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Turnaround Letter
Out-of-Favor Stocks with Real Value

March 17, 2023

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This week, we comment on the full earnings report from Volkswagen, which wraps up this earnings season. Walgreens Boots Alliance (WBA) is an off-cycle company and reports on March 28.

Earnings updates:

Volkswagen AG (VWAGY) – Volkswagen is one of the world’s largest car makers, with a portfolio of brands including Volkswagen, Audi, Porsche and Lamborghini, as well as commercial trucks and a major financial services unit. Investors worry about the sizeable China exposure, large but unsettled bet on electric vehicles and complicated governance structure, as well as the likely effects of a recession. Our view is that the market is over-discounting these risks while over-looking the company’s strengths including its sizeable profits and free cash flow and sturdy balance sheet that give it plenty of time to execute its plans. Several important catalysts look primed to unlock value within the company, including the Porsche IPO and new leadership.

Volkswagen reported full 2022 results, which provided only incremental information from a strategic perspective.

Standout items included the automotive balance sheet, which now holds €56 billion in cash against €11 billion in financial liabilities, for a net cash position of €45 billion compared to €29 billion a year ago. The €16.1 billion in cash proceeds from the Porsche IPO boosted last year’s ending net cash position.

Another standout item was the €8.4 billion increase in cash tied up in inventories. We anticipate this bloat to be reversed this year as better component deliveries will allow VW to sell vehicles that currently are incomplete.

VW clarified its capital outlay plans: It will ramp up its spending on EVs and expanding in China. Capital spending plus R&D spending will total nearly 14.5% of revenues in 2023, up from 12.7% in 2021, assuming that VW’s revenue projections are on target. Five-year combined spending will total €180 billion. This spending is front-loaded, with 2023 spending of €46 billion, almost double the €26 billion in 2021. The company is being very aggressive in its efforts to catch up to Tesla and push off other competitors, even though the returns on this vast outflow are difficult to gauge but will likely be lower than for gas-powered vehicles. How big is €180 billion? For comparison, VW’s enterprise value, which is the total of its market cap and its debt, is about €215 billion. Theoretically, the company could go into run-off mode and be worth almost as much as it is currently.

We’re surprised by the valuation discrepancy between VW and its Porsche unit. VW’s €78 billion market value includes €75 billion in Porsche shares. There may be some double-counting and other factors driving this bizarre math, but is VW ex-Porsche of zero value?

Our thesis on VW is that the Porsche IPO and new leadership will unlock value. So far, the Porsche IPO hasn’t unlocked any value and the new CEO is spending all of the efficiency improvements, plus many multiples of those, on EVs.

Friday, March 17, 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 8½ minutes and covers:

  • Earnings reports
  • Comments on other recommended companies
    • Dril-Quip (DRQ) – Brazil’s new president puts a damper on offshore drilling.
    • Newell Brands (NWL) – Carl Icahn moves closer to a full exit.
  • Elsewhere in the markets
    • Tough week for value stocks
    • Is it time to jump back into the banks?
  • Final note
    • Evacuation Day, March Madness and St. Patrick’s Day

Market CapRecommendationSymbolRec.
Price at
Rating and Price Target
Small capGannett CompanyGCIAug 20179.22 2.08 - Buy (9)
Small capDuluth HoldingsDLTHFeb 20208.68 6.92 - Buy (20)
Small capDril-QuipDRQMay 202128.28 27.58 - Buy (44)
Mid capMattelMATMay 201528.43 16.62 - Buy (38)
Mid capAdient plcADNTOct 201839.77 39.67 - Buy (55)
Mid capXerox HoldingsXRXDec 202021.91 15.206.6%Buy (33)
Mid capIronwood PharmaceuticalsIRWDJan 202112.02 10.47 - Buy (19)
Mid capViatrisVTRSFeb 202117.43 9.505.1%Buy (26)
Mid capTreeHouse FoodsTHSOct 202139.43 47.26 - Buy (60)
Mid capKaman CorporationKAMNNov 202137.41 22.433.6%Buy (57)
Mid capThe Western Union Co.WUDec 202116.40 10.728.8%Buy (25)
Mid capBrookfield ReBNREJan 202261.32 29.431.9%Buy (93)
Mid capPolarisPIIFeb 2022105.78 109.17 - Buy (160)
Mid capGoodyear Tire & RubberGTMar 202216.01 10.43 - Buy (24.50)
Mid capM/I HomesMHOMay 202244.28 58.89 - Buy (67)
Mid capJanus Henderson GroupJHGJun 202227.17 25.786.1%Buy (67)
Mid capESAB CorpESABJul 202245.64 60.08 - Buy (68)
Mid capSix Flags EntertainmentSIXDec 202222.60 25.73 - Buy (35)
Mid capKohl’s CorporationKSSMar 202332.43 23.238.6%Buy (50)
Large capGeneral ElectricGEJul 2007304.96 91.970.3%Buy (160)
Large capNokia CorporationNOKMar 20158.02 4.572.0%Buy (12)
Large capMacy’sMJul 201633.61 18.943.5%Buy (25)
Large capToshiba CorporationTOSYYNov 201714.49 15.806.6%Buy (28)
Large capHolcim Ltd.HCMLYApr 201810.92 12.223.6%Buy (16)
Large capNewell BrandsNWLJun 201824.78 11.767.8%Buy (39)
Large capVodafone Group plcVODDec 201821.24 11.249.1%Buy (32)
Large capMolson CoorsTAPJul 201954.96 51.483.0%Buy (69)
Large capBerkshire HathawayBRK.BApr 2020183.18 302.01 - HOLD
Large capWells Fargo & CompanyWFCJun 202027.22 39.303.1%Buy (64)
Large capWestern Digital CorporationWDCOct 202038.47 35.34 - Buy (78)
Large capElanco Animal HealthELANApr 202127.85 9.64 - Buy (44)
Large capWalgreens Boots AllianceWBAAug 202146.53 33.415.7%Buy (70)
Large capVolkswagen AGVWAGYAug 202219.76 16.975.4%Buy (70)
Large capWarner Bros DiscoveryWBDSep 202213.13 14.16 - Buy (20)
Large capCapital One FinancialCOFNov 202296.25 93.562.6%Buy (150)
Large capBayer AGBAYRYFeb 202315.41 14.963.6%Buy (24)

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.