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Turnaround Letter
Out-of-Favor Stocks with Real Value

June 3, 2022

This week’s Friday Update includes comments on earnings from Duluth Holdings (DLTH). Two stocks are at or near our price targets and we summarize the podcast.

This week’s Friday Update includes comments on earnings from Duluth Holdings (DLTH). Two stocks are at or near our price targets: Marathon Oil (MRO) and Shell plc (SHEL).

We are moving Marathon Oil (MRO) from Buy to Sell.

We are reluctant to sell Marathon, as the company’s cash generating power remains incredibly strong. The shares are not expensive but are no longer the bargain they once were. Oil prices remain elevated toward the high end of reasonable. Even though Russian oil may be cut off, we are well aware of the ability and perhaps the newfound willingness of the Saudi government to open its oil taps just a bit.

The bane of being a contrarian and a value investor is that we sometimes sell too early. But we also recall the admonition of Nathan Rothschild, the incredibly wealthy financier from a few centuries ago, who, when asked how he got so rich, he replied, “I always sell too soon.”

We are a captive of our rating system which is basically binary – either Buy or Sell. But, today’s call is not a “sell it all today” call; it’s rather a recommendation to start trimming out. From a tactical perspective, investors holding MRO shares may want to initially reduce any outsized positions, then gradually chip away at the remaining balance over perhaps weeks. We see nothing wrong with keeping a stub position for an extended period. This both captures much of the strong profits but also allows some participation should the shares continue to ride higher.

From our initial recommendation in September 2021, the MRO investment has produced an estimated 160% total return.

We are keeping our current rating on Shell plc (SHEL) until it convincingly crosses our 60 price target. These shares remain undervalued.

Earnings update:
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 a reasonably good quarter and, favorably, reaffirmed its full-year 2022 outlook. The net loss of $(0.04)/share compared unfavorably to the $0.02/share profit a year ago but was about 13% above the consensus estimate. Revenues fell 8% and were 3% below the consensus estimate. Their reiteration of their full-year 2022 revenue and profit guidance was a surprise positive, especially when many other retailers have sharply reduced theirs. Overall, an encouraging report, but after a sharp intra-day jump the shares ended the day down about 3%.

Sales were reasonable given the disruptions across the industry and some post-Covid changes to consumer preferences (away from goods/clothing). Management said that April results were strong. Online sales from customers in markets with Duluth stores performed considerably better than markets without stores, supporting the company’s claims that online sales are buttressed by physical stores. Overall, their improved data analytics and execution have helped them better navigate the complicated supply and demand environment. More work and spending are ahead but the progress seems encouraging. Duluth said it will not open any more stores this year – smartly removing what we see as a distraction.

Gross profit improved to 54.6%, enough to fully offset the revenue decline due to better inventory management (lower inventory), which allowed more sales at full price. Inventories, while elevated, are mostly full-priced rather than clearance items, which should help their profits the rest of this year. Duluth said they are seeing a close link between their marketing spending and sales, allowing them to dial up and dial down their promotions based on their inventory. If true, this would be an impressive dynamic.

Overhead and marketing costs rose as the company is spending more to promote its products and upgrade its tech infrastructure, expand its staffing and open a few new warehouses.

The company is working to improve its brands and products. Many of the developments make sense but changing Alaskan Hardgear to AKHG seems more like the irresponsible discarding of a cool brand name that has meaning, only to replace it with some letters that sound more like a medical diagnosis. The rationale is that Duluth wants to soften, just a bit, the hard edge implied by the Alaskan Hardgear label, allowing the brand to expand into closer-to-home types of activities. So far, it appears that this move is working well.

The balance sheet remains healthy, although we would like to see some debt reduction, and the company said it expects to generate between $15 million and $20 million of free cash flow this year. Combined with maintaining its full-year revenue and earnings guidance, producing this free cash flow would be highly encouraging if it happens.

Friday, June 3, 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 11½ minutes and covers:

  • Ratings change:
    • Marathon Oil (MRO) from Buy to Sell.
    • Shell plc (SHEL) – no change until it crosses our price target.

  • Earnings:
    • Comments on Duluth Holdings (DLTH) earnings.

  • Comments on other recommended companies:
    • Shell plc (SHEL) – new U.K. windfall profits tax.
    • M/I Homes (MHO) – liquidation value support looks very strong.
    • Toshiba (TOSYY) – company added several board candidates to its slate for the upcoming election, but these candidates don’t look like the picture of management-friendly.
    • Gannett (GCI) – announced an evolutionary change to its structure.

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
Small capGannett CompanyGCIAug 20179.223.980.0%Buy (9)
Small capDuluth HoldingsDLTHFeb 20208.6812.330.0%Buy (20)
Small capDril-QuipDRQMay 202128.2830.900.0%Buy (44)
Small capZimVieZIMVApr 202223.0022.140.0%Buy (32)
Mid capMattelMATMay 201528.4324.870.0%Buy (38)
Mid capConduentCNDTFeb 201714.965.380.0%Buy (9)
Mid capAdient plcADNTOct 201839.7737.780.0%Buy (55)
Mid capLamb Weston HoldingsLWMay 202061.3668.110.4%Buy (85)
Mid capXerox HoldingsXRXDec 202021.9119.151.3%Buy (33)
Mid capIronwood PharmaceuticalsIRWDJan 202112.0211.190.0%Buy (19)
Mid capViatrisVTRSFeb 202117.4312.111.0%Buy (26)
Mid capOrganon & Co.OGNJul 202130.1937.330.8%Buy (46)
Mid capMarathon OilMROSep 202112.0131.200.3%SELL
Mid capTreeHouse FoodsTHSOct 202139.4340.500.0%Buy (60)
Mid capKaman CorporationKAMNNov 202137.4137.120.5%Buy (57)
Mid capThe Western Union Co.WUDec 202116.4017.841.3%Buy (25)
Mid capBrookfield ReBAMRJan 202261.3251.660.3%Buy (93)
Mid capPolarisPIIFeb 2022105.78106.750.0%Buy (160)
Mid capGoodyear Tire & RubberGTMar 202216.0113.450.0%Buy (24.50)
Mid capM/I HomesMHOMay 202244.2847.510.0%Buy (67)
Large capGeneral ElectricGEJul 2007304.9678.000.1%Buy (160)
Large capShell plcSHELJan 201569.9559.240.8%Buy (60)
Large capNokia CorporationNOKMar 20158.025.090.4%Buy (12)
Large capMacy’sMJul 201633.6123.810.7%HOLD
Large capCredit Suisse Group AGCSJun 201714.487.020.9%Buy (24)
Large capToshiba CorporationTOSYYNov 201714.4922.950.7%Buy (28)
Large capHolcim Ltd.HCMLYApr 201810.929.981.1%Buy (16)
Large capNewell BrandsNWLJun 201824.7821.571.1%Buy (39)
Large capVodafone Group plcVODDec 201821.2416.351.6%Buy (32)
Large capKraft HeinzKHCJun 201928.6836.391.1%Buy (45)
Large capMolson CoorsTAPJul 201954.9653.980.7%Buy (69)
Large capBerkshire HathawayBRK.BApr 2020183.18314.950.0%HOLD
Large capWells Fargo & CompanyWFCJun 202027.2245.330.4%Buy (64)
Large capWestern Digital CorporationWDCOct 202038.4761.930.0%Buy (78)
Large capElanco Animal HealthELANApr 202127.8524.840.0%Buy (44)
Large capWalgreens Boots AllianceWBAAug 202146.5343.431.1%Buy (70)

: 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.