May 16, 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), Dollar Tree (DLTR), GE Aerospace (GE), Intel (INTC), Pan American Silver (PAAS) and Toast Inc. (TOST).

Intel’s prospects hinge on the success of its 18A process node, which has the potential to be a major catalyst for its turnaround.

Toast Inc. (TOST) got off to a great start inr 2025 and has posted a 25% gain since Q1 earnings.

Comments on Portfolio Holdings

A cooling of risk aversion is weighing on gold prices, with spot gold dropping below the closely-watched benchmark level of $3,200 an ounce on Wednesday. This marked the first time since mid-April that the yellow metal has fallen below this key level.

While not necessarily serving as a harbinger of worse things to come, it does underscore the point I’ve made in recent weeks; namely, that gold and silver were overdue for a technical correction and would likely suffer as risk appetite returned.

Additionally, recent fiscal and monetary stimulus policies by China’s policy makers were also blamed as part of the reason for the metal’s recent poor performance. And as previously warned by analysts at ICBC, China’s largest lender and a bullion clearing bank in London, “If Trump ultimately reaches an agreement with trade partners to significantly reduce tariffs, improving market sentiment could lead to a decline in gold prices.”

Gold’s longer-term bullish prospects, however, remain firmly intact—and thanks in no small part to recent fundamental developments. One of those supporting factors is gold’s impending recognition as a Tier 1 asset—that is, a strategic, high-quality liquid asset under the Basel III international monetary standards agreement.

Per a recent gold market commentary by Frank Holmes, CEO of U.S. Global Investors:

“As of July 1, 2025, gold will officially be classified as a Tier 1, high-quality liquid asset (HQLA) under the Basel III banking regulations. That means U.S. banks can count physical gold, at 100% of its market value, toward their core capital reserves. No longer will it be marked down by 50% as a ‘Tier 3’ asset, as it was under the old rules.”

Holmes went on to conclude that “Basel III is more than a regulatory change. I believe it’s a validation,” he said, adding that it affirms what many “gold bugs” have long believed concerning gold’s status as a monetary asset and a hedge against financial market uncertainty and economic turmoil.

It’s one of many reasons why I expect our long-term position in Agnico Eagle Mines (AEM) to remain strong through 2025 (and despite the recent pullback). In the company’s latest news release, it confirmed this week that it has agreed to subscribe for 30,000,000 voting common shares of Canada-based precious metals exploration and development company, Foran Mining (FMCXF). On closing of the first of two tranches of the placement on May 28, Agnico is expected to own over 64 million common shares, which will represent approximately 13% of the issued and outstanding shares of Foran on an undiluted basis.

AEM remains a Hold in the portfolio.

Thanks to the recent de-escalation of the U.S.-China trade war, aluminum prices have rebounded to their highest levels since April 1, putting upward pressure on the stocks of aluminum producers, including Alcoa (AA).

Prices for aluminum gained after the U.S. and China agreed to aggressively lower tariffs against each other for at least 90 days, prompting a sudden move to export from China, while potentially increasing overall industrial metals demand.

According to Seeking Alpha, aluminum price hikes have been accompanied by signs of a tightening market, as prices for immediate delivery on the London Metal Exchange returned to a premium over three-month contracts, forming a bullish backwardated structure for the first time since March. (Backwardation occurs when the future price of a commodity is lower than the current, or spot, price.)

Moreover, according to an editorial in Mining.com this week, a longstanding cap on Chinese output could limit losses in the physical aluminum market despite the potential persistence of trade tensions.

China accounts for around 60% of the metal’s total global production, which is used heavily in the construction, transportation and alternate energy industries. Its output is limited by China’s government cap of 45 million tons per year, which was introduced in 2017 to curb overcapacity.

A Reuters poll in April showed an aluminum surplus of 280,000 tons this year, which analysts say is effectively a balanced market given global supplies at around 76 million tons. However, “any disruptions such as loss of hydropower in China’s Yunnan province, where a significant proportion of the country’s aluminum smelting capacity is located, could turn that small surplus into a deficit,” as Mining.com pointed out.

David Wilson, a senior commodities strategist at BNP Paribas, expects aluminum to outperform other industrial metals like copper this year, noting that, “Copper has plenty of supply growth in the longer-term [but] there’s not enough supply growth for aluminum.”

AA remains a Hold in the portfolio.

Centuri Holdings (CTRI) beat top- and bottom-line estimates in its latest earnings report this week, with Q1 revenue of $550 million increasing 4% from a year ago and a per-share loss of 12 cents outperforming the consensus estimate by 19%, driven by “strong customer service delivery” and new contract awards.

Adjusted EBITDA of $24 million improved by 20% from the $20 million achieved in the year-ago quarter. The company’s net debt to adjusted EBITDA ratio was 3.5x at the end of Q1, which improved from 3.6x as of Q4, and was in line with expectations.

Looking ahead, Centuri said it’s seeing “growing opportunities” across its business which are now approaching a total of $12 billion in revenue across both its Gas and Electric end markets. Based on its pipeline strength and recent customer engagements, it expects “continued strength in capital spending by our customers despite recent macro uncertainty.”

Management guided for full-year revenue of $2.75 billion which, if realized, would be 4% higher from 2024, with earnings of 65 cents a share expected, which would be a more than 100% year-on-year improvement.

CTRI maintains a Hold rating in the portfolio.

Dollar Tree (DLTR) announced Thursday that it surpassed a major retail milestone with the opening of its 9,000th store. The company said this underscores its position as one of the fastest-growing and most powerful value retailers in North America.

“Reaching 9,000 stores is a powerful indicator of the strength of our brand and the loyalty of our associates and customers,” said CEO Mike Creedon. “It’s also a testament to our profitable growth strategy, creating long-term value for our shareholders.”

The only other retailers with more than 9,000 stores in the U.S. are Walmart and CVS Health.

DLTR is a Buy in the portfolio.

It was a stellar week for GE Aerospace (GE), which saw its stock price rally over 5% to a new high after a couple of key news announcements. GE’s outperformance helped push the S&P 500 to positive territory for 2025 for the first time since February, and it ranks as the 10^th strongest stock in the S&P year to date.

The first catalyst for GE was this week’s announcement from the White House of the $600 billion investment in Saudi Arabia for various aerospace and defense, energy and security deals. The company stands to benefit significantly after securing a major deal with Riyadh Air to supply 90 GEnx-1B engines for the airline’s fleet of Boeing 787-9 Dreamliners. The agreement further includes spare engines and a comprehensive services package, which underscores GE’s key role in helping Saudi Arabia expand its aviation sector.

In what was described as a “strategic move to enhance operational efficiency,” Riyadh Air has entered a five-year partnership with GE Aerospace to implement advanced flight operations software, including Safety Insight, Fuel Insight, and FlightPulse. These tools are designed to optimize fuel consumption, bolster safety measures and support the airline’s sustainability goals, according to a prepared company statement.

Meanwhile on Wednesday, GE Aerospace and Qatar Airways announced an expansion of their partnership with the signing of multiple deals for new GE9X and GEnx engines, including an agreement for more than 400 engines, with additional options and spares.

The new agreements expand upon previous orders for 188 GE9X engines, bringing the total to 248 engines.

GE maintains a Hold rating in the portfolio.

Intel (INTC) attracted some unwanted attention from investors this week when its CFO, David Zinsner, made comments regarding external customer commitments for its foundry business at an industry conference in Boston. He said:

“While it has felt challenging to get caught up in progress, we’ve actually made a lot of headway. Unfortunately, to get to a point of where 18A is ramping in the fab is a painful process that requires a lot of capital investment.”

He said, moreover, that chip manufacturing is similar to tackling and blocking, adding:

“We talk about a pipeline model, and we get some customers. Then we test chips and some customers fall out, and there’s a certain amount of customers that hang in there. So, committed volume is not significant right now, for sure. But, I think we’ve got to partly prove ourselves a little bit with our own product and eat our own dog food here. And then it’s likely we start to see more engagement around customers. I hear more customers wanting a second source.”

Zinsner’s unfortunate choice of words did little to instill confidence in investors, and the stock declined 4% in the aftermath. But putting aside the negativity of some of his statements, there are reasons for optimism where the foundry business is concerned.

To understand what Zinsner is saying, it’s helpful to break down the concepts he discussed into their constituent parts. It’s no secret that Intel’s foundry business is expected to be a key source of future growth, with its 18A process node widely seen as a key enabler for attracting foundry customers and scaling up production.

The firm’s future profitability hinges to a large extent on the success of the node, particularly for its foundry business. Indeed, analysts have called it a “make-or-break moment” for Intel as its turnaround plan relies heavily on 18A to produce leading-edge processors and attract foundry customers, both of which are critical for regaining lost market share and increasing sales.

A major part of this discussion is Panther Lake, which is part of Intel’s Core Ultra 300 series, with an expected launch sometime by the end of this year. Panther Lake is Intel’s code name for its next-generation processor, which is expected to be a major advancement in manufacturing technology. It’s essentially a hybrid processor designed for the mobile market.

Aside from confirming that production of Panther Lake, using the 18A process, will in fact begin later this year (despite rumors to the contrary), the firm has also recently confirmed that mass production of the next-generation platform will begin in early 2026. (In other words, Intel’s Core Ultra 300 series, which is based on Panther Lake technology, is expected to launch this year, but it won’t be a full series launch.)

Promisingly, early indications for the Xeon 6—Intel’s latest generation of server processors and a precursor to Panther Lake—show a nearly 2x boost in AI performance over prior generations. Industry analysts believe this could position Intel to regain ground in the AI semiconductor race, where competitors like NVIDIA have maintained a leadership position.

For turnaround investors, the key variable is the likelihood of Intel’s market share recovery. In view of Panther Lake’s advanced AI capabilities, it’s possible this could induce hyperscaler customers and cloud providers back to Intel, reversing a trend of customers leaving Intel for its competitors. The outfit’s data center segment’s 8% year-on-year improvement in Q1 suggests this potential, while scaling Panther Lake’s adoption could drastically accelerate this trend.

On the financial front, the company got off to a mixed start in 2025, as its Q1 earnings underscored both challenges and opportunities. Total revenue was steady at around $13 billion, but profitability declined, as per-share earnings dropped 28% from a year ago, highlighting margin pressures from cost inflation and a shift toward lower-margin businesses.

The Client Computing Group saw sales decline 8% to $7.6 billion, reflecting a continuing slump in PC demand. But as mentioned earlier, the Data Center and AI segment growth to over $4 billion, driven by sales of AI-based Xeon processors, was viewed as a potential green shoot by Wall Street.

Meanwhile, the Foundry Services segment reported 7% growth, reaching $4.7 billion in revenue and showing progress in its third-party manufacturing plans. This is particularly significant as the foundry business is expected to become a big growth engine for Intel going forward, especially if it can attract major clients and reach profitability. (Current trends show that Intel remains on track for the foundry business to break even by 2027.)

Additionally, the Q1 Foundry Services results are considered as a crucial first step towards achieving its long-term goal of becoming a major player in the third-party chip manufacturing market. Moreover, the recent growth shows that Intel is having success in attracting new customers, ramping up production of advanced nodes like 18A and developing advanced packaging services.

On a final note, Intel has also reportedly secured a major contract with Microsoft for its 18A process, according to a report from Chosun Biz. This is regarded as a major step forward for the foundry business, plus Intel has reportedly been in talks with other major tech companies, including Google.

All told, 18A is inarguably the biggest potential catalyst for Intel’s turnaround, and early results suggest a successful outcome is within reach.

INTC retains a Buy rating in the portfolio.

In a major development in the silver mining sector—and in a furtherance of the industrywide consolidation trend—Pan American Silver (PAAS) will purchase a competitor, the tier-one primary silver miner MAG Silver (MAG), for $2.1 billion.

Pan American will acquire all of Vancouver-based MAG’s issued and outstanding common shares through its 44% joint venture interest in the large-scale, high-grade Juanicipio mine in Mexico, operated by Fresnillo (one of Mexico’s largest gold and silver producers), which holds the remaining 56% interest in the Juanicipio joint venture.

Pan American CEO Michael Steinmann said concerning the deal: “Our acquisition of MAG brings into Pan American’s portfolio one of the best silver mines in the world. Juanicipio is a large-scale, high-grade, low-cost silver mine that will meaningfully increase Pan American’s exposure to high margin silver ounces. Furthermore, we see future growth opportunities through the significant exploration potential at Juanicipio as well as MAG’s Deer Trail and Larder properties. This strategic acquisition further solidifies Pan American as a leading Americas-focused silver producer.”

PAAS remains a Hold in the portfolio.

After what has seemed like an eternity, Toast Inc. (TOST) finally posted a stellar showing, gaining 25% in the week since first-quarter earnings were announced.

Q1 revenue of $1.3 billion increased 24% from a year ago, while earnings of 9 cents a share beat estimates by 8%, prompting the bullish share price reaction.

Management described the company’s start to 2025 as “fantastic,” as it added over 6,000 net new locations, grew recurring gross profit streams by 37% and delivered $133 million in adjusted EBITDA. Commenting on the results, co-founder and CEO Aman Narang said:

“We continue to see strong momentum across both our core business as well as our new verticals in international, retail and enterprise including marquee wins in Applebee’s and Topgolf. We are starting to see our scale and data across our 140,000 locations help our customers be more successful, which sets us up well as we continue to build out the platform and scale globally.”

Other key metrics were equally sanguine, including annual recurring revenue (ARR) of $1.7 billion that increased up 31%, gross payment volume (GPV) of $42 billion that increased 22%, plus a 25% increase in total locations that use the company’s products, to approximately 140,000.

Going forward, management expects subscription services and financial technology solutions gross profit for 2025 in the range of $ $1.78 billion (26% growth at the midpoint compared to 2024, up from 23-25% growth) and adjusted EBITDA of around $550 million (up from $520 million).

TOST retains a Buy rating in the portfolio.

RATINGS CHANGES: None.

NEW POSITIONS: None.

Friday, May 16, 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 15 minutes and covers:

• A brief review of the broad market’s current condition (still mostly strong).
• A look at the strong recovery potential in the healthcare sector in the coming months.
• Satellite stocks also look to have strong turnaround potential in 2025 and beyond.
• Updates on several portfolio holdings, including the latest developments in the gold and aluminum industries.
• Final note
  
  • GE Aerospace (GE) should be a major beneficiary from the White House’s $600 billion investment deal with Saudi Arabia.

Market Outlook

Although the post-tariff rally is showing signs of slowing, the major indexes continue to make gains and have recovered most of their losses since February, with the S&P 500 Index in the black for 2025 as of Thursday (although barely).

That said, there’s not much new to report in terms of the broad market outlook as little has changed since last week’s update. I have no new insights to offer on that front, other than to point out that my key indicators of the market’s health remain bullish on a short-term basis.

Among the more important ones, the securities broker/dealer stocks have been key performers this month, with the NYSE Broker/Dealer Index (XBD) reaching a new high this week. That’s always a good sign, as strength in this industry is typically a good indication of the market’s overall health.

The tech sector also remains strong, helped by solid participation among semiconductor stocks of late. Semiconductor strength is another one of the key indicators I look at when evaluating the market’s internal strength.

And of course, bitcoin continues to strengthen, which is another leading indicator for the equity market (since it denotes improving risk appetite). On that score, the Grayscale Bitcoin Trust ETF (GBTC) is just four points away from its record high at 85 as of Thursday.

Also worth mentioning is the additional improvements I’m seeing in banking and insurance industry stocks. The formerly beleaguered banking names are making a nice comeback this month, with more than a few bank stocks hitting new highs this week. As with the broker/dealers, bank stock strength is a sign that the broad market recovery rests on solid ground for now.

On a final note, the latest post on X (formerly Twitter) by market statistician Jason Goepfert caught my attention. He notes that the Health Care Select Sector SPDR ETF (XLV) closed positive on Thursday after falling to a 52-week low. This is only the fifth time this has ever happened.

Why is this statistically significant? Well, according to Goepfert, whenever this event happened in the past it was followed by strong gains in the healthcare sector stocks—100% of the time to be exact—on a one-, two-, three- and six-month basis. (On a 12-month basis, the outperformance occurred 75% of the time.)

Keep in mind that Goepfert was the one whose statistical work predicted the May broad market outperformance, as pointed out in the Cabot Turnaround Letter last month. Thus, I think it’s only fair we give some credence to his latest prediction.

Given that XLV is down almost 20% since peaking last September, there must surely be some worthy turnaround candidates throughout the healthcare sector. To that end, I’ll be closely monitoring this group in the coming days to see what I can come up with for you.

Watch List

A theme I’m noticing in my daily search for turnaround candidates is satellites. Specifically, companies that either launch satellites and/or rely heavily upon them for the delivery of select services.

Satellite-based companies are widely expected to outperform this year and in the next couple of years due to several factors, including increased investment, technological advancements and growing demand for satellite-based services, with further support coming from lower launch costs and expanding applications in communication, earth observation and space exploration.

This week, two of the companies that stood out in my screens are BlackSky Technology (BKSY) and ViaSat (VSAT).

BlackSky employs a constellation of 16 electro-optical imaging satellites to provide its services, which involve on-demand, high-frequency imagery, analytics and monitoring of key locations and events worldwide. It counts among its customers military and governments agencies, as well as commercial clients who rely on the firm’s technologies for monitoring critical infrastructure, supply chains and natural resources.

Additionally, BlackSky uses a combination of their own satellites and partnerships with other satellite constellations to capture imagery and data for their real-time geospatial intelligence platform. The company further plans to equip future satellites with laser terminals for faster data transmission.

The shares are down 85% on a five-year basis, but the longer-term turnaround potential is there based on its growing pipeline (including its new Generation 3 satellite technology) and improving margins. Wall Street sees the top line growing 30% this year and in each of the next two years.

ViaSat provides global communications solutions, including satellite internet services, secure networking systems and various other products and services for both commercial and government markets. A major focus is on delivering reliable, high-speed internet connectivity to areas where traditional terrestrial internet access is limited or unavailable.

Among the company’s key offerings are its home and business internet solutions, along with its mobile SATCOM services that provide secure, two-way broadband communication for a variety of missions, connecting users in the air on land, and at sea. ViaSat also provides a range of secure networking and cybersecurity solutions.

The shares are down 72% on a five-year basis but have shown signs of forming what looks like a solid bottom over the last several months. Recent structural improvements and growing market opportunities suggest the firm has the potential to achieve sustained profitability, and analysts see top- and bottom-line improvements in the coming quarters. VSAT admittedly faces more challenges than BKSY, but I think the stock has intermediate-term growth potential.

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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