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February 22, 2023

Watching the Horizon for an Emerging Risk

We’ll continue our mini-series on the Tech Hype Cycle next week, as we thought some brief comments on the war in Ukraine might be timely roughly one year after Russia’s invasion.

Clearly, the war is an awful situation for all involved, certainly on a humanitarian level but also on an economic level. While the conflict has degenerated into a World War I-style artillery battle between two entrenched forces, we anticipate that spring will bring more mobile hostilities.

Part of our risk management process is to identify risks, then gauge whether those risks are increasing, or decreasing. This simple directional metric avoids the impossible task of predicting the future yet provides an effective way to understand risks.

For now, the direct fighting is contained within Ukraine’s borders. But outside of these borders, both sides and their allies appear to be hardening their stances. Russia is showing no relenting or remorse, but rather drawing in its allies in Iran (who are building a sizeable drone factory in Russia, along with providing considerable weapons and other materiel), North Korea (stepping up their missile test launches against the West) and other countries. Russia’s recent suspension of the strategic nuclear arms treaty is an incremental increase in risk. China’s role is murky and seems to vacillate between risk-increasing and risk-decreasing directions.

The United States and other western allies are stepping up their shipments of advanced tanks and other weapons. Just a tad disturbing is new chatter about sending American or European auditors into Ukraine to better track the billions of armaments being shipped there. Regardless of the merits, putting (more) Western boots on the ground in a war zone increases direct engagement. This step is a risk-increaser.

We cannot know the future, but we can draw upon the past. We see the cancer of the Ukraine invasion getting worse. Prior similar situations at this stage have usually continued to trend in the wrong direction. How this affects the stock market, or individual stocks, is a murky exercise at best. We’ll be watching and thinking.

Share prices in the table reflect Tuesday, February 21 closing prices. Please note that prices in the discussion below are based on mid-day February 21 prices.

Note to new subscribers: You can find additional color on past earnings reports and other news on recommended companies in prior editions and weekly updates of the Cabot Undervalued Stocks Advisor on the Cabot website.

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Today’s Portfolio Changes
Allison Transmission (ALSN) – Raising our price target from 48 to 54.

Last Week’s Portfolio Changes
Gates Industrial (GTES) – Raising our price target from 14 to 16.

Upcoming Earnings Reports
Big Lots (BIG) – Thursday, March 2
Aviva plc (AVVIY) – Wednesday, March 8


Cisco Systems (CSCO) is facing revenue pressure as customers migrate to the cloud and thus need less of Cisco’s equipment and one-stop-shop services. Cisco’s prospects are starting to improve under a relatively new CEO, who is shifting Cisco toward a software and subscription model and is rolling out new products, helped by its strong reputation and entrenched position within its customers’ infrastructure. The company is highly profitable, generates vast cash flow (which it returns to shareholders through dividends and buybacks) and has a very strong balance sheet.

Cisco reported impressive fiscal second-quarter results that were ahead of consensus estimates and raised its full-year revenue and earnings guidance by about 6%. The company raised its dividend by 1 cent per quarter, to $0.39/share. Overall, the company is maintaining its position as a critical provider of a broad array of tech gear and software even as other mega-cap tech companies that focus on only one or two niches are having to retrench. However, we are wary of the ongoing gross margin slippage and the sharp decline in new orders. For now, we will keep our Buy rating.

The company’s cash flow machine is running at full tilt, with operating cash flow of $4.7 billion nearly double the year-ago pace. Cisco’s balance sheet strengthened despite the $2.8 billion in year-to-date share buybacks and dividends. Cash in excess of debt rose by $3.4 billion, to a total of $13.2 billion.

We perhaps are seeing the favorable influence of CFO Scott Herren, who joined Cisco in 2020 from the same role at Autodesk. Herren led Autodesk’s successful business model transition and appears to be bringing that leadership to Cisco as it engineers the same transition. Herren also has an impressive reputation for helping restrain costs and sensibly allocating capital. Clearly supporting his judgment is his engineering undergraduate degree earned at the Georgia Institute of Technology and his current role as a chair of the Industrial and Systems Engineering (ISyE) Advisory Board and a member of the College of Engineering Advisory Board at Georgia Tech.

One clear CFO-related benefit is in working capital. The company released $2 billion in cash, year to date, that was previously tied up in working capital. Last year at this time, the amount was reversed – with $1.6 billion of new cash tied up in working capital. By managing its inventory and other working capital better, Cisco paid for its entire year-to-date buybacks with previously deadweight assets that were converted into hard cash. While no doubt the supply chain improvements helped, this swing is impressive.

While the company’s revenues, profits and cash balances continue to grow, it continues to struggle with gross margin compression. The adjusted gross margin of 63.9% slid from 65.5% a year ago, although it improved from 63.0% in the first quarter. Cisco may be seeing intensified competition or is motivated to discount its goods to reduce its inventory. Either way, the trend is not favorable.

Another issue is the decline in new product orders, which fell 22% from the year-ago pace. Much of this year’s sales increase appears related to filling orders in backlog – new orders are the lifeblood of the company and we are concerned at the size of this decline. Partly offsetting this risk is that its backlog increased from a year ago, suggesting that Cisco can sustain its revenues even when new orders slow.

We will continue to watch these issues.

In the quarter, adjusted earnings of $0.88/share rose 5% from a year ago and were 2% above the $0.86/share consensus estimate. Revenues rose 7% and were about 1% above estimates.

CSCO shares rose 5% for the week and have 32% upside to our 66 price target. The valuation is attractive at 9.6x EV/EBITDA and 13.3x earnings per share. The 3.1% dividend yield adds to the appeal of this stock. BUY

Comcast Corporation (CMCSA) – With $120 billion in revenues, Comcast is one of the world’s largest media and entertainment companies. Its properties include Comcast cable television, NBCUniversal (movie studios, theme parks, NBC, Telemundo and Peacock), and Sky media. The Roberts family holds a near-controlling stake in Comcast. Comcast shares have tumbled due to worries about cyclical and secular declines in advertising revenues and a secular decline in cable subscriptions as consumers shift toward streaming services, as well as rising programming costs and incremental competitive pressure as phone companies upgrade their fiber networks.

However, Comcast is a well-run, solidly profitable and stable company that will likely continue to successfully fend off intense competition while increasing its revenues and profits, as it has for decades. The company generates immense free cash flow which is more than enough to support its reasonable debt level, generous dividend and sizeable share buybacks.

There was no significant company-specific news in the past week.

Comcast shares ticked down 2% for the past week and have 9% upside to our 42 price target. The shares have limited upside, but the earnings report was reasonable enough to keep the stock a bit longer. The shares offer an attractive 2.8% dividend yield. HOLD


Allison Transmission Holdings, Inc. (ALSN) – Allison Transmission is a midcap manufacturer of vehicle transmissions. While many investors view this company as a low-margin producer of car and light truck transmissions that is destined for obscurity in an electric vehicle world, Allison actually produces no car or light truck transmissions. Rather, it focuses on the school bus and Class 6-8 heavy-duty truck categories, where it holds an 80% market share. Its EBITDA margin is sharply higher than its competitors and on par with many specialty manufacturers. And, it is a leading producer and innovator in electric axles which all electric trucks will require. The company generates considerable free cash flow and has a low-debt balance sheet. Its capable leadership team keeps its shareholders in mind, as the company has reduced its share count by 38% in the past five years.

Allison reported a strong fourth quarter, capping an impressive year in which revenues rose 15% and earnings per share rose 34%. The company generated strong free cash flow, allowing it to repurchase 8% of its share count in the year, even as it has trimmed its already-reasonable net debt by 5%.

The company provided incrementally favorable 2023 guidance although a repeat of 2022’s strong increases won’t happen. Guidance is driven by Allison’s expectations for more price increases and some incremental volume increases to help drive a 4% increase in revenues. Net income was guided to a 1% decline although adjusted EBITDA profits were guided to a 4% increase. Free cash flow was guided to $505 million, about 3% above the 2022 pace. We consider the guidance to be reasonable but perhaps a bit conservative.

In the quarter, revenues rose 11% from a year ago and were 6% above estimates. Earnings (unadjusted) of $1.52/share rose 32% and were 22% above the $1.25 consensus. Adjusted EBITDA of $245 million rose 11% and was 11% above consensus. Price increases and higher volumes bolstered the gross margin but were more than offset by higher input material costs, leading to a gross margin of 47.1%, compared to 47.4% a year ago. The operating margin fell about half a percentage point, to 26.7%, as higher sales costs and warranty costs added to the drag on margins.

ALSN shares jumped 6% in the past week. Given the capable management, healthy fundamentals and reasonable valuation, we are raising our price target to 54. The shares have 12% upside to this new target. The stock pays a respectable and sustainable 1.7% dividend yield. BUY

Aviva, plc (AVVIY), based in London, is a major European company specializing in life insurance, savings and investment management products. Amanda Blanc, hired as CEO in July 2020, is revitalizing Aviva’s core U.K., Ireland and Canada operations following her divestiture of other global businesses. The company now has excess capital which it is returning to shareholders as likely hefty dividends following a sizeable share repurchase program. We expect that activist investor Cevian Capital, which holds a 5.2% stake, will keep pressuring the company to maintain shareholder-friendly actions.

There was no significant company-specific news in the past week.

Aviva shares slipped 1% this past week and have 31% upside to our 14 price target. Based on management’s estimated dividend for 2023, the shares offer a generous 7.1% yield. BUY

Barrick Gold (GOLD), based in Toronto, is one of the world’s largest and highest-quality gold mining companies. About 50% of its production comes from North America, with the balance from Africa/Middle East (32%) and Latin America/Asia Pacific (18%). Barrick will continue to improve its operating performance (led by its highly capable CEO), generate strong free cash flow at current gold prices, and return much of that free cash flow to investors while making minor but sensible acquisitions. Also, Barrick shares offer optionality – if the unusual economic and fiscal conditions drive up the price of gold, Barrick’s shares will rise with it. Given their attractive valuation, the shares don’t need this second (optionality) point to work – it offers extra upside. Barrick’s balance sheet has nearly zero debt net of cash. Major risks include the possibility of a decline in gold prices, production problems at its mines, a major acquisition and/or an expropriation of one or more of its mines.

Barrick reported a reasonable fourth quarter. Adjusted earnings of $0.13/share were flat compared to a year ago but 1 cent above the $0.12 consensus estimate. The company is increasing its gold reserves, which rose 10% from a year ago. Overall, Barrick remains a solid and well-managed company, and we are keeping our current rating.

However, the company is working through some issues. First, the company is missing its gold production goals (by 3.7% in 2022). Guidance for 2023 is unchanged from 2022 guidance but given the recent “miss” we have low confidence that the company will meet this mark.

Second, gold production costs are rising. Barrick’s full-year All-in Sustaining Costs (an industry-defined term that includes direct and indirect costs as well as capital spending to maintain production volumes) over-ran the guidance by 13%. Guidance for 2023 costs are for flat/down, but we have little confidence given steadily rising labor, energy and other costs.

Full-year 2022 gold exploration and project expenses came in at the high end of guidance, and 2023 guidance calls for these costs to lift another 20%.

Also, while reserves grew, the company raised its reference price to $1,300/ounce. Gold in the ground becomes more economic to mine as gold prices increase, so an increase in the reference price automatically raises reserves without any new exploration. We have no insight into how much the reference price increase boosted reserves vs how much new gold was actually discovered – either way, the reserve increase is diluted by the reference price change.

The company also over-shot its 2023 capital spending guidance by 18%. Guidance for 2023 is flat, but this excludes the re-launch of the Porgera mine, so total capital spending will likely be higher this year.

Copper generally seems to be on track with production volumes and costs.

Barrick said it would repurchase up to $1 billion of its shares this year. We anticipate that some of this will be funded from borrowings given the nearly debt-free ($342 million) balance sheet and tighter free cash flow.

In brief, we see that Barrick incrementally is trading profitability for growth. Our thesis is based on stable production growth that meets the company’s guidance, and on stable profits and cash flow that can be returned to investors through dividends and buybacks. Barrick is incrementally falling short on all of these metrics – not enough to be worried but we clearly want the company to return to meeting these key checklist items in 2023.

Over the past week, commodity gold ticked about 1% lower to $1,849/ounce. The 10-year Treasury yield rose to 3.91% while the U.S. Dollar Index (the dollar and gold usually move in opposite directions) ticked up incrementally to 103.85.

Investors and commentators offer a wide range of outlooks for the economy, interest rates and inflation. We have our views but hold these as more of a general framework than a high-conviction posture. Investing in gold-related equities is a long-term decision – investors shouldn’t allow near-term weakness to deter their resolve.

Barrick shares fell 7% in the past week and have 63% upside to our 27 price target. BUY

Big Lots (BIG) – Big Lots is a discount general merchandise retailer based in Columbus, Ohio, with 1,431 stores across 47 states. Its stores offer an assortment of furniture, hard and soft home goods, apparel, electronics, food and consumables as well as seasonal merchandise. Our initial case for Big Lots rested with its loyal and growing base of 22 million rewards members, its appeal to bargain-seeking customers, the relatively stable (albeit low) cash operating profit margin, its positive free cash flow, debt-free balance sheet and low share valuation. Our thesis was deeply rattled by the company’s surprisingly large inventory glut in the first quarter of 2022, likely burdening it with new and permanent debt.

Big Lots shares remain high-risk due to the permanent debt balance and the likelihood of a suspension of the dividend.

We reiterate our view that Big Lots shareholders who are not willing or able to sustain further losses in the shares should sell now. There is no reasonably definable floor to a stock like Big Lots when fundamentals and valuation are ignored while investors reduce their risk exposure.

There was no significant company-specific news in the past week.

Big Lots shares fell 4% this past week. The stock has 57% upside to our revised 25 price target. The shares offer a 7.5% dividend yield, although, as noted, investors should not rely on this dividend being sustained. HOLD

Citigroup (C) Citi is one of the world’s largest banks, with over $2.4 trillion in assets. The bank’s weak compliance and risk-management culture led to Citi’s disastrous and humiliating experience in the 2009 global financial crisis, which required an enormous government bailout. The successor CEO, Michael Corbat, navigated the bank through the post-crisis period to a position of reasonable stability. Unfinished, though, is the project to restore Citi to a highly profitable banking company, which is the task of new CEO Jane Fraser.

This past week, the yield spread between the 90-day T-bill and the 10-year Treasury bond, which approximates the drivers behind Citi’s net interest margin, narrowed to negative 90 basis points (100 basis points in one percentage point). Interest rates across the board are rising, although short-term rates are rising faster than long-term rates.

Until inflation relents to a 2% pace for perhaps six months, we see little chance for the Fed to declare “mission accomplished.” The recent CPI and other reports suggest that the six-month clock hasn’t yet started.

Sentiment is shifting toward higher-for-longer interest rates, as inflationary pressures seem to be abating more slowly than most investors had hoped for. Some commentators are calling for the Fed Funds rate to approach 6%. Such a rate may not fully relieve inflation pressures but would clearly be a depressant for stock prices.

There was no significant company-specific news in the past week.

Citi shares trade at 61% of tangible book value and 8.4x estimated 2023 earnings. The remarkably low valuations assume an unrealistically dim future for Citi.

Citi shares fell 4% in the past week and have 71% upside to our 85 price target. Citigroup investors enjoy a 4.1% dividend yield.

When comparing Citi shares with a U.S. 10-year Treasury bond, Citi offers a higher yield (4.1% vs 3.9%) and considerably more upside potential (about 70% according to our work vs. 0% for the Treasury bond). Clearly, the Citi share price and dividend payout carry considerably more risk than the Treasury bond, but at the current valuation, Citi shares would seem to have a remarkably better risk/return trade-off. BUY

Gates Industrial Corp, plc (GTES) – Gates is a specialized producer of industrial drive belts and tubing. While this niche might sound unimpressive, Gates has become a leading global manufacturer by producing premium and innovative products. Its customers depend on heavy-duty vehicles, robots, production and warehouse machines and other equipment to operate without fail, so the belts and hydraulic tubing that power these must be exceptionally reliable. Few buyers would balk at a reasonable price premium on a small-priced part from Gates if it means their million-dollar equipment keeps running. Even in automobiles, which comprise roughly 43% of its revenues, Gates’ belts are nearly industry-standard for their reliability and value. Helping provide revenue stability, over 60% of its sales are for replacements. Gates is well-positioned to prosper in an electric vehicle world, as its average content per EV, which require water pumps and other thermal management components for the battery and inverters, is likely to be considerably higher than its average content per gas-powered vehicle.

The company produces wide EBITDA margins, has a reasonable debt balance and generates considerable free cash flow. The management is high-quality. In 2014, private equity firm Blackstone acquired Gates and significantly improved its product line-up and quality, operating efficiency, culture and financial performance. Gates completed its IPO in 2018, with Blackstone retaining a 63% stake today.

On February 9, Gates reported an encouraging fourth quarter and provided reasonably strong guidance for 2023 that implied steady-to-rising revenues and profits rather than a recessionary decline.

Adjusted earnings of $0.25/share fell 19% from a year ago but were about 9% above the consensus estimate of $0.23/share. Core revenues, which exclude currency and acquisition/divestiture effects, rose 16% and were about 5% above estimates. Adjusted EBITDA of $166 million rose 19% and was about 6% above estimates. The adjusted EBITDA margin of 18.6% improved from 17.1% a year ago.

Guidance for 2023 points to 1-5% organic revenue growth and - (1%) to +8% adjusted EPS growth. The midpoints of these ranges are incrementally above the current consensus estimates.

The company said demand remains strong in both the Power Transmission and Fluid Power segments. Pricing is moving ahead of higher costs, and the previous drag from supply chain issues is abating, helping drive higher sales and better profits.

Fourth quarter free cash flow rose 55% as profits rose and inventory was sold down. Total debt fell about 3%. Leverage remains reasonable at 2.8x EBITDA, although it ticked up due to lower EBITDA.

Gates continues to follow a common strategy of companies owned/controlled by reputable private equity firms: generating wide profit margins and high free cash flow conversion (free cash flow relative to adjusted net income). We strongly agree with this strategy. While the $329 million in full-year free cash flow was healthy, it fell 19% from a year ago due primarily to weaker profits. Free cash flow conversion fell to 54% from 72% a year ago. Its 2023 guidance is for 100% conversion.

There was no significant company-specific news in the past week.

GTES shares fell 1% in the past week and have 15% upside to our new 16 price target. Last week, we raised our price target from 14 to 16 due to the company’s capable management, strong franchise within its market, still-improving fundamentals and reasonable valuation. BUY

Molson Coors Beverage Company (TAP) is one of the world’s largest beverage companies, producing the highly recognized Coors, Molson, Miller and Blue Moon brands as well as numerous local, craft and specialty beers. About two-thirds of its revenues come from the United States, where it holds a 24% market share. Investors worry about Molson Coors’ lack of revenue growth due to its relatively limited offerings of fast-growing hard seltzers and other trendier beverages. Our thesis for this company is straightforward – a reasonably stable company whose shares sell at an overly discounted price. Its revenues are resilient, it produces generous cash flow and is reducing its debt. A new CEO is helping improve its operating efficiency and expand carefully into more growthier products. The company recently reinstated its dividend.

Molson Coors reported a healthy 4% increase in revenues (local currency) and a strong 22% increase in EBITDA. Weak volumes (down 5%) were more than offset by higher prices and favorable mix (+11%), suggesting that the company’s brands remain popular, that customers are accepting higher prices, and that the “premiumization” strategy is working. The quarter capped a good year for Molson Coors, in which revenues rose 7% (local currency) and underlying net income was essentially flat/stable. Full-year volumes slipped 2% but pricing added 9% to sales.

In addition to resilient full-year revenues, the company produced reasonably steady cash flow ($850 million) – a bit below our $1 billion baseline but due mostly to understandable increases in capital spending to upgrade its breweries. Net debt fell by 9%, or $560 million, and is below the 3.0x leverage mark.

Guidance for 2023 calls for incremental revenue and profit growth but about $100 million more in capital spending. Underlying free cash flow was guided to $1 billion, +/- 10%. In essence, for another year of stable results and generous free cash flow.

Overall, our thesis remains on track.

In the quarter, underlying net income of $1.30/share rose 61% from a year ago and was 22% above the consensus estimate. Revenues rose 0.4% but increased 3.8% in constant currency although this fell fractionally shy of estimates. Adjusted EBITDA of $556 million rose 22% from a year ago and was 2% above estimates.

Profits in the quarter were partly held back by input costs that rose 11.5%. Sharply lower marketing and overhead costs (down 14%) helped drive profits higher, nevertheless. We are encouraged by the lower marketing and overhead costs which had shifted higher in earlier quarters. A constant temptation for consumer product managers is to sacrifice profits for volume by spending on promotions. Coors seems to be mostly avoiding this trap.

TAP shares rose 4% in the past week and have 29% upside to our 69 price target. The stock remains cheap, particularly on an EV/EBITDA basis, or enterprise value/cash operating profits, where it trades at 8.4x estimated 2023 results, still among the lowest valuations in the consumer staples group and below other brewing companies. BUY

Organon & Company (OGN), a spin-off from Merck, specializes in patented women’s healthcare products and biosimilars and also has a portfolio of mostly off-patent treatments. It may eventually divest its Established Brands segment. The management and board appear capable as they work to boost internal growth augmented by modest-sized acquisitions. The company produces robust free cash flow, has modestly elevated debt and pays a reasonable dividend.

Organon reported a complicated quarter that left us needing more time and information to assess where to go from here with our investment. The spin-off was to produce at least stable and large free cash flows with a reasonable potential for growth with, essentially, traits of a modern era “cigar butt” that was a dull but undervalued asset worthy of a higher share price. However, the management is morphing Organon into a company with more expensive growth aspirations that are weighing down free cash flow even as revenues continue to fall. The company has yet to release its balance sheet and cash flow information.

In the quarter, revenues fell 7% from a year ago but were essentially in line with estimates. Adjusted earnings of $0.81/share fell 28% and were 11% below estimates. Adjusted EBITDA fell 19% and was 10% below estimates.

Full-year 2023 sales fell 2% and adjusted EBITDA fell 8%, both within guidance provided on the third-quarter earnings call but moving in the wrong direction.

Management is now clearly emphasizing growth, not profits or cash flow, which requires elevated spending on research and development as well as selling and promotions. Overhead spending for the year rose by 3.3 percentage points of revenue, to 31.9% of revenues. In the fourth quarter, overhead reached 37.5% of revenues.

Pressures on gross margin aren’t helping. While the company met its late 2021 guidance for 2022 gross margins of mid-60% (actual was 65.7%), fourth-quarter results slid sharply to 63.1% compared to the year-ago 66.0%. Management attributed most of the decline to production issues at one of its plants, but this seems like cherry-picking. Forward guidance is for about 63%.

The pressure on gross margins and higher spending are weighing on profits. In late 2021, the company guided to a 2022 EBITDA margin of 34-36%. The actual for 2022 was 33.8%. Guidance for 2023 is for margins of 31-33% (so, 32% at the mid-point) – clearly moving in the wrong direction. We get a sense that management has great confidence in its abilities to create impressive new products and identify/acquire others at bargain prices. We aren’t so confident.

Another problem is the separation costs. The spin-off was completed in mid-2021, allowing plenty of time for a full weening. But last year those costs were $226 million, and we would think that they would approach zero in 2023, which would provide a sizeable profit tailwind. But, management said the 2023 costs would match the 2022 costs. We appreciate the complexities of spin-offs but the “one-time costs” are now recurring even as they continue to be waived out of adjusted EBITDA.

So, with more questions than answers, but a somewhat cheap stock statistically (7.4x EV/EBITDA) that was heavily sold yesterday, we will wait for more information.

OGN shares slid 8% in the past week and have 72% upside to our 46 price target (using the same target as the Cabot Turnaround Letter). The shares offer a 4.2% dividend yield. BUY

Sensata Technologies (ST) is a $3.8 billion (revenues) producer of nearly 47,000 highly engineered sensors used by automotive (60% of revenues), heavy vehicle, industrial and aerospace customers. About two-thirds of its revenues are generated outside of the United States, with China producing about 21%. Investors undervalue Sensata’s durable franchise. Its sensors are typically critical components that generally produce high profit margins. As the sensors’ reliability is vital to safety and performance, customers are reluctant to switch to another supplier that may have lower prices but also lower or unproven quality. Sensata has an arguably under-leveraged balance sheet and generates healthy free cash flow. The relatively new CEO will likely continue to expand the company’s growth potential through acquisitions. Electric vehicles are an opportunity as they expand Sensata’s reachable market.

There was no significant company-specific news in the past week.

ST shares slipped 2% in the past week and have 47% upside to our 75 price target. Our price target looks optimistic in light of the broad market sell-off, but we will keep it for now, even as it may take longer for the shares to reach it. BUY

Growth/Income Portfolio

Stock (Symbol)Date AddedPrice Added2/21/23Capital Gain/LossCurrent Dividend YieldPrice TargetRating
Cisco Systems (CSCO)11/18/2041.3249.8720.70%3.10%66Buy
Comcast Corp (CMCSA)10/26/2231.537.9420.40%2.80%42HOLD

Buy Low Opportunities Portfolio

Stock (Symbol)Date AddedPrice Added2/21/23Capital Gain/LossCurrent Dividend YieldPrice TargetRating
Allison Transmission Hldgs (ALSN)2/22/2239.9948.4721.20%1.70%54Buy
Aviva (AVVIY)3/3/2110.7510.66-0.80%6.80%14Buy
Barrick Gold (GOLD)3/17/2121.1316.53-21.80%2.40%27Buy
BigLots (BIG)4/12/2235.2415.87-55.00%7.60%25HOLD
Citigroup (C)11/23/2168.149.75-26.90%4.10%85Buy
Gates Industrial Corp (GTES)8/31/2210.7113.9930.60%0.00%16Buy
Molson Coors (TAP)8/5/2036.5353.7647.20%2.80%69Buy
Organon (OGN)6/7/2131.4226.89-14.40%4.20%46Buy
Sensata Technologies (ST)2/17/2158.5750.98-13.00%0.90%75Buy

Strong Buy – This stock offers an unusually favorable risk/reward trade-off, often one that has been rated as a Buy yet the market has sold aggressively for temporary reasons. We recommend adding to existing positions.
Buy – This stock is worth buying.
Hold – The shares are worth keeping but the risk/return trade-off is not favorable enough for more buying nor unfavorable enough to warrant selling.
Sell – This stock is approaching or has reached our price target, its value has become permanently impaired or changes in its risk or other traits warrant a sale.

Note for stock table: For stocks rated Sell, the current price is the sell date price.

CUSA Valuation and Earnings

Growth/Income Portfolio

2023 EPS
2024 EPS
Change in
2023 Estimate
Change in
2024 Estimate
P/E 2023P/E 2024
CSCO 49.93 3.75 4.035.8%5.2% 13.3 12.4
CMCSA 38.40 3.65 4.100.5%0.3% 10.5 9.4

Buy Low Opportunities Portfolio

2023 EPS
2024 EPS
Change in
2023 Estimate
Change in
2024 Estimate
P/E 2023P/E 2024
ALSN 48.28 6.07 6.462.3%-1.1% 7.9 7.5
AVVIY 10.69 0.54 0.61-0.2%-1.5% 19.7 17.6
GOLD 16.61 0.78 1.03-12.5%-3.6% 21.3 16.1
BIG 15.92 (0.91) 1.6831.9%0.0% (17.5) 9.5
C 49.69 5.90 6.960.5%0.3% 8.4 7.1
GTES 13.95 1.19 1.350.3%0.5% 11.7 10.4
TAP 53.51 4.08 4.300.1%0.0% 13.1 12.4
OGN 26.68 4.45 4.81-5.6%-7.1% 6.0 5.5
ST 51.18 3.78 4.320.0%0.0% 13.5 11.8

Current price is yesterday’s mid-day price.
CSCO: Estimates are for fiscal years ending in July of 2023 and 2024

Bruce Kaser has more than 25 years of value investing experience in managing institutional portfolios, mutual funds and private client accounts. He has led two successful investment platform turnarounds, co-founded an investment management firm, and was principal of a $3 billion (AUM) employee-owned investment management company.