May 2, 2025

In today’s note, we discuss pertinent developments for some of the stocks in the portfolio, including Agnico Eagle Mines (AEM), Berkshire Hathaway (BRKB), Intel (INTC), Kenvue (KVUE), Pan American Silver (PAAS) and SLB Ltd. (SLB).

This month’s catalyst report features three turnaround candidates in industries ranging from airlines to semiconductors to data analytics.

We just added consumer health giant Dollar Tree (DLTR) to the portfolio in the latest monthly issue of the Cabot Turnaround Letter.

Comments on Portfolio Holdings

Turning to the portfolio, last week I mentioned that I expected gold and silver to potentially enter a multi-week correction or holding pattern after the big run-up of the last several months. Silver especially looks vulnerable to temporary selling pressure, and that’s what we’ve witnessed to a degree in the last few days.

Providing further credence for this outlook was a prominent show of ultra-bullish sentiment on gold, as the shiny yellow metal made more than a few headlines, as well as the covers of some prominent news publications, in the past week or so. That’s normally a sign, from a contrarian perspective, that the bullish trend has exhausted itself (at least short-term) and that a counter-trend move is likely ahead.

On that score, Agnico Eagle Mines (AEM) has softened a bit in the days after last week’s (mostly bullish) quarterly earnings release, which featured top- and bottom-line beats. Revenue of $2.5 billion increased 35% from the prior year’s Q1, while earnings of $1.53 a share jumped 66% and record adjusted EBITDA of $1.6 billion increased by a whopping 72%. Free cash flow of $594 million also set a record for the quarter.

Management further underscored the progress of some key mining projects, including the Meadowbank life extension beyond 2028, Hope Bay’s potential to generate 400,000 ounces annually by the 2030s, and plans for the Malartic mine to produce one million ounces annually by the early 2030s.

The company returned around $250 million to shareholders in Q1 through dividends and share buybacks, while maintaining cost discipline. It also strengthened the balance sheet, reducing its net debt to nearly zero and indicated plans to continue providing shareholder returns this year.

Going forward, as I expect gold prices to remain strong throughout 2025, this will enable Agnico’s share price to remain buoyant as its operational performance, combined with record gold prices, should allow the firm to deliver record financial results, including record operating margins and record adjusted net income on both an adjusted net income basis and a per-share basis. The stock retains a Hold rating in the portfolio.

Berkshire Hathaway (BRKB) was just ranked number six on a list of the top 10 stocks on Wall Street that soared by more than 10% year to date despite tariff-related headwinds. Berkshire has managed to gain 17% so far, which assured its ranking in the elite list compiled by Seeking Alpha’s ratings.

This curated list highlights 10 U.S.-listed stocks with market capitalizations of at least $10 billion, with each stock earning Buy or Strong Buy ratings from Seeking Alpha’s quant system or from Wall Street analysts. These names are outperforming the broader market, which suggests strong momentum and investor confidence.

Incidentally, also making that list at number three is Dollar Tree (DLTR), which is our most recent addition to the portfolio.

Berkshire will release its Q1 earnings via the internet on Saturday morning, May 3. BRKB also retains a Hold rating in our portfolio.

Earlier this week, Intel (INTC) made several announcements at its Foundry Connect event, including new partnerships and updates on its foundry manufacturing venture.

The company said several customers were planning to build test chips using Intel’s 14A advanced manufacturing process, which is still in development and testing. 14A, a new node that is more advanced than 18A, uses ASML’s (ASML) extreme ultraviolet light lithography machines, which are roughly the size of a bus and can cost hundreds of thousands of dollars.

The company added that it has shipped an early version of a digital design kit to customers to demonstrate that Intel’s foundry can transform chip blueprints into processors.

The company also said its 18A process is scheduled to go into high-volume production at its Oregon facility, with high-volume production coming to its Arizona factories later in the year.

INTC is rated a Buy in the portfolio.

Last Friday, it was announced that Dan Loeb’s hedge fund, Third Point Capital, has initiated a stake in Kenvue (KVUE), which likely accounts for the company’s recent share price strength.

Reporting on the development, the Financial Times said Kenvue’s management will “come under renewed investor scrutiny after the transaction, which marks the third activist campaign against the Band-Aid maker.”

The company reports Q1 earnings next Thursday, pre-market. KVUE retains a Buy rating in the portfolio.

At a recent mining conference in Europe, the top brass at Pan American Silver (PAAS) made a point of discussing the firm’s plans to actively manage assets and the balance sheet while divesting non-core assets. Management noted that after selling various mining projects in Chile and Peru to Zijin Mining and Rio Tinto, while retaining net smelter return (NSR) royalties on each transaction. Another of its multiple royalty portfolios currently contains around 10 royalties on top of its existing ones. In this way, Pan American hopes to increase its revenue stream on top of its active exploration and development activities.

Management also said another current focus is to improve the quality of its current assets by augmenting mine lifespans and also investing in bigger assets. To that end, the outfit is on the lookout for additional M&A opportunities, but said it’s remaining mindful of keeping the company at what it calls a “manageable size.”

Thanks to higher gold prices, Pan American further guided for higher free cash flows in the second half of this year, compared to last year, with the firm expecting Q3 and Q4 to be this year’s strongest quarters. With Q1 being its tax quarter, it cautioned for investors to not expect the same level of strong financial results it reported in Q4. And while analysts expect revenue of $700 million when the company reports Q1 results next Wednesday, a 16% year-on-year increase if realized, this would also represent a 14% sequential decrease.

After recently taking a one-quarter profit in our position in PAAS, the remainder of the position maintains a Hold rating.

Last Friday, SLB Ltd. (SLB) announced first-quarter results that showed a subdued start to the year, with a 3% year-on-year decline in revenue of $8.5 billion, plus per-share earnings of 72 cents that were in-line with estimates and largely unchanged from a year ago.

The company’s Q1 adjusted EBITDA margin was slightly up despite the softer revenue, with higher activity in parts of the Middle East, North Africa, Argentina and offshore U.S., along with strong growth in its North American data center infrastructure solutions and digital businesses, contributing. However, those gains were more than offset by a sharper-than-expected slowdown in Mexico, a slow start to the year in Saudi Arabia and offshore Africa, as well as a steep decline in Russia.

SLB said that in its core business, it’s seeing higher demand for production solutions as customers seek to offset declines and maintain or grow production from maturing oil and gas assets. Management said this is an area that will “continue to present strong opportunities for SLB.”

To that end, its Production Systems segment revenue grew 4% for the quarter and expanded pretax operating margins by 2%, with strong demand for surface production systems, completions and artificial lift. In addition, the Reservoir Performance business was supported by “strong international unconventional stimulation and intervention activity.”

Looking ahead, SLB continues to diversify its operations in order to insulate itself against softer oil prices. To that end, it expects digital, cloud and AI solutions growth will provide increasing opportunities for its operators, including more partnerships with technology companies in the coming quarters. Management further said this is translating into “highly accretive revenue growth” with the result that its Q1 digital revenue grew 17%, contributing to a 6% increase in Digital & Integration segment revenue during the quarter.

The top brass guided for flat sequential revenue in Q2, excluding ChampionX, with adjusted EBITDA margin expansion of around 1% under current market conditions.

For the second half of 2025, SLB anticipates flat to mid-single-digit revenue growth compared to the first half, supported by seasonal activity increases, new deepwater startups and growth in the digital and data center businesses. Margins are also expected to expand during this period.

The company further said it’s maintaining its commitment to return more than 50% of its free cash flow to investors in 2025, stating, “We continue to have confidence in our ability to generate strong cash flow in the current environment and will return a minimum of $4 billion to shareholders through dividends and share repurchases this year.”

On a related note, SLB announced this week that it’s getting closer to finalizing its merger of ChampionX, which it anticipates will close later this quarter or in early Q3. The all-stock deal is expected to strengthen SLB’s leadership position in oilfield services with world-class production chemicals and artificial lift technologies.

SLB remains a Buy in the portfolio.

RATINGS CHANGES: None.

NEW POSITIONS: We initiated a long position in Dollar Tree (DLTR) in the latest monthly edition of the Cabot Turnaround Letter as of Wednesday. BUY

Friday, May 2, 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 22 minutes and covers:

• A brief review of the broad market’s progress in the last couple of weeks.
• The question remains unanswered as to whether or not a re-test of the early-April lows will happen.
• Tailwinds remain for the near-term, including leading strength in broker/dealers and bitcoin.
• Updates on several portfolio holdings, including the latest developments in the red-hot gold and silver mining stock arena.
• Final note
  
  • Out-of-favor American Airlines (AAL) is a speculative buy on summer travel expectations.

Market Outlook

It was volatile at times, but overall the week to date was fairly productive from the standpoint of the major averages, which rallied heading into Friday. Since hitting a low earlier this month, stocks in the aggregate have made some notable progress, but some question marks remain.

One of the biggest questions that remains unanswered is: Have we seen the final low from the correction that began in February, or will the recent low be revisited (or possibly broken)? I can only conjecture at this point, but with the major indexes currently running up against their 50-day trend lines, I suspect we’ll soon know the answer.

For now, however, the bulls still have a near-term advantage in terms of both sentiment and technical momentum. On Wednesday, news that the U.S. economy contracted 0.3% in the first quarter—presumably as a result of the tariff war escalation—was initially met with selling pressure. Yet stocks recovered nicely by the end of the day and into Thursday’s trading session, suggesting that investors were largely unconcerned with the news.

Further on the plus side of the ledger for the bulls are a couple of factors that I consider salient for the rally’s continuation. The first is the relative strength exhibited by securities broker/dealer stocks, which often act as bellwethers for the general market at critical turning points. To date, the NYSE Broker/Dealer Index (XBD) is one of the few indexes to have significantly rallied above its 50-day trend line. That’s a sign that participants are willing to embrace more risk than they were just a few short weeks ago.

Secondly, the Grayscale Bitcoin Trust ETF (GBTC) has lately shown even more relative strength than any equity market index. As we’ve discussed here previously, bitcoin tends to lead equities at key trend reversals, and GBTC is the benchmark I follow as a leading indicator. The bitcoin ETF peaked a few weeks ahead of the S&P 500 Index earlier this year, and it was also the first to rebound in April ahead of the latest broad market rally. Therefore, I can only assume that GBTC is reflecting the continued enthusiasm on the part of participants to embrace risk heading into May.

The tendency in recent days for new 52-week lows to remain well under 40 per day on the NYSE is an additional argument in the bulls’ favor. And while the new highs haven’t meaningfully expanded yet, at least they’re exceeding the daily new lows in a sign that internal selling pressure is no longer an issue for the market.

With all of that said, another critical factor is volatility as measured by the CBOE Volatility Index (VIX). Often referred to as a “fear gauge,” I find it useful for measuring how accommodating the current market environment is for buying stocks. Historically, whenever the VIX is above the 25 level and rising, it doesn’t pay to embrace a bullish posture toward stocks. By contrast, when the VIX is under 25 and continues to decline, it’s normally a sign the market has become quite suitable for buying.

As of Thursday’s close, the VIX is hovering just a few cents under the 25 level, which to me indicates a neutral market condition that’s neither decisively bullish or bearish. I would like to see the VIX fall further below 25 before we step in and do any aggressive buying. As I have no particular insight as to where the VIX will move in the coming days, I’ll forgo making a prediction. But I’ll continue to monitor the volatility situation closely as we await a more decisive verdict from the VIX.

Bottom line, the market still enjoys some tailwinds heading into May, but the question of whether the early-April lows will be revisited at some point this spring remains unanswered. And while there have been several internal improvements lately, the overall tariff backdrop remains a fundamental overhang for now, which necessitates a measure of caution going forward.

Catalyst Report

This month’s Catalyst Report features a familiar name, along with a couple of intriguing spinoffs across three separate industries.

American Airlines (AAL) was a profitable addition to the portfolio last year, but I recommended selling our final stake in the company in early March when it became apparent that the tariff war escalation would negatively impact the stock.

The exit was timely, as the stock fell over 35% in the weeks that followed before bottoming out in April. I’m still not completely enamored with the company’s prospects just yet since American Airlines withdrew its 2025 guidance in the face of economic uncertainty. Management also signaled a cautious approach to capacity during its latest earnings call.

Moreover, last week Bankrate published its 2025 Summer Travel Survey, which found that less than half of Americans polled—46% to be exact—plan on taking a vacation this summer. That figure is down from 53% who planned a vacation last summer.

Two-thirds of those surveyed said it was the cost that made their decision to stay at home this summer, specifically higher air fares, lodging and dining-out costs.

On the financial front, American Airlines beat Wall Street’s expectations but showed a deterioration in profitability due to increased labor costs and a 3% decline in the total number of miles flown by paying domestic passengers.

A final consideration is the company’s debt load, which can only be described as “massive” and is projected to reach $35 billion in the next two years. With all of these negatives, why then would I place AAL on the catalyst watch list?

Well, for one thing, the company managed to achieve record free cash flow in 2024, driven by strong demand recovery and capacity fine-tuning. And while air travel is projected to decline this year according to the Bankrate survey, other surveys show mixed forecasts.

For instance, according to an AOL.com poll, 74% of Americans plan to take between one and three domestic trips, and between one and three international trips this year, particularly to warm-weather destinations like Mexico and the Caribbean. And in the words of a Focus on Travel News report, Americans are expected to travel “more than ever” in 2025.

And while it’s admittedly anecdotal, I’ve personally seen plenty of evidence among friends, colleagues and other acquaintances that more of them plan to travel in the coming months than since at least before the pandemic. Hence, my suspicion that American Airlines will exceed expectations and likely rally from its currently low share price level at some point in the coming months.

I rate AAL a speculative buy—certainly not a long-term addition to one’s portfolio—but I do see an opportunity for a near-term gain in this stock, especially given the recent increase in short interest.

Next up is Cognyte Software (CGNT), which provides solutions for data processing and analytics worldwide, including network and threat intelligence analytics, decision intelligence analytics and operational intelligence analytics solutions.

The company, which was spun off from Verint Systems in February 2021, also plays a vital role in AI-based investigative analytics to government security agencies, as well as international intelligence activity. It’s regarded as something of an alternative to the far-more famous Palantir Technologies (PLTR), and it does business in more than 100 countries, with many large contracts.

Cognyte’s increasing focus on AI-driven analytics and growing backlog of over $435 million and short-term remaining performance obligations (RPOs) of $325 million underscore its vibrant momentum. More pertinently, it boasts a turnaround in recent quarters in terms of both revenue and profitability, with adjusted EBITDA tripling in fiscal 2025.

In its recently released fiscal Q4 (ended January), the firm boasted revenue of $95 million that increased 13% from a year ago, plus earnings of three cents a share that beat estimates by 200%. It further guided for 12% top-line growth for fiscal 2026 with the bottom line expected to jump by about 170% while adjusted EBITDA grows 4%, providing assurance that the turnaround is sustainable.

Sandisk (SNDK) develops, manufactures, and sells data storage devices and solutions using NAND flash technology in the U.S. and globally. It provides solid state drives for desktop and notebook PCs, gaming consoles and set top boxes, as well as flash-based embedded storage products for mobile phones, tablets, notebook PCs and other portable and wearable devices, automotive and other applications.

The California-based company is a spinoff from Western Digital (WDC), which was completed in February and was led by activist investor Elliott Management.

Western Digital originally purchased Sandisk six years ago for $19 billion, which at the time was viewed as “nothing less than transformative,” according to Elliott, and which helped push Western beyond its hard disk drive (HDD) reputation into one of the biggest players in the flash memory market.

However, none of the anticipated benefits from the merger were realized, prompting Elliott to take action by urging Western Digital to spin off the flash memory business in a call for Sandisk to be the overall shareholder value of Western Digital.

A growing number of analysts believe Sandisk is on the verge of a successful turnaround, with management projecting that Sandisk can generate revenue of $7.5 billion this year, up 13% year-on-year if realized, and possibly reach $10 billion annually within three years. The company also believes it can generate positive free cash flow at a $10 billion per year revenue level.

Wall Street sees earnings of $2.06 a share this year, with EPS forecast to more than double in fiscal 2026. All told, SNDK looks like a solid turnaround story and a worthy addition to the catalyst watch list.

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.

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