipowners steer clear of the Strait of Hormuz in anticipation of conflict-related problems. The Financial Times reported this week that Frontline (FRO), the world’s biggest publicly listed oil tanker company, has outright rejected new voyages through the critical waterway.

The White House, meanwhile, said on Thursday that President Trump will make a decision “within the next two weeks” as to whether Washington will get involved in Israel’s bombing campaign against Iran.

A consequence of the Israel/Iran conflict is the recent spike in crude oil prices, which have risen nearly 20% over the last several days. Analysts at investment bank ING said in a note on Wednesday, “The biggest fear for the oil market is the shutdown of the Strait of Hormuz,” noting that nearly a third of global seaborne oil trade moves through this chokepoint. “A significant disruption to these flows would be enough to push prices to $120 (a barrel),” said ING.

Additionally, natural gas prices are expected to rise in the U.S. due to the conflict between Israel and Iran. Should the war escalate, it could also have a significant impact on global energy markets while increasing demand for natural gas as countries seek alternative energy sources.

On that score, news sources have reported that a recent drone strike on Iran’s largest natural gas field, the South Pars gas field in Iran’s southern Bushehr region, has prompted a suspension of gas production.

“Due to a fire in one of the four units of Phase 14 of South Pars, the production of 12 million cubic meters of gas from the Phase 14 platform has been temporarily halted until this section of the refinery is brought back into operation,” according to Iranian media.

Oil and gas industry analysts widely anticipate that oilfield service provider SLB Ltd. (SLB) will benefit from an escalation of the conflict between the countries, which could lead to petroleum supply disruptions or geopolitical risk premiums.

SLB has a strong presence in the Middle East, including in countries that are poised to increase oil production in order to offset potential Iranian output losses. As noted previously, SLB’s geographic exposure positions it well to benefit from heightened upstream activity.

SLB remains a Buy in the portfolio.

RATINGS CHANGES: None this week.

NEW POSITIONS: None this week.

Friday, June 20, 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 13 minutes and covers:

• This week’s credit card stock-related decline was about more than just competition from crypto assets: consumer spending weakness is also a culprit.
• A number of statistics point to U.S. consumers being increasingly “tapped out.”
• Chemical stocks should be immune to this phenomenon, however, with escalating geopolitical turbulence supporting the sector.
• Final note:
  
  • Genomics stocks poised to benefit from ongoing biotech industry rebound.

Market Outlook

One of this week’s major financial headlines was the U.S. Senate’s passage of a landmark bill that paves the way for the creation of a regulatory framework for stablecoins. (Stablecoins are a type of cryptocurrency designed to minimize price volatility by pegging their value to a stable asset such as the U.S. dollar, commodities or Treasury securities.)

The news was seen as increasing the legitimacy of the cryptocurrency industry, with the possibility that stablecoin-based systems could allow merchants to bypass traditional card payment platforms. The U.S. House of Representatives must now pass its own version of the bill, known as the GENIUS Act, before sending it to the White House for the President to sign it into law.

Consequently, the stocks of major card providers Mastercard (MA) and Visa (V) dropped sharply this week, as this development bodes ill for both companies. Last week, the Wall Street Journal reported that retailing giants Amazon (AMZN) and Walmart (WMT) are already considering issuing their own versions of stablecoins to transform their payment systems and reduce their reliance on banks and card payment systems like Mastercard and Visa.

Overlooked in the excitement over the crypto-based payment discussion is the possibility that the reversal in the stock prices for the two credit card issuers could be just as much a result of a developing slowdown in U.S. consumer sales.

On that score, consider that the latest consumer data show that U.S. retail sales dropped by nearly 1% in May, with non-auto spending declining by 0.3%, in the wake of a spring spending surge among Americans ahead of the imposition of Trump’s tariffs.

Of further significance is the slowdown in consumer credit in this year’s first quarter, with student loan balances rising on a year-over-year basis as borrowers resumed payments following the end of Covid-era relief.

Moreover, TransUnion is reporting growing consumer pessimism, with 27% of Americans polled expecting worse finances. Over half of the 3,000 respondents in its latest survey said they are cutting discretionary spending, including dining, travel and entertainment. It’s also worth noting that air travel and lodging have declined for the first time since the Covid-era recovery, including a “significant pullback from lower-income households,” in the words of a recent Financial Times article.

“Inflation was the top concern for 81% of respondents, while the fear of a recession rose to its highest level in two years,” according to the TransUnion survey, with elevated consumer prices a key factor in the spending pullback.

Further highlighting this trend is an article that appeared earlier this month in Fortune by Irina Ivanova, which sounded the alarm on what was said to be a problem that will result in companies having to eat higher costs arising from tariffs because consumers are “tapped out.”

The article quoted Jeff Klingelhofer, managing director at investing firm Aristotle Pacific Capital, who said, “The system is incredibly, incredibly fragile,” adding that “The state of consumers is tapped out.”

He noted, however, that with corporate balance sheets “incredibly strong” and with profit margins higher than ever, companies will likely bear the brunt of any tariff-related damage by absorbing the costs themselves instead of passing them on to consumers.

In the meantime, we’ll be closely monitoring the upcoming June retail sales and personal spending report, as continued softness would reinforce the “tapped out” narrative.

Regardless of how this story plays out, an industry that appears to be immune from a consumer spending slowdown—and is also well positioned to benefit from increased activity on the geopolitical front—is chemicals. We’ve been looking for a chemical stock rebound in recent months, as there are many in this particular space that fall into the turnaround category. The problem, though, has been a lack of a meaningful catalyst…at least until now.

Specifically, the latest acceleration of turmoil on the Middle East front—along with ongoing conflict in Eastern Europe—is expected to increase demand for explosives, propellants, retardants, protective coatings and specialty materials used in military equipment. As a result, domestic chemical manufacturers that supply these materials could well see a surge in orders.

Ag chemicals makers in particular have already seen outsized stock price gains as investors are pricing in the likelihood that food security will take on a greater priority with the escalation of war. This should bode well for fertilizer producers, including Nutrien (NTR) and Intrepid Potash (IPI)—two stocks we’ve covered here in the past months.

One of the biggest names in the chemicals space is Chemours (CC), and it appears to be poised for its transformation plans to finally bear fruit. The company is carrying out a turnaround plan for its largest division, Titanium Technologies (TT), with progress reportedly advancing at a rapid pace. (Chemours expects to achieve over $250 million in incremental run-rate cost savings between now and 2027, with $100 million specifically related to the transformation plan.)

As part of the transformation, Chemours announced the appointment of Damián Gumpel as President of the TT business segment in March to further strengthen the segment’s strategic vision and drive cost transformation.

Sales of its titanium dioxide products going forward are expected to be driven by robust demand in the automotive and aerospace industries, as well as electronics and construction. And with military spending projected to see massive growth in the coming years, revenue could further accelerate with defense sector demand.

Specifically, Chemours provides fire suppressants and extinguishants made for military vehicles, including tanks, aircraft and ships. The company also makes specialized chemicals for the aerospace and defense industry, as well as for crucial components in aircraft, satellites and military equipment.

Additionally, the need for cutting-edge technology in defense, including advancements in aerospace engineering and the push for lightweight and corrosion-resistant materials, is expected to boost sales for the firm’s specialty chemicals. I like the story here and have Chemours high on my watchlist.

Also positioned to benefit from escalating global military activity is chemical and specialty materials company Celanese (CE), which manufactures and sells engineered polymers worldwide.

The Texas-based company produces materials used in various military applications, including PBI textiles for use in space suits and vehicles, as these lightweight, flame-resistant fabrics are currently used to protect U.S. Army troops.

The firm’s Engineered Materials segment produces advanced aerospace polymers used in components for satellites, electronics and communications, as well as manufacturing solutions for military aircraft.

Finally, Celanese produces specialty-grade polymers for protective clothing and cloth used in medical, pharmaceutical, military and other applications.

Earlier this week, analysts at Wells Fargo upgraded the shares of Celanese in anticipation of the company’s turnaround gaining traction in the second half of this year. The bank cited higher oil prices and a possible easing of trade tensions as potential catalysts. (The recent crude oil spike is viewed as a tailwind for chemical prices, which often follow oil higher due to input cost connections.)

The stock is down nearly 70% from its April 2024 peak of 171 a share and now trades at 7.5 times mid-cycle earnings, which is considered a deep discount compared to prevailing historical levels. Wells Fargo’s valuation is based on a 9.5x enterprise value-to-EBITDA multiple based on 2025 estimates, “reflecting a more constructive outlook heading into year-end despite no near-term rebound in demand.”

The bank further observed that “the combination of improved cost control and macro tailwinds could mark a turning point for the stock.” I agree with this assessment, and Celanese is also on my watchlist for the second half.

Other Stocks of Interest

Continuing our discussion of a potential biotech sector rebound in the coming months, a sub-industry that has caught my eye lately is genomics specialists. Two high-profile examples of stocks in this space that appear to be in the early stages of a cyclical reversal are Illumina (ILMN) and 10x Genomics (TXG).

Both stocks are down significantly on a three-year and a five-year basis, and both have faced structural problems related to an industry downturn. However, both are showing “green shoots” and near-term improvements in momentum, which suggest that any additional sector-wide traction in the biotech space will only fuel additional share price strength.

For 10x Genomics, the problems involve a combination of disappointing earnings, slowing revenue growth and increased operating expenses.

The company provides technologies and solutions for single-cell and spatial genomics research, and its key product is the Chromium Single Cell platform, which enables high-throughput analysis of individual cells, providing insights into gene expression, immune profiling and other cellular characteristics.

The company has faced competitive pressures and uncertainty around future growth, particularly within its academic customer base. With more players entering the single-cell analysis space—not to mention potential budget cuts in academic institutions, a key customer segment—the company has experienced headwinds in recent years.

To overcome these challenges, 10x has recently implemented several cost-saving measures in order to protect its balance sheet. This included a reduction of 8% of its workforce, as well as significant reductions in non-headcount spending.

Collectively, management anticipates these measures will reduce operating expenses for 2025 by more than $50 million compared to 2024.

And while the firm anticipates that the funding and macro environment will “remain challenged” and that ordering patterns for instruments and large consumable orders will continue to be impacted by customers’ program cancellations and reprioritized budgets, 10x said it’s encouraged by the “continued strength in core usage trends, including double digit growth in Chromium reactions and broader Xenium utilization.”

As for Illumina, the company develops and manufactures tools for DNA sequencing and microarray-based solutions, primarily for research and clinical applications. Its offerings allow researchers and clinicians to study genetic variation and function, contributing to advances in various fields like oncology, genetic disease and reproductive health.

Despite the setbacks of recent years, there are signs that a turnaround is gaining traction after a proxy war with activist investor Carl Icahn led to the departure of the outfit’s previous CEO, Francis deSouza, last June.

Illumina’s strategic initiative includes a strategy focused on accelerating value creation through boosting revenue growth to high single digits by 2027, as well as achieving double-digit to teens non-GAAP earnings growth from 2025 to 2027. Additionally, the firm has just implemented cost-cutting measures, including a $100 million reduction program to address challenges, with full savings expected to be realized in 2025.

Finally, Illumina has introduced new innovations, including a spatial offering with enhanced resolution and sensitivity, a single-cell solution for CRISPR research and a proteomics solution set for commercial launch this year.

Analysts see these efforts paying off, including a projected 75% bottom-line jump for fiscal 2025, followed by additional low-double-digit EPS growth in each of the next several years.

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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