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Turnaround Letter
Out-of-Favor Stocks with Real Value

December 3, 2021

This past Wednesday we published the December edition of the Cabot Turnaround Letter. Our first article, “Year-end Selling: Turning Other’s Losses into Gains,” describes three reasons why many investors, including highly experienced professional managers, tend to sell weak stocks toward year end without regard to price or value – and how this can produce quick profits for nimble investors. We include six stocks that look well-positioned to bounce.


This past Wednesday we published the December edition of the Cabot Turnaround Letter. Our first article, “Year-end Selling: Turning Other’s Losses into Gains,” describes three reasons why many investors, including highly experienced professional managers, tend to sell weak stocks toward year end without regard to price or value – and how this can produce quick profits for nimble investors. We include six stocks that look well-positioned to bounce.

Like-minded investment professionals can be an excellent source of good ideas. Our second article includes four worthwhile contrarian ideas that we found by combing through 13F filings, which all sizeable investment managers are required by regulators to file after every quarter end.

Our featured BUY is The Western Union Company (WU). This widely recognized money transfer company is facing secular headwinds from the transition to digital money. Most investors dismiss the company out-of-hand for this reason alone. Worse, prior efforts to diversify away from the core retail business using the company’s sizeable cash flows were unsuccessful. However, the retirement of the long-time CEO, and his replacement by an impressive executive with deep fintech experience, brings the real possibility of a meaningful improvement in both execution and strategy as Western Union makes its transition to the digital world. Investors have aggressively sold WU shares, ignoring the company’s relatively stable revenues, sizeable free cash flow and valuable intangible assets as well as its generous 5.7% dividend yield.

This week’s Friday Update includes our comments on earnings from Duluth Holdings (DLTH). We had no price target or ratings changes this week.

Earnings updates:
Duluth Holdings (DLTH)This retailer of rugged workwear and outdoor gear struggled with a disjointed and overly aggressive store expansion strategy. Duluth ousted the CEO in September 2019, brought the founder back to the CEO seat on an interim basis, terminated the failed strategy, and hired a new, permanent CEO in May 2021. The company has immense opportunities – its challenge is to strike a successful balance between pursuit and execution.

Duluth reported strong third-quarter results, with earnings sharply higher than estimates, and raised their full-year earnings guidance. Combined with a cleaner balance sheet, Duluth looks strong headed into the holidays. The shares jumped 18% yesterday.

The company is navigating the supply-chain crisis relatively well, and said they are well-positioned for the holiday season. Revenues were decent, up 7% from a year ago and +21% from two years ago. The real surprise was from earnings: gross profits grew 18% from a year ago, as Duluth was able to sell more merchandise at full price, as its inventories were fresher/leaner. Part of the higher gross profit was offset by higher personnel and advertising costs, but enough passed through to increase EBITDA by 15%.

The two-year sales comparison was mixed: store sales rose 3% but the company now has perhaps 16% more stores, suggesting same-store sales fell. The company doesn’t report this metric. However, online sales growth was impressive (+38%) suggesting that consumers are becoming more aware of the brand.

In the quarter, net income of $0.09/share compared to $0.03 a year ago and the ($0.19) consensus. Adjusted EBITDA of $13 million rose 15% from a year ago and compared to a break-even consensus.

Duluth kept its full-year revenue guidance but raised its full year EBITDA guidance by 4% and full year EPS guidance by 14%.

Duluth has zero long-term debt other than its financial (as opposed to operating) lease liabilities and a non-recourse property note that sits on its balance sheet.

Friday, December 3, 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:
    • This month’s Cabot Turnaround Letter
    • The Catalyst Report
    • Duluth Holdings (DLTH) – Reports strong third-quarter earnings.

  • Updates on other recommended stocks:
    • KraftHeinz (KHC) – completes the $3.2 billion sale of its cheese business.
    • Elanco Animal Health (ELAN) – news of major restructuring is encouraging.
    • Mattel (MAT) – reaffirms their full-year earnings guidance.
    • GCP Applied Technologies (GCP) – rumor of a takeover lifts shares.
    • Marathon Oil (MRO) – hanging onto our oil and gas stocks.
    • Dril-Quip (DRQ) – deep value in cash-laden, debt-free company.
    • Macy’s (M) – More value than price implies.

  • Elsewhere in the market:
    • More on the distortion field at year end.

  • Final note:
    • Michigan beats Ohio State and why we don’t like to “talk our book.”

Catalyst Report
November was a busy month for catalysts, with many new CEO announcements as well as strong deal and spin-off activity. After a raging bull market and complications from Covid, supply chains and other execution minefields, boards of companies with laggard stocks are feeling more pressure to make changes. And, veteran CEOs may be feeling the urge to cash out at the top of an overpriced market.

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 jumpstart 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:


Kyndryl Holdings (KD) $3.5 billion market cap – Investors have aggressively sold this recent IBM spin-off. Clearly Kyndryl has major challenges, but with the shares nearly 40% below their debut price, this is an emerging contrarian idea.


Novartis AG (NVS) $194 billion market cap – The relatively new CEO (Vasant “Vas” Narasimhan, February 2018) is becoming more aggressive in reshaping this lumbering giant. Novartis is offloading its 6% stake in Roche.


Leggett & Platt (LEG) $5.4 billion market cap – Shares of this old-school mid-cap conglomerate have gone nowhere in seven years. Perhaps their mix of mattresses, hydraulic cylinders, car seat components, specialty aerospace components and recliner couch systems isn’t working quite as well as the board believes? The new CEO is a company veteran, so change isn’t likely, but activist investors may want to sharpen their pencils on this one.


Wynn Resorts (WYNN) $9.4 billion market cap – Its resorts continue to feel the pressure from Covid, exacerbated by tighter controls by the Chinese government on gaming at its Macao operations. But, the new CEO, who formerly headed Wynn’s sports and online gaming initiatives, and has prior industry and Goldman Sachs experience, may bring new vigor to the company and its washed-out shares.

Market CapRecommendationSymbolRec.
Price at
Price on 12/2/2021Current
Small capGannett CompanyGCIAug 20179.225.040.0%Buy (9)
Small capDuluth HoldingsDLTHFeb 20208.6816.090.0%Buy (20)
Small capDril-QuipDRQMay 202128.2819.110.0%Buy (44)
Mid capMattelMATMay 201528.4321.520.0%Buy (38)
Mid capConduentCNDTFeb 201714.965.220.0%Buy (9)
Mid capAdient plcADNTOct 201839.7744.540.0%Buy (55)
Mid capLamb Weston HoldingsLWMay 202061.3653.061.8%Buy (85)
Mid capGCP Applied TechnologiesGCPJul 202017.9627.390.0%Buy (28)
Mid capXerox HoldingsXRXDec 202021.9119.905.0%Buy (33)
Mid capIronwood PharmaceuticalsIRWDJan 202112.0211.110.0%Buy (19)
Mid capViatrisVTRSFeb 202117.4312.203.6%Buy (26)
Mid capVistra CorporationVSTJun 202116.6820.962.9%Buy (25)
Mid capOrganon & Co.OGNJul 202130.1929.673.8%Buy (46)
Mid capMarathon OilMROSep 202112.0115.581.5%Buy (18)
Mid capTreeHouse FoodsTHSOct 202139.4338.900.0%Buy (60)
Mid capKaman CorporationKAMNNov 202137.4139.842.0%Buy (57)
Mid capThe Western Union Co.WUDec 202116.4017.155.5%Buy (25)
Large capGeneral ElectricGEJul 2007304.9695.230.3%Buy (160)
Large capRoyal Dutch Shell plcRDS.BJan 201569.9543.774.4%Buy (53)
Large capNokia CorporationNOKMar 20158.025.740.0%Buy (12)
Large capMacy’sMJul 201633.6127.702.2%HOLD
Large capCredit Suisse Group AGCSJun 201714.489.722.7%Buy (24)
Large capToshiba CorporationTOSYYNov 201714.4920.413.1%Buy (28)
Large capHolcim Ltd.HCMLYApr 201810.929.654.6%Buy (16)
Large capNewell BrandsNWLJun 201824.7821.604.3%Buy (39)
Large capVodafone Group plcVODDec 201821.2414.816.9%Buy (32)
Large capKraft HeinzKHCJun 201928.6833.254.8%Buy (45)
Large capMolson CoorsTAPJul 201954.9645.383.0%Buy (69)
Large capBerkshire HathawayBRK.BApr 2020183.18279.090.0%HOLD
Large capWells Fargo & CompanyWFCJun 202027.2248.911.6%Buy (55)
Large capBaker Hughes CompanyBKRSep 202014.5324.003.0%Buy (26)
Large capWestern Digital CorporationWDCOct 202038.4756.950.0%Buy (78)
Large capAltria GroupMOMar 202143.8043.218.3%Buy (66)
Large capElanco Animal HealthELANApr 202127.8528.780.0%Buy (44)
Large capWalgreens Boots AllianceWBAAug 202146.5344.624.3%Buy (70)

Market cap is as-of the Initial Recommendation date.
Current status indicates the rating and Price Target in ( ).
Prices are closing prices as-of date indicated, except for those indicated by a "*", which are price as-of SELL recommendation date.

Please feel free to share your ideas and suggestions for the podcast with an email to either me at or to our friendly customer support team at 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.

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.