Today’s note includes earnings updates, ratings changes, the podcast and the Catalyst Report. We publish the Catalyst Report on the Friday after each monthly issue of the Cabot Turnaround Letter.
Earnings Updates
No recommended companies reported earnings this week. The next earnings report is Lamb Weston Holdings (LW), on April 7, which kicks off the first quarter earnings season.
Ratings Changes
We are raising our price target on Mohawk Industries (MHK) from 180 to 220. The company is delivering on the fundamental improvements that we anticipated when we recommended the shares in March 2019. We had reduced the target price during the pandemic, but now return it to its original 220, as Mohawk looks to have side-stepped the downturn.
Thursday, April 1, 2021 Subscribers-Only Podcast
Covering recent news and analysis for our portfolio companies and other topics relevant to value investors.
Today’s podcast is about 13½ minutes and covers:
- Brief updates on:
- Western Digital (WDC) – reported to be in talk to acquire chip maker Kioxia.
- Toshiba (TOSYY) – would benefit from the sale of Kioxia. Will management distribute the cash or make an unwise acquisition?
- MolsonCoors (TAP) – turnaround pushed out due to ongoing lockdowns in Europe.
- General Motors (GM) – fire at Japanese chip maker worse than first reported.
- Credit Suisse (CS) – another hit probably means CEO is gone, with higher chance that incoming chairman gets the CEO job. This would be a major positive.
- Elsewhere in the Market:
- Total return swaps – what are they, how are they used, are they inherently bad?
- Funding options and effects of large and permanent fiscal budget deficits.
- Final note:
- Cabot Turnaround Letter published yesterday – we briefly describe the articles and ideas.
Please feel free to share your ideas and suggestions for the podcast with an email to either me at bruce@cabotwealth.com or to our friendly customer support team at support@cabotwealth.com. Due to the time limit we may not be able to cover every topic each week, but we will work to cover as much as possible or respond by email.
Catalyst Report
March saw more large acquisitions and many CEO changes. New spin-off activity has been limited. Activists have ramped up their campaigns in advance of proxy season. With the worst of the pandemic (hopefully) in the rear-view mirror, companies and shareholders are working to adjust to the new economic and capital markets environment. This will make 2021 a busy year for catalysts.
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.
Elanco Animal Health (ELAN) $13.9 billion market cap – Activists are increasingly pressuring this laggard spin-off to improve its revenue growth and profit margins. This stock is the Cabot Turnaround Letter’s featured Buy recommendation this month.
Blucora (BCOR) $803 million market cap – Blucora has two businesses –Avantax (wealth management) and TaxAct (tax preparation software). An activist investor, Ancora, is pressuring for the removal of the CEO, a refresh of the board and a break-up of the company. See their 73-page slide deck for details.
Berkshire Hills Bancorp (BHLB) $1.1 billion market cap – Previously self-described as “America’s Most Exciting Bank,” Berkshire predictably collapsed under its controversial leadership and strategy. Now under new leadership and pressured by an activist investor, the bank appears to be getting its act somewhat together. The shares have responded but this one still is worth a closer look.
McAfee (MCFE) $9.8 billion market cap – Following its October 2020 IPO at $20, this company is moving quickly by shedding its enterprise operations for $4 billion. The stock has moved but still looks considerably undervalued if it can prove that its revenues are stable. Peer Norton Lifelock also has similar appealing traits.