May 9, 2025

In today’s note, we discuss pertinent developments for some of the stocks in the portfolio, including Berkshire Hathaway (BRK.B), Intel (INTC), Pan American Silver (PAAS), Sirius XM Holdings (SIRI) and SLB Ltd. (SLB).

Consensus assumptions for the energy sector this year are mostly bearish, but several factors argue in favor of a contrarian bullish view.

Pan American Silver (PAAS) got off to a great start for 2025 and guided for continued strength.

Comments on Portfolio Holdings

Oil prices are down 25% since January, in part due to the effects of the U.S.-China trade war, which has reduced global demand, but also because of recent OPEC+ production increases. Commenting on the supply/demand outlook, oil producer Diamondback Energy (FANG) told investors this week, “It is likely that U.S. onshore oil production has peaked and will begin to decline this quarter.”

That seems to be the conventional wisdom these days as it concerns the oil/gas outlook. But as experience has shown, it’s not so much the supply of petroleum that ultimately determines the price trend, but rather the availability of supply. With supply chain disruptions being a recurring theme in the energy sector in recent years, it’s not hard to envision a scenario in which the supply of oil is disrupted to the point where it puts upward pressure on prices.

One of the leading causes of supply chain bottlenecks worldwide is pipeline attacks, both physically and in terms of cyberattacks. Although such attacks have declined since 2019, they remain a concern and currently average 1.5 per day globally, according to the Pipeline and Hazardous Materials Safety Administration (PHMSA).

Last month, a major crude oil pipeline in Colombia was shut down due to an alleged guerrilla attack, which forced the suspension of oil pumping operations. The National Liberation Army (NLA) was blamed for the attack, which follows a pattern of that group increasing its attacks on oil infrastructure in recent years.

Elsewhere in the delta region of Nigeria known as Rivers State, which is famous for its vast crude oil and natural gas reserves, a state of emergency has been declared after a series of attacks on the critical Trans-Niger Pipeline were carried out by criminal gangs and militants, which halted production and exports. SLB Ltd. (SLB) has significant operations in Rivers State, especially in Port Harcourt. The company maintains multiple facilities in the area, including the Schlumberger Drilling Base (Anadrill) and another facility, which support various oilfield services and corporate management activities.

While SLB hasn’t yet disclosed any specific impacts on its operations from the attacks, it’s worth noting that Nigeria LNG Ltd. has reported that vandalism affected four out of its six processing trains, reducing gas exports by 20%. In view of SLB’s involvement in providing oilfield services to southern Nigeria, it’s assumed the disruptions likely pose operational challenges. More pertinently, however, the disruptions are expected to provide a measure of support for oil and gas prices—especially if they impact critical supply flows—which in turn could put upward pressure on stock prices across the sector.

What’s more, SLB believes it can return to growth in the second half of this year after securing a major offshore contract. The contract was awarded by Australia-based Woodside Energy (WDS) in late March for its ultra-deepwater offshore Trion development project in Mexico. This contract involves drilling 18 ultra-deepwater wells over a three-year period.

Even more recently, SLB was awarded a substantial engineering, procurement, construction and installation contract involving SLB’s OneSubsea joint venture and Subsea7 for BP’s Ginger project in offshore Trinidad and Tobago. The contract enables SLB to deliver four standardized vertical monobore subsea trees and tubing hangers, optimized for speed and efficiency, and is expected to significantly contribute to SLB’s revenue and profits in the coming quarters.

Meanwhile, on the domestic front, and in spite of President Trump’s “drill, baby, drill!” policy, U.S.-based energy producers aren’t expected to increase output this year compared to previous projections. Several factors, including lower oil prices and a slower-than-expected peak in U.S. shale oil production, are contributing to this trend.

It’s also worth mentioning that while crude oil producers are typically net short crude oil futures, they’re currently net short to the lowest extent in several years. This suggests current oil prices are not at levels the big players want to be short at, which could further be interpreted as a sign oil prices are technically “oversold” and therefore vulnerable to a counter-trend rally in the coming months.

All told, the potential is there for oil and gas prices—and related equities—to exceed the currently negative consensus expectations for the balance of this year. SLB maintains a Buy rating in the portfolio.

Shares of Berkshire Hathaway (BRK.B) dipped this week in the wake of Warren Buffett’s retirement announcement. After stepping down, the company plans to replace him with Buffett’s chosen successor, Greg Abel, prompting a number of institutional analysts to weigh in on the company’s future outlook without Buffett as CEO.

CFRA Research analyst Catherine Seifert views Abel as someone “with a solid operational background, but not the investment experience or expertise to replace a renowned investor like Warren Buffett.” She thinks Berkshire could create a chief investment officer (CIO) role, for which Ted Wechsler, one of Buffett’s protégés, would be a good fit.

UBS analyst Brian Meredith doesn’t expect much in the way of operations changes once Buffett steps away as CEO next year, and he has no concerns about who will fill the CIO role. “While it is hard to imagine anyone with the investing talents of Buffett, the structural advantages of ‘permanent capital’ and having the vast array of BRK’s business to gather information to aid investment decisions remain,” he wrote. He also maintained a Buy rating on Berkshire.

Moreover, CFRA’s Seifert thinks Buffett’s absence could result in increased pressure on the company to initiate a dividend as its cash holdings continue to increase, notwithstanding Buffett’s long-standing opposition to a dividend. It should be noted that Buffett maintains 38% control of the company’s A shares, representing a 15% total interest in Berkshire, which in turn could serve as an obstacle to the proposed dividend.

BRKB maintains a Hold rating in our portfolio.

Pan American Silver (PAAS) had a strong start to 2025, as outlined in its Q1 results on Wednesday. The outfit delivered another quarter of solid operating results, highlighted by lower costs and higher metal prices and resulting in a record $251 million of mine operating earnings and $113 million in free cash flow.

Revenue of $773 million increased 29% from a year ago, while earnings of 42 cents a share beat estimates by a whopping 160%. Silver production of five million ounces was unchanged from last year’s Q1, while gold production of 182,000 ounces was down 18%.

In terms of costs, silver segment All-in Sustaining Costs (AISC) per silver ounce was $13.94, down from the year-ago $15.90, while the gold segment AISC per ounce was $1,485 (down from $1,580). The improved operating costs are due to a combination of factors, including planned operational improvements, higher silver production at certain mines and the cessation of active mining at some locations.

Management said the firm is on track to achieve its guidance for 2025, with production levels expected to increase over the coming quarters from a back-end loaded production profile. The CEO said Pan American remains focused on progressing its initiatives, including the optimization study for its Jacobina project, the development of the La Colorada Skarn and the consultation process for the Escobal gold/silver mine in Guatemala.

The company also declared a cash dividend of 10 cents per common share, payable on or about June 2, to holders of record of Pan American’s common shares as of the close of markets on May 20. The current dividend yield is 1.6%.

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

Sirius XM Holdings (SIRI) reported mixed headline results for Q1, including revenue of $2.1 billion in Q1 that declined 4% from a year ago and earnings of 67 cents a share that beat estimates by two cents.

There were some bright spots in the earnings report, including cost reduction initiatives that achieved $30 million in savings, contributing to lower expenses across various categories. The company also reported reduced in-car churn despite a full price rate increase in March, with Sirius noting “increased engagement with additional content offerings.”

The company also announced the launch of a new ad-supported subscription tier, which targets price-conscious listeners in nearly 100 million cars. Testing will begin in the coming months, with pricing expected “in the high single digits.” It was further noted that, “This tier is designed to leverage Sirius XM’s advertising business without cannibalizing its premium tiers.”

Upper management further highlighted the growth of its podcasting revenue, which increased by 33%, driven by strong audience engagement and expanded offerings. The firm sees this segment as a future growth driver, noting that its podcast network clocked close to one billion downloads across audio and video in the first quarter, and it now reaches an audience of 70 million monthly podcast listeners.

Looking ahead, Sirius reaffirmed its 2025 full-year guidance of approximately $8.5 billion in revenue, $2.6 billion in adjusted EBITDA and $1.2 billion in free cash flow. This reflects the company’s continued confidence in its “strong operational execution and cost management…continued operational efficiencies and disciplined strategic investments.”

SIRI maintains a Buy rating in the portfolio.

RATINGS CHANGES: None.

NEW POSITIONS: None.

Friday, May 9, 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).
• The question remains unanswered as to whether or not a re-test of the early April lows will happen.
• Policymakers worldwide have lately emphasized the “tough” times ahead, which suggests caution is in order from an investment standpoint.
• Updates on several portfolio holdings, including the latest developments in the oil patch and mining sector.
• Final note
  
  • The top brass at Hugo Boss (BOSSY) cautioned that consumer sentiment remains weak while volatility is still a concern for retailers.

Market Outlook

If there’s one word that can be used to describe this year’s economic and financial market backdrop, it’s the word “tough.” That’s not so much my opinion as it is the assessment of several policymakers and CEOs. It’s the word that keeps cropping up in speech after speech by some of the world’s premier leaders.

In the last few months there have been several ominous warnings made by public figures that “tough times” lie ahead for Americans, starting with last October’s speech given by Elon Musk while campaigning for Donald Trump, in which he warned voters to prepare for economic “hardship” in anticipation of the deep spending cuts the Trump administration was proposing.

Then came this year’s acceleration of the global trade war, with Trump urging Americans to “hang tough” while warning them “it won’t be easy,” a reference to the economic impacts of the trade war.

In a speech by Canada’s outgoing Prime Minister Justin Trudeau in March, he warned his fellow Canadians that the trade war is “going to be tough,” further cautioning, “Together we will go through some tough times [emphasis mine].”

This was followed by a speech by the incoming Prime Minister, Mark Carney, who told Canadians that “these are dark days brought on by a country [the United States] we can no longer trust,” adding that, “We need to pull together in the tough days ahead.”

Meanwhile, on the corporate front, the top brass at luxury fashion brand Hugo Boss (BOSSY), in the firm’s latest quarterly results this week, flagged the “tough” economic backdrop it and other retailers face, noting that “volatility remains high and continues to weigh on consumer sentiment.”

These are just a few of the notable instances where the recurring mantra “tough” has cropped up. Granted that policymakers aren’t always renowned for their prognosticative abilities, but it’s uncommon for them to emphasize hard times; indeed, they much prefer focusing on the positive outlook. But when they draw attention to the negative, it typically serves as a warning for what they see as the inevitable consequences of current policies.

For our purposes as investors, this should serve as a reminder of not only the continued threat the tariff war could pose to the economy and asset markets, but also to stay vigilant and not fall victim to complacency during market rallies. For while the latest rally could potentially be the early stages of a new bull market, it could just as easily be a temporary reprieve within a larger bearish trend.

On a related note, in a recent missive, market analyst Tom McClellan pointed out that the huge spike in new 52-week lows on the NYSE during last month’s market bottom was something of an anomaly. For while the number of new lows was sufficient, from a historical perspective, to confirm that a suitable low was in place for the major indexes, that spike coincided with the market’s price low instead of preceding it.

“Usually,” wrote McClellan, “the highest reading for NYSE new lows occurs several days ahead of the final price low. So, that is a missing component thus far for this current price decline. It casts some doubt on the presumption that ‘the bottom is in’.”

I agree with him that it’s still premature to conclude the final low is in place, especially since we haven’t yet seen what I regard as a legitimate re-test of the April price low in the S&P. More evidence is needed before that determination can be made.

However, on a short-term basis I still see the weight of evidence being in the bulls’ favor, notably in terms of continued cryptocurrency market strength (a sign that risk appetite is growing), and also by the fact that new NYSE 52-week lows remain at normal levels (a sign that internal selling pressure isn’t a problem right now).

Meanwhile, market volatility as measured by the VIX is a bit too high for my liking (currently at the “line in the sand” 25 level), so I recommend that we hold off on doing any aggressive new buying until volatility subsides further.

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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