September 30, 2022

This note includes the Catalyst Report, a summary of the October edition of the Cabot Turnaround Letter, which was published on Wednesday, and bullet points of our podcast.

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.

As stock prices tumble under the weight of rising interest rates and the likely arrival of an economic recession, just about every new stock pick is destined to be a near-term disappointment. How does one select stocks in such an environment? While most fresh ideas will be unable to buck the relentless bear market, it’s critical to keep trying out promising new stocks, even if new position sizes are unusually small. To find interesting ideas, we discuss two value-oriented screens for the October edition of the Cabot Turnaround Letter. The first is to find stocks with low P/E multiples, say, below 5.5x, that also have rising estimates. This screen yielded four interesting ideas, including Chord Energy (CHRD), Group 1 Automotive (GPI), Jackson Financial (JXN) and Sylvamo Corporation (SLVM).

Our second screen is for stocks with high dividend yields. We discussed two, KeyCorp (KEY) and Weyerhaeuser (WY) whose dividends look readily sustainable, as well as highlight Altria Group (MO) and 3M (MMM) whose dividends look vulnerable and should be avoided.

Our feature recommendation this month is Dow (DOW). Shares of this high-quality company are discounting a dark future that seems highly unlikely to arrive. The company has a solid balance sheet, generous free cash flow that looks resilient and pays a highly sustainable dividend that offers a 6.3% dividend yield.

Friday, September 30, 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 11 minutes and covers:

• Comments on other recommended companies:
  
  • Volkswagen (VWAGY) – the IPO of Porsche is completed but VW shares slid on macro and industry concerns.
  • Vodafone (VOD) – a billionaire takes a stake in Vodafone Towers, possibly leading to parent Vodafone selling more of its stake.
  • Molson Coors (TAP) – expanding its partnership with Coca-Cola by co-marketing the Topo Chico Spirited product.
  • Berkshire Hathaway (BRK.B) – is increasing its stake in Occidental Petroleum
  • Walgreens Boots Alliance (WBA) – more problems at competitor Rite Aid weigh on Walgreen’s shares. WBA shares offer a 6.1% dividend yield.
  • Janus Henderson Group (JHG) – boardroom turnover is a positive

• Elsewhere in the markets:
  
  • Investors are in a “risk-off” mode, so our names are getting hit harder. Quarter-end window dressing likely adding further weight.
  • Don’t pay too much attention to the false precision of economic statistics.
  • The return of the old-fashioned inventory cycle and how to invest in it.
  • About 98% of iPhones are made in China – leaving Apple with problems

The Catalyst Report

September was a quiet month for catalysts, no doubt in part because of the sharp fall-off in the stock market. Deal activity and CEO change-overs dominated the catalysts, while spin-offs, activist campaigns and other catalysts were relatively quiet. Two Cabot Turnaround Letter recommendations had catalysts: Shell plc (SHEL) announced the departure of its CEO and Volkswagen AG (VWAGY) completed its partial spin-off of Porsche.

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

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The following catalyst-driven stocks look interesting:

Freshpet Inc. (FRPT) $2.4 billion market cap – Jana Partners sees value in this company that produces fresh (not frozen or processed) pet food. Its growth is healthy, but Freshpet is barely profitable. The activist is offering up a slate of highly capable executives to augment/replace the current leadership and perhaps position the company for a sale. If executed properly, this activist campaign could be a home run.

Unilever plc (UL) $113 billion market cap – CEO Alan Jope will exit next year after only about three years at the helm. Investors (and apparently the board, also) are tiring of socially trendy strategies like their mayonnaise “having a purpose” when the entire company’s financial performance is awful and when the CEO pursues failed deals like the attempt to buy GSK’s consumer products group. At the current price, Unilever’s shares have a lot of potential if the company can be re-steered in a shareholder-friendly direction that produces better financial results.

Please feel free to share your ideas and suggestions for the podcast and the letter 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 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.

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

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 bruce@cabotwealth.com or to our friendly customer support team at support@cabotwealth.com. 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.