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Value Investor
Wealth Building Opportunites for the Active Value Investor

October 20, 2021

A few weeks ago, at the annual Morningstar Investment Conference in Chicago, two investing icons debated the merits of value versus growth. On the value side was Rob Arnott, founder and head of Research Affiliates, with Cathie Wood, founder and head of ARK Investment Management, on the growth side.

Value vs. Growth Showdown at Morningstar
A few weeks ago, at the annual Morningstar Investment Conference in Chicago, two investing icons debated the merits of value versus growth. On the value side was Rob Arnott, founder and head of Research Affiliates, with Cathie Wood, founder and head of ARK Investment Management, on the growth side.

The debate promised to be enlightening, with perhaps some foreshadowing of which style would perform best over the coming months and years.

Both investors oversee immense amounts of capital. While Research Affiliates itself doesn’t manage any funds directly, its strategies are delivered through $171 billion in ETFs and other products sold through various major financial institutions. ARK directly manages an estimated $52 billion in various mutual funds and other vehicles. Based in New York City, ARK is a relative newcomer, having been founded in 2014. Appropriately enough, Research Affiliates is located on the opposite end of the country, in Newport Beach, California, and was founded in 2002.

Arnott takes an academic-based approach to investing. His computer science and mathematics roots, 130 articles published in Journal of Portfolio Management, Financial Analysts Journal and elsewhere, along with his industry experience, have earned him impressive accolades, including seven Graham and Dodd scrolls. In keeping with this background, Research Affiliates uses a quantitative approach to assemble stocks into index-like smart beta ETFs and other products (We view smart beta as an expensive name applied to pedestrian ideas like value, momentum, volatility and market cap).

ARK, of course, focuses on highly innovative companies like Tesla, Teledoc, Roku and Square. Woods’ style is concentrated: the top ten stocks in the ARK Innovative fund comprise 51% of the total portfolio weight. The companies are leaders in new and rapidly growing industries. Valuations on conventional metrics are often meaningless (what does the 82x EBITDA multiple for Tesla really mean?).

Research Affiliates funds, however, are highly diversified: one ETF1 that uses its strategy has only about 15% of its portfolio weight in its top ten holdings and owns over 900 different stocks. Arnott’s approach is contrarian – looking to invest in a broad basket of stocks with out-of-favor traits. His approach can be summarized as: the largest and most persistent active investment opportunity is long-horizon mean reversion – basically, that trends will eventually fade and reverse.

Wood brings impressive real-world investment experience, including economist roles at stock-picking investment giants like The Capital Group and Jennison Associates, later followed by her position as CIO of Global Thematic Strategies and portfolio manager overseeing $5 billion at highly respected AllianceBernstein. Her approach can be summarized as: the opportunities resulting from disruptive innovation often are underestimated or misunderstood by traditional investment managers.

Both managers have reasons to be a bit defensive. The ARK Innovation fund year-to-date through September 30 has lost 11.2%, a difficult year when the S&P 500 has gained over 15%. Research Affiliates’ strategies have broadly lagged for years.

The debate itself was a bit of a letdown. Neither manager made a compelling case for either a continuing or a reversal of current growth and value trends. Both managers supported their strategies, but mostly talked past each other.

In a rare direct hit, Arnott said that investment funds that have an excessively strong year subsequently severely underperform, and highlighted some of ARK Investment’s funds as having done this. He also mentioned how investors’ high expectations for tech stocks were more than priced-in at the 2000 dot-com peak, leading to a decade of weak, or worse, returns. Arnott attributed much of the damage to disruptors getting disrupted, leading to their unraveling.

Wood countered that Arnott was backward-looking, and that innovation lowers costs for users, which broadens the market and leads to rapidly growing demand. She added that for innovators, there isn’t mean-reversion. Wood sounded like a skilled stock picker who focuses on detailed, company-specific fundamentals, out-year valuations and sensible portfolio management.

Our conclusion was that neither side “won” the debate. But, we found that we have a lot more in common with Woods than Arnott. While we like Arnott’s contrarian mindset, his approach is too academic for us. And it translates into excessively diversified baskets of stocks that rely too much on historical relationships that may no longer apply.

We like Woods’ stock-picking mindset and how she concentrates her portfolio on the highest-conviction stocks. This, to us, is real investing with the greatest chance for exceptional performance. Her valuation methodology (using 3-5-year revenue and EBITDA projections and target valuation multiple) and her diligent monitoring of each company’s progress along the way, is also quite similar to ours – which surprised us!

Where we differ from Woods is related to her focus on exceptionally fast growers, often with little valuation support. When things go wrong, it probably means that her company’s fast growth is ending, with little chance for a rebound. Valuation support could be 30-70% below the current stock price, but even then it can be difficult to discern this with much conviction. How does one gauge where the fundamentals will stop for an unraveling former tech leader?

Our approach emphasizes stocks with good fundamentals but whose shares are out of favor and meaningfully undervalued. Expectations are already low, so the downside is limited but the upside potential remains plentiful. Our ideas come from most sectors, so macroeconomic factors like rising interest rates won’t hit all of our recommended stocks at the same time or in the same way. One way to think about this is that our holdings are concentrated in number but diversified in terms of what drives them. This produces less portfolio volatility, helping investors stay with the program when markets get difficult.

Perhaps the key takeaway is that we found it useful to compare and contrast our approach with those of two industry icons. This helps us better understand the strengths and weaknesses of how we select stocks, while it also provides some insights into how we can expand and improve our process. And it affirms our belief that the best investment approach is one with a strong anchor.

And that is a win-win in any debate.

  1. Pimco’s RAFI Dynamic Multi-Factor U.S. Equity ETF.

We launched in last week’s edition a new Earnings and Valuation table. This table will make it easier to see the trends in earnings estimates, and the P/E valuations, for all of the recommended companies. We welcome your feedback and suggestions for further improvements.

Share prices in the table reflect Tuesday (October 19) closing prices. Please note that prices in the discussion below are based on mid-day October 19 prices.

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

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Today’s Portfolio Changes

Last Week’s Portfolio Changes
Otter Tail Corporation (OTTR) – Moving from Hold to Sell.

Upcoming earnings releases
October 21: Dow (DOW)
October 26: Sensata Technologies (ST)
October 27: Bristol-Myers Squibb (BMY)
October 27: Coca-Cola Company (KO)
October 27: General Motors (GM)
October 28: Merck (MRK)
October 28: Molson Coors Beverage Company (TAP)
November 2: ConocoPhillips (COP)
November 4: Barrick Gold (GOLD)

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.

There was no significant company-specific news in the past week. Bristol-Myers is expected to report third-quarter earnings of $1.93.

BMY shares rose 1% in the past week and have about 36% upside to our 78 price target.

Given the shares’ ever-falling valuation, now at 6.9x estimated 2023 earnings, especially against relatively steady earnings estimates, we think the stock looks increasingly attractive. Either we are completely wrong about the company’s fundamental strength, or the market must eventually recognize Bristol’s earnings stability and power. We believe the earning power, low valuation and 3.4% dividend yield that is well-covered by enormous free cash flow make a compelling story. 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.

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

CSCO shares rose 3% in the past week and have about 8% upside to our 60 price target. The shares remain attractively valued, and offer a 2.7% dividend yield. 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.

Coke may be spinning off via IPO its Coca-Cola Beverages Africa business next year, and expecting a value of around $8 billion. Coke holds a 66.5% stake. The business is the eighth-largest Coca-Cola bottling partner worldwide and the largest on the continent. It serves 13 countries in sub-Saharan Africa and generates about 40% of Coca-Cola’s total sales in Africa.

Coca-Cola is expected to report third-quarter earnings of $0.58/share.

KO shares slipped 1% this past week and have about 19% upside to our 64 price target.

While the valuation is not statistically cheap, the shares remain undervalued given the company’s future earning power and valuable franchise. Also, the value of Coke’s partial ownership of a number of publicly traded companies (including Monster Beverage) is somewhat hidden on the balance sheet, yet is worth about $23 billion, or 9% of Coke’s market value. This $5/share value provides additional cushion supporting our 64 price target. KO shares offer an attractive 3.1% dividend yield. 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, its cyclicality and concern that management will squander its resources. 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). 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.

There was no significant company-specific news in the past week. The consensus estimate for Dow’s upcoming earnings report is $2.55/share.

Dow shares rose 2% this past week and have 32% upside to our 78 price target.

Analysts are somewhat pessimistic about 2022 earnings (they assume a 30% decline from 2021). The high 4.7% dividend yield adds to the shares’ appeal – especially in a low-interest-rate environment. In a prolonged downcycle, the dividend could be cut, but that could be years away and even then a cut isn’t a certainty if Dow can manage its balance sheet and down-cycle profits reasonably well. BUY

Merck (MRK) shares are undervalued as investors worry about Keytruda, a blockbuster oncology treatment (about 30% of revenues) which faces 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, is accelerating Merck’s acquisition program, which adds 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.

There was no significant company-specific news in the past week. Merck is expected to report third-quarter earnings of $1.54/share.

With hopes rising for its Covid treatment, Merck’s near-term share price movements will likely be linked to those of Moderna and other Covid vaccine makers.

Merck shares slipped 1% this past week and have about 25% upside to our 99 price target. Valuation remains attractive, especially as earnings estimates continue to tick up.

We note that Keytruda’s patent expiration doesn’t happen until late 2028. If the company produces earnings close to these estimates and continues to provide evidence of solid post-Keytruda prospects, as we expect, the shares are considerably undervalued.

Merck produces generous free cash flow to fund its current dividend (now yielding 3.3%) as well as likely future dividend increases, although its shift to a more acquisition-driven strategy will slow the pace of increases. BUY

Otter Tail Corporation (OTTR) is a rare utility/industrial hybrid company. Its electric utility has a solid and high-quality franchise, while its industrial side includes manufacturing and plastics operations.

Last week, we moved OTTR from HOLD to SELL as the stock reached (exceeded) our 57 price target and the risk/return became neutral. The cyclical surge in the manufacturing segment profits may have one more step-up but are probably capped afterwards, and may face pressure from rising costs. The OTTR investment generated a 24% total return since our initial recommendation about five months ago. SELL

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. The shares are depressed as investors worry about the pandemic, as well as political/social unrest, inflation and currency devaluations. However, the company has a solid brand and high recurring demand and is well-positioned to benefit as local economies reopen. The leadership looks highly capable, led by the founder/chairman who owns a 38% stake, and 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.

Macro issues will continue to move ARCO shares. We would like to see stability/strength in the Brazilian currency after its weakness since the pandemic. The pace of vaccinations in Brazil appears to be accelerating, which should boost economic results later this year, likely helping Arcos’ business. The political situation is edgier, as slow job growth increases the pressure on the president, Jair Bolsonaro, in advance of the October 2022 election. See additional comments in our September 1 letter.

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

ARCO shares slipped another 3% this past week, continuing their slide. Despite the sharp 30% decline from their mid-summer peak, the shares are only 13% below our initial recommendation at $5.36 – reflecting the benefit of buying when expectations are low. The stock has about 61% upside to our 7.50 price target.

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. BUY

Aviva, plc (AVVIY), based in London, is a major European company specializing in life insurance, savings and investment management products. Amanda Blanc was hired as the new CEO in July 2020 to revitalize Aviva’s laggard prospects. She divested operations around the world to 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 and share repurchases.

Much of our interest in Aviva is in what it plans to do with its current and future excess capital, including the proceeds from its divestitures. So far, the company has recently raised its interim dividend by 5% to £0.0735/share (about $0.20 per ADS, as there are 2 underlying common shares per ADS, and the exchange rate is about $1.38) and will return at least £4 billion (about $5.5 billion) by 2H 2022, mostly through share buybacks. It will complete £750 million of the buybacks “immediately.” The balance of the divestiture proceeds will go toward debt paydown.

We anticipate that the company will pay a final (year-end) dividend of about twice its interim dividend, for a full-year total recurring dividend of about $0.61/ADS. On this, the shares would produce an annual dividend yield of about 5.7% – rather appealing in an era when AA-rated corporate bonds yield about 1.8%

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

Aviva shares were flat this past week and have about 28% 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 production numbers for the third quarter, with gold output rising 5% from the second quarter. The 1.09 million ounces was slightly below the 1.14 million ounces consensus estimate. Barrick said it remains on track to meet its full-year production guidance. The company said its all-in sustaining costs for gold and copper would be about 4-6% lower than in the prior quarter. All-in sustaining costs is an industry-standard metric to help investors understand a mining company’s production costs.

Commodity gold prices increased fractionally to $1,768/ounce while the 10-year Treasury yield continued to move up, now at 1.63%. The U.S. Dollar Index, another driver of gold prices (the dollar and gold usually move in opposite directions) is trading at 93.75, dipping about 1% and interrupting its upward move since this past May. The index remains about 5% below its pre-Covid late-2019 level of about 99. Per-ounce gold prices seem range-bound between $1,700 and $1,900 for now.

The market continues to be impatient with gold stocks, in no small part due to rising interest rates. If interest rates keep rising, it certainly is possible that gold prices slip further. As Barrick’s shares are sensitive to gold prices, they will fall farther and faster, and have the possibility of dipping into the mid-teens. Investors not comfortable with this possibility should probably sell their Barrick shares.

Our view is to hang onto Barrick shares, wait until the momentum sellers clear out, then buy more. Fundamentally, the company is doing well and has solid leadership, quality mines and a very strong balance sheet. It might take a long time, but we remain confident that eventually the shares will hit the target price.

Not to get too far into the weeds, but if the U.S. economy stalls out (inevitable at some point), and if/when the stock market tumbles, it seems highly likely that the Fed will return to a zero-rate environment and the federal government will unleash another huge stimulus package. These would probably be an unmitigated positive for gold prices and for Barrick shares.

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

Barrick shares rose 2% this past week and have about 41% upside to our 27 price target. The price target is based on 7.5x estimated steady-state EBITDA and a modest premium to our estimate of $25/share of net asset value.

On its recurring $.09/quarter dividend, GOLD shares offer a reasonable 1.9% dividend yield. Barrick will pay an additional $0.42/share in special distributions this year (no clarity on 2022 special dividends), lifting the effective dividend yield to 4.1%. BUY

ConocoPhillips (COP), based in Houston, Texas, is the world’s largest independent E&P company, with about two-thirds of its production in the United States. Conoco’s shares are depressed, as investors avoid climate-unfriendly companies, have low interest in exposure to volatile and unpredictable oil and gas prices, worry that company management will lose its new-found capital spending discipline, and are concerned that OPEC+ will reopen their spigots, sending oil prices tumbling.

We see resilient oil prices, as demand remains strong, alternatives aren’t yet plentiful enough, supply growth is restrained as shareholders prioritize cash flow rather than capital spending, and as majors seek to reduce their carbon footprint. We like Conoco’s low valuation, investment-grade balance sheet, strong free cash flow, and public commitment to limiting its capital spending to 50% of its annual cash flow. The shares offer a respectable base-level dividend to shareholders that appears rock-solid.

West Texas Intermediate crude is currently trading at $83.55/barrel, up 4% this past week, while natural gas in the United States is priced at $5.05, down 7% from last week. At these prices, we anticipate considerable profits from Conoco. We expect more volatility in commodity prices, particularly as hedge funds and other speculators have boosted their bets recently. We continue to believe that prices are headed up, but near-term sentiment changes will create more volatility in both directions due to the higher participation by short-term traders.

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

ConocoPhillips shares rose 3% this past week and have about 6% upside to our 80 price target. We note another 3-6% increase in the consensus earnings estimates, likely reflecting the steady increase in oil and natural gas prices. On its recurring $.46/quarter dividend, COP shares offer a 2.4% dividend yield. 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.

The shares reflect conservative but reasonably strong gas-powered vehicle profits but assign essentially no value to the EV operations. This near-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.

There was no significant company-specific news in the past week. GM is expected to report third-quarter earnings of $0.76/share.

GM shares slipped 4% this past week and have 22% upside to our 69 price target.

The valuation remains attractive. The P/E multiple is helpful, but not a precise measure of GM’s value, as it has numerous valuable assets that generate no earnings (like its Cruise unit, which is developing self-driving cars and produces a loss), its nascent battery operations, and its other businesses with a complex reporting structure, nor does it factor in GM’s high but unearning cash balance which offsets its interest-bearing debt. However, it is useful as a rule-of-thumb metric, and provides some indication of the direction of earnings estimates, and so we will continue its use here. We are raising our rating to 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.

There was no significant company-specific news in the past week. MolsonCoors is expected to report third quarter earnings of $1.54/share.

TAP shares slipped 3% in the past week and have about 55% 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 8.0x estimated 2022 results, still among the lowest valuations in the consumer staples group and below other brewing companies. 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.

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

OGN shares jumped 7% this past week and have about 31% upside to our 46 price target (using the same target as the Cabot Turnaround Letter). The shares continue to trade at a remarkably low valuation and offer an attractive 3.2% 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 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.

There was no significant company-specific news in the past week. Sensata is estimated to report third-quarter earnings of $0.84/share.

ST shares rose 1% this past week and have about 31% upside to our 75 price target. The stock trades at an attractive valuation, including its 10.9x EV/EBITDA multiple based on estimated 2022 results. BUY

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

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.

Growth/Income Portfolio
Stock (Symbol)Date AddedPrice Added10/19/21Capital Gain/LossCurrent Dividend YieldPrice TargetRating
Bristol-Myers Squibb (BMY)04-01-2054.8257.595.1%3.4%78.00Buy
Cisco Systems (CSCO)11-18-2041.3255.7434.9%2.6%60.00Buy
Coca-Cola (KO)11-11-2053.5854.151.1%3.0%64.00Buy
Dow Inc (DOW) *04-01-1953.5059.1910.6%4.7%78.00Buy
Merck (MRK)12-9-2083.4779.49-4.8%3.3%99.00Buy
Otter Tail Corporaton (OTTR)5-25-2147.1057.7522.6%2.7%57.00Sell
Buy Low Opportunities Portfolio
Stock (Symbol)Date AddedPrice Added10/19/21Capital Gain/LossCurrent Dividend YieldPrice TargetRating
Arcos Dorados (ARCO)04-28-215.414.65-14.0%7.50Buy
Aviva (AVVIY)03-03-2110.7510.951.9%5.4%14.00Buy
Barrick Gold (GOLD)03-17-2121.1319.31-8.6%1.9%27.00Buy
ConocoPhillips (COP)9-24-2165.0275.3215.8%2.4%80.00Buy
General Motors (GM)12-31-1936.6056.8555.3%69.00Buy
Molson Coors (TAP)08-05-2036.5344.9623.1%69.00Buy
Organon (OGN)06-07-2131.4235.0611.6%46.00Buy
Sensata Technologies (ST)02-17-2158.5757.00-2.7%75.00Buy

*Note: DOW price is based on April 1, 2019 closing price following spin-off from DWDP.

Buy – This stock is worth buying.
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.
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
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P/E 2022P/E 2023
Buy Low Opportunities Portfolio
Current 2022
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Prior 2022
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Prior 2023
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2022 Estimate
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Current price is yesterday’s mid-day price.
CSCO: Estimates are for fiscal years ending in July