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Turnaround Letter
Out-of-Favor Stocks with Real Value

January 21, 2022

We comment on recent earnings reports and other company-specific news about our recommended stocks, and include some thoughts on cryptocurrencies and the current burndown in momentum stocks.

This week’s Friday Update includes our comments on earnings from Baker Hughes (BKR), where we raised our price target from $26 to $31.

Shares of Wells Fargo (WFC) and Marathon Oil (MRO) both slipped back below our price targets, so we will keep these targets unchanged for now. We continue to like what is going on at both companies.

Next week, we anticipate earnings reports from General Electric (GE), Xerox Holdings (XRX), Western Digital (WDC) and Altria (MO).

Earnings updates:
Baker Hughes (BKR) – One of the world’s largest energy service companies, Baker Hughes is currently beleaguered by the depression in global oil and gas drilling activity. Also, the shares are being weighed down by General Electric’s sale (over 3 years) of its huge 377 million share stake. The company’s investment-grade balance sheet and positive free cash flow should provide it with the ability to endure until the industry’s eventual (at least partial) recovery.

Baker reported a strong quarter. While revenues were flat (in line with estimates), orders rose 28% and earnings of $0.25/share were sharply better than the $(0.07) loss a year ago. Earnings missed the $0.29 estimate but the overall strength in its business was more important. Management spoke optimistically about their revenue and margin prospects for 2022 and beyond. We agree, and are raising our price target from $26 to $31.

In the quarter, revenues were flat but orders rose 28% – this is an important indicator of future revenues and suggests that business is improving. The book-to-bill ratio, which compares orders to revenues, was 1.21, also pointing to better conditions ahead.

The recovery in Oilfield Services segment (Baker’s largest segment) is moving forward as orders rose 13% and revenues rose 12%. Oilfield Equipment orders and revenues fell, partly due to the heavy mix of subsea equipment which remains in a cyclical depression. Revenues in the Turbomachinery & Process Solutions segment, the second-largest, slipped 9% but orders rose a sharp 62% from a year ago. The TPS segment is becoming a bit of a gem for Baker Hughes.

Adjusted EBITDA rose 10% from a year ago, with the margin expanding to 15.3% from 14.0%. Expense control along with higher pricing and improved mix helped bring more of the higher revenues to the bottom line, particularly in Oilfield Services where the incremental margin was nearly 34%.

Free cash flow for the quarter was healthy at $645 million and sharply higher than the $250 million a year ago. Surprisingly, Baker delivered its highest-ever annual free cash flow last year, at $1.8 billion. And, it returned $1.2 billion of this to shareholders through buybacks and dividends, and repaid over $900 million in debt. The balance sheet remains strong, with $3.9 billion in cash against $6.6 billion in debt.

Strategically, the company continues to make encouraging inroads into LNG, hydrogen, carbon capture and other unconventional markets. Management spoke more about their continued alignment into two main segments: Oilfield Services & Equipment and Industrial Energy Technology. They also commented about “organizational and corporate structure.” This, for now, means redirecting capital toward growth opportunities, mostly into the “IET” segment. Ultimately, this alignment may conclude with a spin-off or divestiture – either outcome would be a significant booster for the shares. And, General Electric continues to sell their shares and may be completed with their divestiture by midyear, removing an overhang.

Friday, January 21, 2022 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 10½ minutes and covers:

  • Brief update on:
    • Baker Hughes (BKR) – encouraging earnings report.

  • Comments on other recommended companies:
    • Credit Suisse (CS) – Bad news as chairman resigns.
    • Wells Fargo & Company (WFC) – Regulators terminate a consent decree.

  • Elsewhere in the markets:
    • Cryptocurrencies, Turkey, and U.S. Federal Reserve stable coins.

  • Final note:
    • Comment on the current burndown in momentum stocks.

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

Market CapRecommendationSymbolRec.
Price at
Price on 1/20/2022Current
Small capGannett CompanyGCIAug 20179.225.210.0%Buy (9)
Small capDuluth HoldingsDLTHFeb 20208.6813.780.0%Buy (20)
Small capDril-QuipDRQMay 202128.2824.660.0%Buy (44)
Mid capMattelMATMay 201528.4321.630.0%Buy (38)
Mid capConduentCNDTFeb 201714.965.120.0%Buy (9)
Mid capAdient plcADNTOct 201839.7743.990.0%Buy (55)
Mid capLamb Weston HoldingsLWMay 202061.3665.331.5%Buy (85)
Mid capXerox HoldingsXRXDec 202021.9122.424.5%Buy (33)
Mid capIronwood PharmaceuticalsIRWDJan 202112.0210.920.0%Buy (19)
Mid capViatrisVTRSFeb 202117.4314.643.0%Buy (26)
Mid capVistra CorporationVSTJun 202116.6821.732.8%Buy (25)
Mid capOrganon & Co.OGNJul 202130.1931.823.5%Buy (46)
Mid capMarathon OilMROSep 202112.0118.681.3%Buy (18)
Mid capTreeHouse FoodsTHSOct 202139.4340.750.0%Buy (60)
Mid capKaman CorporationKAMNNov 202137.4141.701.9%Buy (57)
Mid capThe Western Union Co.WUDec 202116.4018.265.1%Buy (57)
Mid capBrookfield ReBAMRJan 202261.3259.820.0%Buy (93)
Large capGeneral ElectricGEJul 2007304.9698.250.3%Buy (160)
Large capRoyal Dutch Shell plcRDS.BJan 201569.9549.553.9%Buy (53)
Large capNokia CorporationNOKMar 20158.025.630.0%Buy (12)
Large capMacy’sMJul 201633.6123.832.5%HOLD
Large capCredit Suisse Group AGCSJun 201714.489.862.6%Buy (24)
Large capToshiba CorporationTOSYYNov 201714.4921.073.0%Buy (28)
Large capHolcim Ltd.HCMLYApr 201810.9211.024.0%Buy (16)
Large capNewell BrandsNWLJun 201824.7823.074.0%Buy (39)
Large capVodafone Group plcVODDec 201821.2416.226.3%Buy (32)
Large capKraft HeinzKHCJun 201928.6837.064.3%Buy (45)
Large capMolson CoorsTAPJul 201954.9649.372.8%Buy (69)
Large capBerkshire HathawayBRK.BApr 2020183.18311.010.0%HOLD
Large capWells Fargo & CompanyWFCJun 202027.2255.001.5%Buy (55)
Large capBaker Hughes CompanyBKRSep 202014.5326.722.7%Buy (26)
Large capWestern Digital CorporationWDCOct 202038.4759.920.0%Buy (78)
Large capAltria GroupMOMar 202143.8050.337.2%Buy (66)
Large capElanco Animal HealthELANApr 202127.8526.830.0%Buy (44)
Large capWalgreens Boots AllianceWBAAug 202146.5353.183.6%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.