Please ensure Javascript is enabled for purposes of website accessibility
Turnaround Letter
Out-of-Favor Stocks with Real Value

September 29, 2023

There were no earnings this past week, but earnings season is just around the corner. The beleaguered Walgreens Boots Alliance (WBA), without a permanent CEO, kicks off our season with its Thursday, October 12 report, followed the next day by Wells Fargo (WFC) and Citigroup (C).

Download PDF

There were no earnings this past week, but earnings season is just around the corner. The beleaguered Walgreens Boots Alliance (WBA), without a permanent CEO, kicks off our season with its Thursday, October 12 report, followed the next day by Wells Fargo (WFC) and Citigroup (C).

Today’s note includes the monthly Catalyst Report and a summary of the October edition of the Cabot Turnaround Letter, which was published on Wednesday. We encourage you to look through the Catalyst Report. This report is a listing of all of the companies that have reported a catalyst in the past month. These catalysts include new CEOs, activist activity, spin-offs and other possible game changers. We source many of our feature recommendations from this list. You will find it nowhere else on Wall Street.

In this month’s Cabot Turnaround Letter: With a broad range of headwinds facing consumers and retailers, everyone “knows” that apparel retailers are probably doomed. But as Mark Twain is reported to have said, “It ain’t what you don’t know that gets you in trouble, it’s what you know for sure that just ain’t so.” With that thought in mind, we found five out-of-favor stocks of apparel retailers that have enduring customer franchises or are undertaking turnarounds backed by new leadership and strong balance sheets. These include The Buckle (BKE), Chico’s FAS (CHS), Foot Locker (FL), Gap (GPS) and Zumiez (ZUMZ). We weren’t too far off the mark on at least one name, as the day after we published the article, Chico’s reached a deal to be acquired at a 64% premium.

We also comment on the Dow Jones Industrial Average and explore whether a Dogs of the Dow strategy currently makes sense. While the S&P 500 Index gets all of the media attention, with its healthy +13% year-to-date performance, the Dow has returned only +4.1%. We explore why this is so: different member names and different member weights. This structure makes the Dow more representative of the broad market.

So, if the typical large-cap stock has had lackluster returns, is there a contrarian strategy in buying the laggards of the Dow, using a “Dogs of the Dow” strategy? We see little current appeal, with one exception, in this approach. We discuss the five worst Dow stocks year-to-date, including Nike (NKE), 3M Company (MMM), Verizon (VZ) and Honeywell (HON). The only bottom-five stock where we find interesting value is in our Buy-rated Walgreens Boots Alliance (WBA). For the most appealing turnaround stocks, we are finding considerably more value outside of the largest companies. This month’s Buy recommendation highlights one of these opportunities.

Our Buy recommendation this month is Ammo, Inc. (AMMO), a producer of rifle and pistol ammunition for sport, law enforcement and military uses (about 60% of revenues). The company also owns, the world’s largest online marketplace where third parties sell firearms and accessories, which generates about 40% of revenues. The company was founded in 2016 by a now 82-year-old entrepreneur who is an old-school “American success story.” A post-pandemic fall-off in demand and rising costs have weighed on results, helping drive the shares down 80%.

While Ammo, Inc. may appear to be a purely cyclical company undergoing threatening external challenges, the reality may be very different. We see a young organization working aggressively to become an established, well-run, profitable and shareholder-friendly company. The aging founder, chairman and 6% shareholder handed over the reins to a capable new CEO, Jared Smith, earlier this year. Under Smith, Ammo is shifting the ammunition segment toward higher margin products, upgrading the operations and bringing professional management processes and accountability to the entire company while emphasizing shareholder value. These changes should go a long way toward boosting financial results, reducing risks and improving investor confidence.

Ammo is a legal liability rich business given its focus on guns and ammunition. One critical and favorable component to the story is that has long-operated in a highly compliant manner and appears to be well-designed to limit the risks involved with gun and ammunition sales. One example is that it uses only federally licensed firearms dealers (those that hold a Federal Firearms License, or FFL) as transfer agents. essentially arranges a sale online, takes a small fee, then has the products shipped directly to the licensed agent.

The company also faces a lawsuit by a major shareholder, but we see the claims as meritless even though the defense costs could be significant.

Ammo is committed to maintaining a sturdy balance sheet that will provide a solid financial foundation for its turnaround. Currently, the company holds $48 million in cash against $11 million in debt. Its inventory and other working capital items appear to be in good shape.

Ammo shares trade at a very reasonable 7.8x estimated fiscal 2024 EBITDA. This multiple, however, may meaningfully undervalue the segment. This segment could readily be worth at least 2x sales (a conservative multiple compared to peers), or nearly $360 million. Based on this value, Ammo would be worth $3.40/share as-is, even if the ammunition segment had zero value. Given the broad organizational upgrade underway, and a world that seems likely to need ever-higher volumes of ammunition, Ammo, Inc shares look highly appealing. We have set our price target at $3.50/share.

Friday, Sept 29, 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 12 minutes and covers:

  • Summary of monthly Cabot Turnaround Letter
  • Comments on recommended companies
    • Advance Auto Parts (AAP) – Insider buying by acting board chair.
    • Xerox Holdings (XRX) – Repurchases 22% of shares outstanding by buying Carl Icahn’s remaining stake.
    • Goodyear Tire (GT) – Cutting back its Asia Pacific operations.
    • Ammo, Inc. (POWW) – New state excise tax on guns and ammo sales in California.
  • Elsewhere in the market
    • Is Blackrock (BLK) a future turnaround stock?
  • Final note
    • More on the Chicago Cubs, The Ohio State Buckeyes, Notre Dame and this week’s “revenge games.”

Please know that I personally own shares of all Cabot Turnaround Letter recommended stocks, including the stocks mentioned in this note.

The Catalyst Report

September was a relatively quiet month for catalysts. Deal activity was quiet, with the notable exception of the go-private deal for Chico’s FAS (CHS), gaining 63%, after we highlighted this underappreciated retailer in the latest edition of the Cabot Turnaround Letter.

New CEO activity was robust, perhaps as companies look to make a better transition to the post-pandemic, higher interest rate environment in an effort to boost their shares.

The Catalyst Report is a proprietary monthly report that is unique on Wall Street. It is an extensive listing of companies that have experienced a recent strategic event, such as new leadership, a spin-off transaction, interest from an activist investor, emergence from bankruptcy, and others. An effective catalyst can jump-start a struggling company toward a more prosperous future.

This list is intended to be comprehensive. While not all catalysts are meaningful, some can bring much-needed positive changes to out-of-favor companies.

One highly effective way to use this tool is to pair the names with weak stocks. Combining these two traits can generate a short list of high-potential turnaround investment candidates. The spreadsheet indicates these companies with an asterisk (*), some of which are highlighted below. Market caps reflect current market prices.

You can access our Catalyst Report here.

The following catalyst-driven stocks look interesting:


Inspirato (ISPO) $115 million market cap – This tiny company is a premier subscription travel company that has struggled in the past few years. However, a rare change is underway: The founder/CEO is stepping aside in recognition that he is not the right person to right the ship. Taking his seat is the former Expedia president and the founder/CEO of Hotwire. This capable outsider, who is focusing on cost control, asset utilization and new revenues streams, could be the ticket to a turnaround.



Wheels Up Experience (UP) $374 million market cap – This company provides on-demand private jet service at an all-inclusive hourly rate. A few traits make this stock interesting. Delta Airlines is the largest shareholder with a 39% stake. The new CEO is a Delta board member and a former Goldman Sachs banker who focused on the transportation/airlines industries. And, Wheels Up has 12,000 members/customers that are connected to 1,500 high-quality jets, so it is no lightweight in the industry.


Oatley Group AB (OTLY) Logo

Pearson plc (PSO) $7.5 billion market cap – CEO Andy Bird lasted only four years as shareholders rebelled – ostensibly over his pay but more likely over the company’s mediocre performance and emerging AI risk. The new chief is the president of Microsoft’s Industrial Solutions group and a former executive at Accenture. His impressive experience could make this well-known but laggard company more relevant, perhaps more like RELX, the former Reed Elsevier that has become a powerhouse.

Market CapRecommendationSymbolRec. IssuePrice at Rec.9/28/23Current YieldRating and Price Target
Small capGannett CompanyGCIAug 20179.22 2.42 - Buy (9)
Small capDuluth HoldingsDLTHFeb 20208.68 5.87 - Buy (20)
Small capDril-QuipDRQMay 202128.28 28.88 - Buy (44)
Small capL.B. FosterFSTRJul 202313.60 19.07 - Buy (44)
Small capKopin CorpKOPNAug 20232.03 1.21 - Suspended
Small capAmmo, Inc.POWWOct 20231.99 2.00 - Buy (3.50)
Mid capMattelMATMay 201528.43 22.12 - Buy (38)
Mid capAdient plcADNTOct 201839.77 36.74 - Buy (55)
Mid capXerox HoldingsXRXDec 202021.91 16.016.2%Buy (33)
Mid capViatrisVTRSFeb 202117.43 9.814.9%Buy (26)
Mid capTreeHouse FoodsTHSOct 202139.43 43.68 - Buy (60)
Mid capKaman CorporationKAMNNov 202137.41 19.564.1%Buy (57)
Mid capThe Western Union Co.WUDec 202116.40 13.457.0%Buy (25)
Mid capBrookfield ReBNREJan 202261.32 32.091.7%Buy (93)
Mid capPolarisPIIFeb 2022105.78 104.02 - Buy (160)
Mid capGoodyear Tire & RubberGTMar 202216.01 12.17 - Buy (24.50)
Mid capJanus Henderson GroupJHGJun 202227.17 25.546.1%Buy (67)
Mid capSix Flags EntertainmentSIXDec 202222.60 23.88 - Buy (35)
Mid capKohl’s CorporationKSSMar 202332.43 20.1010.0%Buy (50)
Mid capFrontier Group HoldingsULCCApr 20239.49 4.83 - Buy (15)
Mid capAdvance Auto PartsAAPSep 202364.08 55.077.3%Buy (98)
Large capGeneral ElectricGEJul 2007304.96 112.340.3%Buy (160)
Large capNokia CorporationNOKMar 20158.02 3.722.5%Buy (12)
Large capMacy’sMJul 201633.61 11.445.8%Buy (25)
Large capNewell BrandsNWLJun 201824.78 8.703.2%Buy (39)
Large capVodafone Group plcVODDec 201821.24 9.5510.7%Buy (32)
Large capBerkshire HathawayBRK.BApr 2020183.18 357.06 - HOLD
Large capWells Fargo & CompanyWFCJun 202027.22 40.913.4%Buy (64)
Large capWestern Digital CorporationWDCOct 202038.47 45.80 - Buy (78)
Large capElanco Animal HealthELANApr 202127.85 11.19 - Buy (44)
Large capWalgreens Boots AllianceWBAAug 202146.53 20.909.1%Buy (70)
Large capVolkswagen AGVWAGYAug 202219.76 13.037.1%Buy (70)
Large capWarner Bros DiscoveryWBDSep 202213.13 10.69 - Buy (20)
Large capCapital One FinancialCOFNov 202296.25 97.012.5%Buy (150)
Large capBayer AGBAYRYFeb 202315.41 11.944.5%Buy (24)
Large capTyson FoodsTSNJun 202352.01 49.933.8%Buy (78)

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.