June 27, 2025

In today’s note, we discuss pertinent developments for some of the stocks in the portfolio, including Agnico Eagle Mines (AEM), Alcoa (AA), Centuri Holdings (CTRI), GE Aerospace (GE), Paramount Global (PARA) and SLB Ltd. (SLB).

Agnico Eagle (AEM) CEO explains why his company is one of the industry’s top performers.

Alcoa (AA) is pushing the EU to reduce metal outflows, which could support the share price.

Comments on Portfolio Holdings

The head of Agnico Eagle Mines (AEM), one of the world’s most valuable gold miners, believes there’s only one reason to buy a gold mining stock—to provide investors with a better return than simply buying gold—and he says too few companies in the industry are providing this benefit to their investors.

In an interview with Bloomberg, it was pointed out that Agnico’s CEO, Ammar Al-Joundi, is one of the few leaders of a large-cap gold miner to outperform bullion in the last year, rising 84% while gold has added 44%. Agnico has also more than doubled the performance of rivals Barrick Mining (GOLD) and Newmont (NEM), surpassing both on a market capitalization and a price-to-earnings basis.

Meanwhile, according to a recent article by Mining.com, “a quarter of the stocks in the 56-member VanEck Gold Miners ETF (GDX) have underperformed the commodity so far this year, even as investors have sought exposure to record-setting gold prices amid tariff-induced economic uncertainty and flaring geopolitical tensions.”

Moreover, gold mining stock-tracking ETFs have seen huge outflows this year in a sign that participants are taking profits in the stocks rather than seeing long-term value in the sector—a trend that Al-Joundi attributes to miners overspending their cash flows, embarking on “dumb deals” and “generally making poor decisions in periods of elevated commodity prices.” (He also pointed out that global mining companies have written down nearly $50 billion in assets since 2013.)

And while he acknowledges Agnico’s stock has benefited, he urges his industry competitors to reduce their spending in order to avoid diluting their shares with “poorly timed acquisitions,” adding that it will lead to “higher valuations across the sector.”

He added that he expects Agnico to trade at an even higher multiple going forward (which currently trade at 25x earnings, or twice as much as the 14x earnings multiple of Newmont and 9x the earnings valuation for Barrick).

AEM remains a Hold in the portfolio.

Metal producers in the European Union (EU) are pushing for export duties or curbs on scrap metal shipments “in the next few weeks” in order to impede a jump in metal flows to the U.S. in the wake of Washington’s trade policies.

According to Reuters, “Europe’s metal producers are warning of a shortage of scrap and an upending of carbon-emission strategies after U.S. Donald Trump’s 50% levy on imported steel and aluminum heightened demand, and sharply inflated prices, for tariff-free scrap.”

Reuters said Europe’s aluminum industry is asking the EU to reduce outflows using “export authorization measures, hitherto only used during the COVID pandemic,” when the European Commission (EC) demanded companies request permission to export protective gear and vaccine doses, with export tariffs being another option.

Scrap metal exports to the U.S. nearly tripled to over 6,000 metric tons year-over-year in this year’s first quarter, according to industry lobby group European Aluminum, which includes Alcoa (AA). With the U.S. currently keeping its scrap, the EU will be left as the main exporting region, the group said.

The EC, meanwhile, said it would determine in the third quarter whether a trade measure was necessary for steel, aluminum and copper.

The efforts of the working group in Europe to impose import duties on scrap metal shipments could potentially support aluminum prices, in turn benefitting Alcoa and other international producers by 1.) tightening the availability of secondary aluminum feedstock in the U.S.—which is a key source for many American aluminum producers, 2.) increasing U.S. demand for primary aluminum and 3.) potentially creating supply bottlenecks and cost pressures for U.S.-based manufacturers, in turn pushing up prices for aluminum semi-finished products.

The above measures could also benefit Alcoa, which is a primary aluminum producer (not a major scrap processor). If EU export curbs reduce scrap availability in the U.S., many companies may be forced to substitute with more expensive primary aluminum, a direct benefit for Alcoa, and since the firm has significant production capacity in North America, it stands to benefit from being a local, tariff-free supplier should U.S. buyers seek domestic supply in the wake of tariffs.

AA maintains a Hold rating in the portfolio.

Centuri Holdings (CTRI) announced earlier this week more than $575 million in customer awards earned through the year to date.

Management said the awards for the utility infrastructure services company reflect its momentum in capturing opportunities to expand and modernize essential energy infrastructure.

Centuri said the revenue value of the announced awards includes a significant multi-year contract renewal with a longer term for a long-standing natural gas utility customer in the Midwest for gas distribution, transmission and storage work. The additional awards include the rebuilding and construction of utility-scale transmission lines, including a 115 kilovolt (kV) line in the Eastern U.S. and a 28-mile, 345 kV line in the West.

The announcement complements the previously announced $350 million in new awards in May.

CTRI maintains a Hold rating in the portfolio.

With defense sector stocks getting more attention in the wake of the latest geopolitical flareup in the Middle East, General Electric (GE) has come under increased scrutiny.

Immediately after the U.S. launched targeted military strikes against key Iranian nuclear facilities located in Fordow, Natanz and Isfahan, investors are shifting their attention toward aerospace and defense-related assets, which have lately surged in the attack’s wake.

Earlier this week, Seeking Alpha (SA) released a curated list of the 10 most highly ranked defense sector stocks by SA analysts. The list includes only those stocks with market caps of at least $10 billion, with GE Aerospace (GE) earning a number nine ranking.

The stock has risen as much as 9% from last week, although the initial bullish impact from the military strikes appears to already be fully baked into GE’s share price.

GE remains a Hold in the portfolio.

Institutional Shareholder Services has advised shareholders of Paramount Global (PARA) to not re-elect four directors, including top shareholder Shari Redstone, over concerns that these directors have allowed a “problematic capital structure to persist at the company.”

The Redstone family owns a majority of the company’s voting stock. Paramount’s annual meeting is slated for July 2, according to Bloomberg.

In a separate story, Bloomberg also reported this week that the creators of the popular South Park series have accused Skydance Media of interfering with streaming negotiations for the show worth over a couple billion dollars even before completing the proposed merger with Paramount.

According to Bloomberg, South Park creators Trey Parker and Matt Stone reached out to Paramount in February, informing the company of their desire to keep producing the hit animated series for “many more years” and extend a production deal that expires in 2027.

Parker and Stone were already in talks to find a new streaming home for South Park in a deal worth an estimated $2.5 billion, with HBO Max and Netflix among those expressing interest in hosting the show. The report said Paramount had planned to split the U.S. streaming rights to the series between HBO Max and its streaming service, Paramount+.

The report said Skydance Media contacted Warner Bros. Discovery (WBD) and Netflix (NFLX) conveying its contract terms and deadlines for the show, which resulted in a legal action threat from Parker and Stone’s lawyer, Park County, according to Bloomberg.

Paramount+ would have also paid a similar fee for a streaming deal, according to Bloomberg, with Skydance reportedly stating: “Under the terms of the transaction agreement, Skydance has the right to approve material contracts.”

“It is simply outrageous that even before it has been granted the authority to close the merger with Paramount, RedBird and Skydance are jumping the gun,” Park County reportedly said in a letter. In a separate letter, Park County warned Paramount it should not “acquiesce to third parties, who have no right to engage in negotiations” on their behalf.

PARA remains a Hold in the portfolio.

SLB Ltd. (SLB) this week said it sees Q2 revenues and core profits coming in roughly unchanged from Q1, due in part to weaker than expected drilling activity in Saudi Arabia and Latin America, according to Reuters.

In a Q2 operational update, SLB said it has seen activity contrast with its initial assumptions for the quarter, particularly the decline in Saudi Arabia, with several rigs demobilized and operations paused at the Jafurah unconventional gas field, and reduced short-cycle activity in Latin America.

“Barring any impact to activity in the Persian Gulf from the conflict, we still expect second-quarter revenue to be flattish sequentially,” CEO Olivier Le Peuch said. He added that the company still plans to return at least $4 billion to shareholders in 2025.

Le Peuch added, “The unfavorable geographical activity mix is impacting margins,” with Q2 EBITDA expecting to coming in flat compared sequentially and down slightly from the company’s prior guidance. The quarterly earnings are expected out on July 18 (pre-market).

Additionally, SLB announced a strategic collaboration this week with Cactus Drilling, the largest privately held land drilling contractor in the U.S., to expand the adoption of automated and autonomous drilling solutions.

SLB maintains a Buy rating in the portfolio.

RATINGS CHANGES: None this week.

NEW POSITIONS: We added Bloomin’ Brands (BLMN) to the portfolio in the July monthly issue of the Cabot Turnaround Letter with an initial upside target of 20 a share. BUY

Friday, June 27, 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:

• Bearish sentiment on the stock market is rising, which bodes well for a continued recovery based on the contrarian principle.
• Rising short interest, plus other sentiment indicators, suggest the rally can persist.
• Retail turnaround stocks are among those benefiting from massive short interest levels.
• Final note
  
  • Kohl’s (KSS) could soon have a catalyst for igniting its record short interest.

Market Outlook

Turnaround investors tend to be contrarians by nature and, as such, we’re quick to embrace the unconventional wisdom that teaches us to buy when others are selling (and vice-versa).

More to the point, we’re accustomed to looking for signs that the crowd is either inordinately bullish or bearish so that we can adjust our market expectations according to the contrarian principle. On that score, we can rest somewhat easy right now since retail investor sentiment appears to skeptical of the staying power of the market’s latest surge higher.

One example of this is a front-page headline on the Financial Times website, which is already asking questions as to what will cause the (presumably inevitable) “next crisis.” The graphic which accompanied this article, shown below, needs no explication.

When fear visibly manifests itself like this, it’s hard not to be bullish from a contrarian standpoint. And in case you need further evidence in the bull’s favor, consider that in many individual stocks across many different sectors, what could be regarded as unsustainably high levels of short interest are building up. These high levels, in many instances, can fuel short-covering rallies that help keep the market’s forward momentum intact.

While not a direct short interest measure, the CBOE put/call ratio has proven itself a fairly reliable gauge of investor sentiment. An overly bearish (high ratio, typically above 1.0) signal in this indicator has historically presaged buying opportunities in the market, while an unreasonably bullish reading (low ratio, typically under 1.0) often precedes or accompanies market bottoms.

As the following chart illustrates, after hitting a major peak backed by excessive bearish sentiment—and coincident with the early April bottom in the S&P 500—the put/call ratio (blue line) collapsed over the next several weeks before reversing higher in late May while the market rallied.

Since then, the put/call ratio has been rising as smaller traders are apparently skeptical of the staying power of the broad market rally, providing yet another reason for believing the reticence of the small investor is misplaced.

With this backdrop (presumably) in the bulls’ favor, let’s now turn our attention to this month’s Catalyst Report, which features some names that not only appear prime for a turnaround, but at least one of which is poised to benefit from an unreasonably high buildup of short interest.

Catalyst Report

Kohl’s (KSS) is down a long way from its peak at 65 three years ago. Currently trading around 8 per share, the department store chain’s stock decline comes on the back of a shift in post-Covid era consumer behavior, plus changes in leadership and ongoing challenges related to supply chain disruptions and inflation.

To counteract the downturn, Kohl’s has initiated several turnaround strategies, including a strategic partnership with Sephora, as well as focusing on enhancing specific product categories.

Sephora is a purveyor of luxury beauty items and is owned by the French multinational conglomerate, LVMH Moët Hennessy Louis Vuitton (LVMUY). The partnership involves opening Sephora shop-in-shop locations within Kohl’s stores, in turn allowing Kohl’s to offer a prestige beauty experience to its customers.

Annual sales from Sephora are projected to reach $2 billion this year (up from $1.4 billion in 2023 shortly after the partnership commenced).

In last month’s Q1 results, newly appointed interim CEO Michael Bender said the firm’s Q1 performance was “ahead of our expectations,” with the company’s actions “making progress with early signs of positive impact.” Regarding the turnaround, he said, “We’re in the middle of the transformation in early days [and] it’s going to take some time for us to [fully recover],” but expressed optimism in Kohl’s focus on turnaround execution, margin levers and customer re-engagement.

Bender further noted the strength of Kohl’s foundation with 1,100 stores and over 60 million customers, which he said underscored its intent to build on recent momentum.

Additional highlights of the quarter included a successful return to jewelry sales strength (up 10% year-on-year), a high-teens growth in petites and continued Sephora expansion, with Sephora net sales up 6% and comparable sales up 1%.

Of particular interest, Kohl’s recently hit a record 52% of outstanding shares sold short, including 72% of the float. Analysts believe that a catalyst for a major short-covering rally could include a takeover bid, a major share buyback or a key asset sale. It’s an intriguing turnaround proposition and one that I think we should closely monitor.

Also in the midst of a multi-year turnaround strategy within the retail category is Estée Lauder (EL). Following a major downturn, the beauty products specialist is implementing a restructuring plan that includes significant job cuts in order to become leaner and more efficient.

Earlier this week, Deutsche Bank upgraded Estée Lauder from a Hold to a Buy rating based on improving fundamentals.

“Looking backwards, EL is a stock (and a company) open to criticism, having seen its value fall from near 375 per share in early-2022 to below 50 earlier this year,” wrote Deutsche Bank. “However, we believe that many of the root causes of this decline have now been addressed.”

While the shares are still down on a three-year and five-year basis, the stock has shown notable progress in recent months, climbing nearly 60% since the early-April broad market bottom. While this might serve as a deterrent for some value-oriented investors to buy the stock, it should be noted that short interest remains unusually high. This in turn suggests that short covering is, at least in part, responsible for the recent rally.

And with short interest in the stock remaining exceptionally high even now, it argues that more upside is likely on the horizon for EL.

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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