May 30, 2025

In today’s note, we discuss pertinent developments for some of the stocks in the portfolio, including Centuri Holdings (CTRI), GE Aerospace (GE), Intel (INTC) and Paramount Global (PARA).

GE Aerospace (GE) stands to benefit from the recent legal challenge to the White House’s tariffs.

Paramount Global (PARA) had a huge box office take during the critical start to this summer’s movie season.

Comments on Portfolio Holdings

On Tuesday, Centuri Holdings (CTRI) announced $350M in new customer awards. The awards span the U.S. and include work supporting electric and gas infrastructure modernization, water relocation, utility distribution and renewables.

The awards encompass new customer work, along with significant expansion of contracts previously awarded.

Moreover, the scopes include 1.) a water relocation project in the Midwest, 2.) two distinct awards for an electric utility customer in the Northeast, 3.) a program of work for one of the largest utilities in the Southwest focused on metro excavation, 4.) core gas distribution services, and 5.) an award for complex infrastructure installations.

The latest announcement complements the previously announced $400 million in master service agreement renewals shared on April 24.

CTRI maintains a Hold rating in the portfolio.

On Wednesday, GE Aerospace (GE) CEO Larry Culp said the firm is seeing signs of easing supply chain constraints and should be able to increase deliveries of jet engines for narrowbody aircraft by up to 20% this year, following previous disruptions that slowed production in 2024.

At an investment conference sponsored by Bernstein, Culp highlighted his company’s commitment to closely align with Boeing (BA) as the aircraft manufacturer ramps up production of its 737 Max with a goal of a monthly output of 38 of the narrowbody planes or higher later this year. (GE Aerospace supplies the engines for the 737 Max.)

Culp also said GE Aerospace expected to take a financial hit of more than $500 million as a result of tariffs linked to ongoing trade tensions driven by U.S. policy actions. However, the company maintained its 2025 earnings outlook and is implementing cost controls and price adjustments to mitigate the impact.

More recently, the revocation of some of those tariffs by a federal court on May 28 will likely enhance the outlook for GE Aerospace, which should benefit from reduced import costs and improved supply chain efficiency.

GE maintains a Hold rating in the portfolio.

Deutsche Bank has resumed coverage on Intel (INTC), telling investors in a recent analyst note that patience is “still required.”

According to Deutsche Bank analyst Ross Seymore, while the appointment of new CEO Lip-Bu Tan and his plan to turn the company around has lifted investor confidence, achieving his objectives will likely take time. He has a Hold rating and 23 price target on Intel.

While he said the current macro environment, plus company-specific issues like higher manufacturing costs, are likely to weigh on the firm’s top and bottom lines in the near term, the successful turnaround of its foundry business remains a key catalyst for its longer-term recovery.

INTC maintains a Buy rating in the portfolio.

After negotiations over the past month, Paramount Global (PARA) has offered $15 million to settle U.S. President Donald Trump’s lawsuit against CBS News, but the parties remain far apart on terms, The Wall Street Journal reported on Wednesday.

Trump’s team is reportedly asking for more than $25 million and is also seeking an apology from CBS News. It has further threatened CBS with an additional lawsuit related to alleged bias of its news coverage, according to WSJ.

WSJ further said Paramount plans to nominate three new directors to its board in the coming weeks, bringing the total to seven. A current director also plans to step down, as the company wants to make sure it has a full board in the event the deal falls through, per the report.

Meanwhile, Paramount’s Mission: Impossible—The Final Reckoning landed in second place for the traditional Memorial Day weekend start to the summer movie season. The final installment of the Tom Cruise-led thriller pulled in $63 million in its debut, with a solid per-theater average of $16,334 from 3,857 locations.

PARA remains a Hold in the portfolio.

RATINGS CHANGES: None.

NEW POSITIONS: We added Goodyear Tire & Rubber (GT) to the portfolio this week with an upside target of 15 a share. BUY

I’m adding Solventum Corp. (SOLV) to the portfolio as of Friday, with an upside target of 85 a share. BUY

Friday, May 30, 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 11 minutes and covers:

• This year’s potentially biggest catalyst to date for the broad market was announced on Wednesday, viz. the legal ruling on Trump’s tariffs.
• The healthcare sector should benefit from recent technical developments.
• This month’s Catalyst Report highlights some rebound opportunities in the biopharma and medical device spaces.
• Final note
  
  • Goodyear Tire & Rubber (GT) is this month’s featured stock in the monthly newsletter.

Market Outlook

The stock market received arguably its biggest catalyst of the year on Wednesday on the tariff front. A federal court ruled that the White House’s tariffs are illegal and that the president did not have the authority to impose tariffs, which must typically be approved by Congress, based on the legislation cited.

The ruling from the New York-based court of international trade came after several lawsuits argued that Trump had no legal basis for the tariffs, which he based on the 1977 International Emergency Economic Powers Act (IEEPA). The court ruled that:

“The Worldwide and Retaliatory Tariff Orders exceed any authority granted to the President by IEEPA to regulate importation by means of tariffs…That use is impermissible not because it is unwise or ineffective, but because [federal law] does not allow it.”

The news brought massive relief to financial markets, resulting in a strengthening U.S. dollar index and an overnight rally across equity markets worldwide. More importantly, the ruling removes an immense amount of uncertainty from the market, which has served as an obstacle for the bulls for much of this year.

However, it should be noted that the court’s ruling doesn’t remove other Trump tariffs, including the ones on foreign steel, aluminum and auto parts, since those levies were invoked under a different law that required a Commerce Department investigation. Many analysts believe that these industry-specific measures might still be used in future trade talks with foreign trading partners.

And with new tariff classifications possibly tied to specific industries like copper and pharmaceuticals, analysts expect the administration to shift its strategy rather than abandon tariffs entirely, as noted by economist Ed Yardeni in a CNBC interview.

Moreover, according to an ABC News report, companies worldwide will likely have to “reassess the way they run their supply chains, perhaps speeding up shipments to the United States to offset the risk that the tariffs will be reinstated on appeal.”

On Thursday, a second federal court also found Trump’s tariffs to be improper. However, later that day a federal appeals court said the government can continue to collect the tariffs under the emergency powers law for now while the appeals process is underway, effectively reversing Wednesday’s court decision. (The Trump administration is expected to take the case to the Supreme Court if it loses the appeal. It must be noted, however, that the government could be obligated to refund the money if the ruling is upheld.)

Elsewhere on the equity market front, we discussed last week the potential for a potentially significant rebound in the beaten-down healthcare stocks. I pointed out that market statistician Jason Goepfert noted in a recent X post that the Health Care Select Sector SPDR ETF (XLV) closed positive last Thursday after falling to a 52-week low for only the fifth time in its history.

He further pointed out that whenever this development occurred in the past, it was followed by strong gains in the healthcare sector stocks, with a rally for XLV on a one-, two-, three- and six-month basis occurring a remarkable 100% of the time.

While there still remains a degree of uncertainty surrounding the overall tariff outlook as it pertains to the U.S. healthcare sector (which makes up 17% of the total U.S. economy), the court ruling against Trump’s tariffs has the potential to benefit the sector by reducing costs, stabilizing supply chains and preventing further price increases and shortages (chiefly of medical goods and pharmaceuticals).

So, with this in mind, I think it’s appropriate that we dedicate this month’s catalyst report to potential rebounds within that sector, particularly in the biotech space.

Catalyst Report

Tourmaline Bio (TRML) is a late-stage clinical biotech firm focused on developing medicines for life-altering immune and inflammatory diseases. Specifically, the company concentrates on developing treatments for ailments like thyroid eye disease, atherosclerotic cardiovascular disease (ASCVD), chronic kidney disease and abdominal aortic aneurysm.

While it hasn’t experienced a significant financial deterioration necessitating a turnaround in the traditional sense, the company, which went public via a reverse merger with Talaris Therapeutics in 2021, is down 90% from its lifetime high of 200 and has been out of favor with the investing public for years.

The New York-based outfit is currently developing a portfolio of medicines which include pacibekitug, also known as TOUR006, a long-acting, monoclonal antibody that targets a key inflammatory molecule known as IL-6. The drug is being developed for the treatment of autoimmune and cardiovascular inflammatory diseases, particularly thyroid eye disease and ASCVD.

In a recent Phase II Tranquility study for establishing proof-of-concept for IL-6 inhibition, pacibekitug showed a statistically significant reduction in chronic kidney disease patients of a key biomarker of systemic inflammation versus a placebo. The encouraging data supports advancing pacibekitug to a Phase III cardiovascular trial for ASCVD, pending a regulatory approval meeting later this year.

Biotech analysts see this as a potentially major catalyst for the stock, as an approval from the FDA would mean the pivotal Phase III trial can begin.

Additionally, a parallel program is being advanced with the development of pacibekitug that would target abdominal aortic aneurysm (AAA), which is regarded as an unmet medical need. A Phase II trial using this drug to treat AAA patients is also expected in the second half of this year.

Tourmaline has no revenue yet, but in Q1, the firm reported cash and investments of $275 million, which it expects will provide a cash runway into the second half of 2027 for its drug development goals.

Next up is Incyte (INCY), a commercial-stage biopharma focused on finding solutions for cancer and skin disease patients.

Its drug portfolio includes the blood cancer treatments, Pemazyre and Jakafi (its best seller), the autoimmune disease drug, Olumiant, the lymphoma drug, Monjuvi and the dermatitis drug, Opzelura.

Incyte only partially fits into the category of a turnaround, but really is more of a potential strategic reacceleration story. It has faced earnings shortfalls and clinical trial disappointments; after a bullish performance during the first year of the pandemic, the stock fell out of favor due to several factors, including pipeline setbacks, competition from established drugs and profitability concerns. Disappointing results from clinical trials, especially for key drugs like Povorcitinib, further weighed on investor sentiment, with Wall Street currently having mixed feelings about where the stock is headed, and with an average “Hold” rating.

But after establishing a double-bottom last year at 50, the stock has shown more resilience in recent months and appears to be on the cusp of a sustainable recovery. Incyte reported strong revenue of just over $1 billion in Q1, up 19% year-over-year and exceeding estimates.

It also has a pipeline of potential new drugs, including four product launches expected for this year, which analysts believe could lead to significant incremental revenue growth. What’s more, recent FDA approvals, such as the Retifanlimab combo for squamous cell anal carcinoma (SCAC), could accelerate Incyte’s sales and market share.

The company enjoys a strong cash position at $2.4 billion as of Q1, which not only allows it to self-fund research and development, but also potential M&A (keys to a successful rebound).

Of particular significance, recent trials for the drug Povorcitinib to treat patients with the chronic skin condition, acne inversa, met their respective primary endpoints. This qualifies the drug for potential regulatory approval with regulatory authorities around the world, which in turn is a major potential catalyst for the stock in the months ahead.

Falling more in the traditional turnaround category is 3M spinoff Solventum (SOLV). This is a name familiar to subscribers, as we previously held a profitable position in this stock last year.

The company has undergone considerable restructuring to address many of the challenges inherited from its parent company, including flat sales growth, high debt levels and operational inefficiencies. To address these problems, Solventum has initiated several strategic actions aimed at revitalizing the business.

Among these moves was the recent sale of its Purification and Filtration business to Thermo Fisher Scientific for $4.1 billion, with proceeds used to pay down debt. Additionally, activist investor Nelson Peltz’s Trian Fund Management, which currently holds a 4% stake in Solventum, has been pushing for additional streamlining, including the potential separation of the dental and software divisions to focus on the core MedSurg unit (56% of sales).

In Q1, Solventum reported solid revenue growth across the business, as well as progress on its three-phased transformation plan. During the quarter, the firm introduced its newly defined long-term strategic plan, outlined through 2028, which focuses on driving organic sales growth, expanding operating margins and generating strong earnings per share growth.

Specifically, the company aims to achieve 4% to 5% organic sales growth, expand operating margins to 23% to 25%, generate a 10% compound annual growth rate for EPS and drive free cash flow conversion above 80%.

I see Solventum as eventually succeeding in its longer-term turnaround plan after the Purification and Filtration business has been fully divested. With at least some of the tariff uncertainties having been lifted, I’m placing SOLV back on a Buy as of today.

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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