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Value Investor
Wealth Building Opportunites for the Active Value Investor

August 25, 2021

The Cabot Undervalued Stocks Advisor is on vacation this week, recharging the batteries for what could be a very interesting September and fourth quarter in the financial markets. As such, this week’s edition will be abbreviated in length, although we include our Cisco earnings commentary in full.

Wall Street Stock Ratings
The Cabot Undervalued Stocks Advisor is on vacation this week, recharging the batteries for what could be a very interesting September and fourth quarter in the financial markets. As such, this week’s edition will be abbreviated in length, although we include our Cisco earnings commentary in full.

One of our friends asked us about how to use Wall Street’s ratings on stocks. After all, these brokerage research analysts have exceptional minds, educations, training, financial backing, industry expertise and access to company managements as well as their internal army of research associates, economists, strategists, quants and others with a wealth of information and viewpoints. It seems logical that these analysts would be among the best stock-pickers in the market. And, after all, the acronym hidden in their ratings scale – Buy, Outperform, Neutral, Underperform, Sell – spells “B-O-N-U-S.” One would think that stock picking would be the driver of the huge bonuses that these analysts earn.

Our response to the question: ignore their ratings.

Wall Street brokerage analysts, also called sell-side analysts because they sell their research, are notoriously bad stock-pickers. The primary reason is that their time and attention are concentrated on other priorities. Their job isn’t so much to be great stock-pickers (the best usually are poached by hedge funds), but rather to generate trading and other business for their investment banking employers.

While decades ago most investment management firms (the “buy-side”) had to rely on sell-side research, today’s buy-side has by far the best research and analytical capabilities. Combined with vanishing trading commissions (which now approach zero for many institutional investors), the sell-side’s original economic justification has faded.

However, one of the rarest assets on Wall Street is access to the CEOs and CFOs of large companies. These executives have companies to run, so they have limited time to talk to the market. Naturally, they allocate that time to where it is most productive – first to their largest shareholders and major buy-side firms (who might become major shareholders) and then to their favored sell-side analysts (who can deliver the message to their internal sales forces, smaller investors and to the media). Now near the front of the line for managements’ time, the sell-side has gained new fee-generating powers.

Naturally, the sell-side analysts with the best access to company executives become the most valuable. And, to get that access it certainly helps to have a “buy” rating on that company’s stock. This incentive can sway even the most well-balanced analyst’s thinking. Some analysts have gone so far as to essentially dedicate most of their time to providing management access through small meetings and major conferences – these analysts are often the highest-paid in the industry. Stock-picking isn’t a priority and buy-siders don’t care.

Another important part of a sell-side analyst’s job is to provide company insights, financial models and industry expertise to buy-side analysts. Buy-siders pay generously for this information but will allocate their research budgets most favorably to the firms with the most informed analysts – not to those with the best stock-pickers. Gathering this information, then communicating it to their buy-side clients through phone and video calls and written research reports drains the sell-side analyst of valuable research and independent thinking time. Furthermore, while these conversations can expose the brokerage analysts to new ideas, they can also overload the analysts and corrupt their thinking.

None of this is to diminish the value of good sell-side research. Their ability to identify company and industry risks, develop credible financial projections, convey management’s perspectives and provide critiques saves buy-siders an immense amount of time when trolling for new ideas or wanting to stay current on well-known names. However, successful investors look well-beyond this, and the ratings, to produce their own conclusions on which stocks to buy and sell, and when and how much. Sell-side research is but one tool in the successful investors’ toolbox.

Share prices in the table reflect Tuesday (August 24) closing prices. Please note that prices in the discussion below are based on mid-day August 24 prices.

Note to new subscribers: You can find additional color on our thesis, recent earnings and other news on recommended companies in prior editions of the Cabot Undervalued Stocks Advisor on the Cabot website.

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Today’s Portfolio Changes

Last Week’s Portfolio Changes

Growth/Income Portfolio
Bristol Myers Squibb Company (BMY) shares sell at a low valuation due to worries over patent expirations for Revlimid (starting in 2022) and Opdivo and Eliquis (starting in 2026). However, the company is working to replace the eventual revenue losses by developing its robust product pipeline while also acquiring new treatments (notably with its acquisitions of Celgene and MyoKardia), and by signing agreements with generics competitors to forestall their competitive entry. The likely worst-case scenario is flat revenues over the next 3-5 years. Bristol should continue to generate vast free cash flow, helped by a $2.5 billion cost-cutting program, and has a relatively modest debt level.

On July 28, Bristol reported encouraging second-quarter results with revenues growing 13% from the pandemic-weakened quarter a year ago. Revenues were 4% above the consensus estimate. One of the major debates on Bristol is its ability to grow revenues, so the “beat” is an indicator that we are on the right track.

Adjusted earnings per share of $1.93 rose 18% from a year ago and were slightly higher than the $1.90 consensus estimate. The company reiterated its full-year 2021 revenue and earnings guidance. Net debt was trimmed about 7% from the year end – an important metric that we are watching.

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

BMY shares fell 1% in the past week and have about 14% upside to our 78 price target. The shares remain near their 2020 pre-pandemic high and trade just below their 2018 high. We remain patient with BMY shares and continue to have strong conviction in the company’s underlying fundamentals, but due to the share rise we recently reduced the rating from Strong Buy to Buy. BUY

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 encouraging fiscal fourth-quarter results, particularly with a strong new order flow, and provided favorable and longer-term guidance. The company’s fundamentals are improving, and management is helping boost investor confidence by providing more visibility.

In the quarter, earnings of $0.84/share rose 5% from a year ago, and were 1 cent above the consensus estimate of $0.83. Revenues rose 8% compared to a year ago and were in line with the consensus estimate.

Product revenues rose 8% and product orders grew 31% – encouraging as equipment revenues, particularly Infrastructure Platforms (grew 13%), have been a laggard segment. Enterprise orders, which have been a concern due to their flat/sluggish growth that suggested declining relevancy, rose an impressive 25%. Some of the year/year strength was due to pandemic-weakened orders a year ago, but clearly not all. Strong product sales and orders implies growing relevancy and competitiveness, as well as what appears to be a recovery in underlying demand. In many ways, Cisco shares are driven by revenues, with little need for expanding margins although this would help the shares’ valuation multiple.

In the quarter, operating margin progress was mixed as component shortages and cost pressures weigh on results.

Cash flow from operations was strong at $4.5 billion, up 18% from a year ago. Cisco’s ability to generate cash is a key aspect of the story – this quarter’s robust results provide further support to Cisco’s underlying value. The company returned $2.4 billion of this quarter’s cash flow to investors through dividends and repurchases.

One negative practice we are wary of, however, is that Cisco uses much of its cash flow to make acquisitions. This is in effect a replacement for R&D spending, but as acquisition spending doesn’t hit the income statement like R&D spending does, this practice artificially boosts Cisco’s profitability. For the full fiscal year, the company generated $15.5 billion in operating cash flow, but spent almost half of it on acquisitions. Had this $7 billion been R&D spending, it would have reduced net income by 66%. For reference, its actual R&D spending was about $6.5 billion. Capital spending was only $700 million.

Also, acquisitions usually bring revenues, providing a boost to revenue growth that has almost nothing to do with the company’s core products. Anyone can acquire revenues and this may be hiding dull trends in Cisco’s core revenues. This gaming will likely push us to sell the stock sooner than if its earnings were of higher quality.

Cisco gave FY2022 guidance for revenues to increase between 5%-7% and earnings to grow by about 6%. Both were modestly higher than consensus estimates. The earnings guidance range is remarkably narrow at +/- 1% around the midpoint. We understand they have a strong $31 billion backlog and $22 billion in deferred revenue, both of which provide considerable revenue and profit visibility. But we are fairly confident that the company’s earnings guidance is very conservative – that is the only way it can provide such a narrow range without risking a “miss” in some future quarter.

This is the first time in years that the company has given year-ahead guidance. The management seems to be showing more confidence in their outlook, both from underlying demand and from their years-long efforts to improve their competitiveness. Helping to highlight this confidence, which of course is contagious on Wall Street, will be their upcoming Investor Day on September 15.

All-in, an encouraging quarter.

CSCO shares rose 5% in the past week and have about 2% upside to our recently increased 60 price target. We continue to like Cisco. BUY

Coca-Cola (KO) is best-known for its iconic soft drinks yet nearly 40% of its revenues come from non-soda beverages across the non-alcoholic spectrum. Its global distribution system reaches nearly every human on the planet. Coca-Cola’s longer-term picture looks bright but the shares remain undervalued due to concerns over the pandemic, the secular trend away from sugary sodas, and a tax dispute which could cost as much as $12 billion (likely worst-case scenario). The relatively new CEO James Quincey (2017) is reinvigorating the company by narrowing its over-sized brand portfolio, boosting its innovation and improving its efficiency, as well as improving its health and environmental image. Coca-Cola’s balance sheet is sturdy, and its growth investing, debt service and dividend are well-covered by free cash flow.

On July 21, Coca-Cola reported encouraging second-quarter results, with adjusted earnings of $0.68/share, beating the consensus earnings estimate of $0.56 and much stronger than the $0.42 earned a year ago during the depths of the pandemic. Compared to two years ago, unit case volumes matched the two-year-ago level, not bad considering that parts of the global economy remained subdued. The company raised its full-year guidance for organic revenue growth, adjusted EPS and free cash flow. All-in, a good quarter.

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

KO shares slipped 2% in the past week and have about 14% upside to our 64 price target. The stock continues to reflect Coke’s earnings power even as the pandemic resurgence may delay a full return to normal in consumption patterns. BUY

Dow Inc. (DOW) merged with DuPont to create DowDuPont, then split into three companies in 2019 based on product type. The new Dow is the world’s largest producer of ethylene/polyethylene, the most widely used plastics. Investors undervalue Dow’s hefty cash flows and sturdy balance sheet largely due to its uninspiring secular growth traits and its cyclicality. The shares are driven by: 1) commodity plastics prices, which are often correlated with oil prices and global growth, along with competitors’ production volumes; 2) volume sold, largely driven by global economic conditions, and 3) ongoing efficiency improvements (a never-ending quest of all commodity companies). Investors worry about a cyclical peak and whether Dow will squander its vast free cash flow. We see Dow as having more years of strong profits before capacity increases signal a cyclical peak, and expect the company to continue its strong dividend, reduce its pension and debt obligations, repurchase shares slowly and restrain its capital spending.

On July 22, Dow reported a strong second quarter, with adjusted earnings of $2.72/share, about 16% above the consensus estimate of $2.35 and sharply higher than the $(0.26) loss a year ago in the depths of the pandemic. Management has an encouraging outlook for volumes and pricing and for its ability to generate higher profits on comparable revenues. While profits may be peaking in coming quarters, they will likely remain elevated rather than fall off sharply. Industry capacity increases are coming next year, but we do not see large price cuts from our current vantage point. We would like to see Dow generate more free cash flow, trim its debt and issue fewer stock options.

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

Dow shares rose 1% this past week and have 23% upside to our 78 price target. HOLD

Merck (MRK) shares are undervalued as investors worry about Keytruda, a blockbuster oncology treatment (about 30% of revenues), facing generic competition in late 2028. Also, its Januvia diabetes treatment may see generic competition next year, and like all pharmaceuticals it is at risk from possible government price controls. Yet, Keytruda is an impressive franchise that is growing at a 20% rate and will produce solid cash flow for nearly seven more years, providing the company with considerable time to replace the potential revenue loss. Merck’s new CEO, previously the CFO, will likely accelerate Merck’s acquisition program, which adds both return potential and risks to the story. The company is highly profitable and has a solid balance sheet. It spun off its Organon business in June and we think it will divest its animal health sometime in the next five years.

On July 29, Merck’s reported satisfactory second-quarter results. Revenues grew 19% from a pandemic-weakened year-ago quarter (excluding favorable currencies) and were slightly ahead of consensus estimates. Keytruda sales were strong. Adjusted earnings increased 28% from a year ago but fell slightly short of the $1.33 consensus estimate. Higher costs led to the earnings “miss” but this seems more like analysts being too optimistic rather than any fundamental issues weighing on the company. Merck’s balance sheet and cash flow looked solid. The company raised its full-year revenue guidance, reiterated its confidence in its new product pipeline and is planning on small-to-large acquisitions.

Berkshire Hathaway trimmed its stake in Merck, along with Bristol-Myers Squibb and General Motors by 10-15% in the second quarter. The company still holds sizeable positions in these names.

Merck shares slipped 1% this past week and have about 27% upside to our 99 price target. BUY

Otter Tail Corporation (OTTR) is a rare utility/industrial hybrid company, with a $2 billion market cap. The electric utility has a solid and high-quality franchise, with a balanced mix of generation, transmission and distribution assets that produce about 75% of the parent company’s earnings, supported by an accommodative regulatory environment. The industrial side includes the Manufacturing and Plastics segments. Otter Tail has an investment-grade balance sheet, produces solid earnings and prides itself on steady dividend growth. The unusual utility/manufacturing structure is creating a discounted valuation, which might make the company a target for activists, as the two parts may be worth more separately, perhaps in the hands of larger, specialized companies.

On August 2, Otter Tail reported strong second-quarter results, with earnings rising 141% from a year ago and were nearly double the consensus estimate. Full-year guidance was raised by about 40%. The profit surge was driven by the Plastics segment, as PVC resin supplies were exceptionally tight, largely due to the Texas winter storms, creating a PVC pipe shortage that allowed Otter Tail to sharply raise its PVC pipe prices. The company anticipated that these unusual conditions would last through 2021 but moderate into 2022. Electric segment profits rose a steady 5%. The company is progressing through its Minnesota rate case – we anticipate a benign outcome. Otter Tail’s balance sheet remains in good shape, although the steady expansion of its electric utility rate base continues to siphon off considerable cash flow.

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

OTTR shares slipped 1% this past week and have about 7% upside to our 57 price target. BUY

Buy Low Opportunities Portfolio

Arcos Dorados (ARCO), which is Spanish for “golden arches,” is the world’s largest independent McDonald’s franchisee. Based in stable Uruguay and listed on the NYSE, the company produces about 72% of its revenues in Brazil, Mexico, Argentina and Chile. Arcos’ leadership looks highly capable, led by the founder/chairman who owns a 38% stake. The shares are undervalued as investors worry about the pandemic, as well as political/social unrest, inflation and currency devaluations. However, the company is well-managed and positioned to benefit as local economies reopen, and it has the experience to successfully navigate the complex local conditions. Debt is reasonable relative to post-recovery earnings, and the company is currently producing positive free cash flow.

On August 11, Arcos reported encouraging second-quarter results. Revenues rebounded sharply, with systemwide same store sales nearly equal to the two-year-ago period, despite many of its restaurants still under government capacity and operating hours restrictions. About 75% of all of its restaurants are in full-operations with other partly-opened. Adjusted EBITDA was strong but still shy of where a fully recovered Arcos would produce. Net financial debt increased as the company produced negative free cash flow. Once at full-strength, we would expect cash flow to be robust.

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

ARCO shares rose 4% this past week after a steady slide and have about 33% upside to our 7.50 price target. The market appears to remain wary as the company needs to put up stronger free cash flow numbers and until there is more clarity on the effects of the pandemic, including the Delta variant, on its outlook. Also, the Brazilian central bank is raising interest rates, and political clashes at the highest levels threaten economic progress.

We remain steady in our conviction in the company’s recovery. The low share price offers a chance to add to or start new positions in ARCO. BUY

Aviva, plc (AVVIY), based in London, is a major European insurance company specializing in life insurance, savings and investment management products. Amanda Blanc was hired as the new CEO last year to revitalize Aviva’s laggard prospects. She has divested operations around the world to aggressively re-focus the company on its core geographic markets (UK, Ireland, Canada), and is improving Aviva’s product competitiveness, rebuilding its financial strength and trimming its bloated costs. Aviva’s dividend has been reduced to a more predictable and sustainable level with a modest upward trajectory. Excess cash balances are being directed toward debt reduction and potentially sizeable special dividends.

On Thursday, August 12, Aviva reported reasonable first-half 2021 results. Operating profits rose 17% from a year ago (but missed the consensus estimate), with the increase due to the operating improvements and divestitures over the past year. A major reason for the “miss” was a discretionary charge to boost its legacy life insurance reserves – real money but more reflective of prior errors than going-forward results. The company is making important and meaningful changes to its core business.

Much of our interest in Aviva is in what it plans to do with its current and future excess capital. The company raised its interim dividend by 5% to £0.35/share (about $0.97) and will return at least £4 billion (about $5.5 billion) by 2H 2022, mostly through share buybacks. It will complete £750 million starting “immediately.” The balance of the proceeds will go toward debt paydown. Activist investor Cevian (owns 5% stake) was not satisfied and is pressing for at least £5 billion in capital returns, as Aviva has plenty of excess capital and can return more than it is currently offering.

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

Aviva shares were flat this past week and have about 22% upside to our 14 price target. 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%). The market has little interest in Barrick shares. Yet, Barrick will continue to improve its operating performance (led by its new and 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 more cash than debt. 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 mixed second-quarter results. Adjusted earnings of $0.29/share rose 26% from a year ago and were about 12% above the consensus estimate. A production issue reduced its Carlin (Nevada) mine output but the company said it remains on track to meet full-year total company production guidance. Barrick continues to invest in new mining projects while maintaining a reasonable capital spending budget. We would have liked to have seen better results on volumes and costs. Barrick is a free cash flow story, so the negative free cash flow this quarter was disappointing, and tipped the balance sheet back into a net debt position (compared to the net cash a quarter ago).

The threat of local governments taking control of gold mines remains. As the free world shrinks, autocratic governments become more assertive about taking assets from Western companies. Most of Barrick’s production comes from countries unlikely to expropriate, but takings at the margin will weigh on the shares.

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

Barrick shares rose 1% this past week and have about 34% upside to our 27 price target.

Commodity gold prices rose about 1% to $1,804/ounce, although the 10-year Treasury yield ticked up to 1.27%. BUY

General Motors (GM) is making immense progress with its years-long turnaround. It is perhaps 90% of the way through its gas-powered vehicle turnaround, and is well-positioned but in the early stages of its electric vehicle (EV) development. GM Financial will likely continue to be a sizeable profit generator. GM is fully charged for both today’s environment and the EV world of the future, although the underlying value of its emerging EV business is unclear.

On August 4, GM reported strong results that were nevertheless held back by the chip shortage and a large $1.3 billion warranty expense. It appears that the company’s ability to generate ever-higher profits is maxed out. Future profits (adjusted for these one-time costs) will not likely be higher, but we see a tapering decay rate rather than a cliff. However, we also wonder what the eventual profitability of electric vehicles will be and the return on GM’s vast capital outlay. GM Finance and the overall balance sheet both look sturdy.

The shares reflect conservative but reasonably strong gas-powered vehicle profits but assign no value to the EV operations. This zero-value almost certainly is wrong but the EV operations have no sales or profits so the valuation is by definition speculative at this point. We’re keeping GM a Hold for now, as the risk/return balance isn’t as favorable as we would like for the Cabot Undervalued Stocks Advisory.

GM shares continued to slip, partly on news of yet another recall for its battery-powered Chevy Bolt, which will cost upwards of $1 billion, following a multi-billion-dollar recall last quarter. We are starting to wonder if battery fires are an endemic problem with EV batteries in general, or only with GM batteries. Either would weigh on our view of the profitability of GM’s EV future. However, it seems more likely to be a problem with GM’s current battery supplier, LG Chem of South Korea (their shares fell over 6% on the news). If this is the ultimate source of the problem, it clarifies GM’s urgency in building its own battery factories.

GM shares fell another 3% this past week and have 41% upside to our 69 price target. HOLD

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 straight-forward – 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.

The company’s second-quarter report on July 29 was encouraging. Revenues rose 14%, powered by a resurgence in Europe. Revenues were about 4% ahead of the consensus estimate. Adjusted net income rose 2% from a year ago and was 17% above the consensus estimate. However, adjusted EBITDA fell 1%, as the company spent more on marketing and battled rising transportation, brewery and packaging materials costs. Beating the revenue and earnings estimates is important as it supports our view that investors don’t fully appreciate the resiliency in Molson’s business. The company reaffirmed its 2021 full-year guidance. Molson’s debt balance is unchanged from year end but cash is starting to accumulate.

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

TAP shares slipped 3% in the past week and have about 43% upside to our 69 price target. BUY

Organon & Company (OGN) was recently spun off from Merck. It specializes in patented women’s healthcare products and biosimilars, and also has a portfolio of mostly off-patent treatments. Organon will produce better internal growth with some boost through smart yet modest-sized acquisitions. It may eventually divest its Established Brands segment. The management and board appear capable, the company produces robust free cash flow, has modestly elevated debt and will pay a reasonable dividend. Investors have ignored the company, but we believe that Organon will produce at least stable and large free cash flows with a reasonable potential for growth. At our initial recommendation, the stock traded at a highly attractive 4x earnings.

On August 12, Organon reported encouraging results, reaffirmed their full-year guidance and initiated a $0.28/share quarterly dividend which would produce a 3.0% yield.

Revenues rose 5% from a year ago and were about 4% above the consensus estimate. The company reaffirmed their outlook for $6.1 billion -$6.4 billion in full-year revenues. While the headwinds we highlighted in our initiation report remain in place, Organon highlighted on the conference call a wide range of initiatives and end-market trends that provide support for its positive outlook. Adjusted EBITDA of $627 million was about 12% above the consensus estimate.

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

OGN shares slipped 5% in the past week and have about 37% upside to our 46 price target (using the same target as the Cabot Turnaround Letter). 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. Also, as the sensors’ reliability is vital to safely 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.

Once a threat, electric vehicles are now an opportunity, as the company’s expanded product offering (largely acquired) allows it to sell more content into an EV than it can into an internal combustion engine vehicle. Risks include a possible automotive cycle slowdown, chip supply issues, geopolitical issues with China, currency and over-paying/weak integration related to its acquisitions.

On July 27, Sensata reported encouraging second-quarter results. Its earnings were sharply higher than the pandemic-weakened results a year ago and about 10% above the consensus estimate. Revenues were 72% higher than a year ago and were also above estimates. The company raised its full-year revenue and earnings guidance. Cash flow was robust and net debt increased modestly to fund the Xirgo acquisition.

Sensata announced their acquisition of Spear Power Systems, a lithium battery that will help expand Sensata’s efforts in battery management systems. The deal price was not announced.

ST shares were flat this past week and have about 26% upside to our 75 price target. BUY

Growth/Income Portfolio
Stock (Symbol)Date AddedPrice Added8/24/21Capital Gain/LossCurrent Dividend YieldPrice TargetRating
Bristol-Myers Squibb (BMY)04-01-2054.8268.5225.0%2.9%78.00Buy
Cisco Systems (CSCO)11-18-2041.3259.3243.6%2.4%60.00Buy
Coca-Cola (KO)11-11-2053.5856.014.5%2.9%64.00Buy
Dow Inc (DOW) *04-01-1953.5063.2618.2%4.4%78.00Hold
Merck (MRK)12-9-2083.4777.72-6.9%3.3%99.00Buy
Otter Tail Corporaton (OTTR)5-25-2147.1052.9212.4%2.9%57.00Buy
Buy Low Opportunities Portfolio
Stock (Symbol)Date AddedPrice Added8/24/21Capital Gain/LossCurrent Dividend YieldPrice TargetRating
Arcos Dorados (ARCO)04-28-215.415.756.3%0.0%7.50Buy
Aviva (AVVIY)03-03-2110.7511.527.2%5.1%14.00Buy
Barrick Gold (GOLD)03-17-2121.1320.12-4.8%1.8%27.00Buy
General Motors (GM)12-31-1936.6049.5735.4%69.00Hold
Molson Coors (TAP)08-05-2036.5348.4532.6%69.00Buy
Organon (OGN)06-07-2131.4233.165.5%46.00Buy
Sensata Technologies (ST)02-17-2158.5759.341.3%75.00Buy

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.Disclosure: The chief analyst of the Cabot Undervalued Stocks Advisor personally holds shares of every recommended security, except for “New Buy” recommendations. The chief analyst may purchase or sell recommended securities but not before the fourth day after any changes in recommendation ratings has been emailed to subscribers. “New Buy” recommendations will be purchased by the chief analyst as soon as practical following the fourth day after the newsletter issue has been emailed to subscribers.
*Note: DOW price is based on April 1, 2019 closing price following spin-off from DWDP.

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.