April 10, 2025

Wading Through the Tariff Rubble

There have been plenty of market meltdowns over the years. Few have matched what’s happened since last Wednesday evening – so-called “Liberation Day” – when President Trump announced plans to place high tariffs on … the rest of the world. In the week since, stocks nose-dived by 13%, with both the Nasdaq and Russell 2000 swinging to a bear market last Thursday and Friday and the S&P 500 nearly following suit.

Until yesterday.

That’s when President Trump issued a 90-day pause on most tariffs, but upped already-escalating tariffs on China to 125% after China upped theirs to 84%. But the moratorium on all the other tariffs was a sigh of relief for the market, and stocks proceeded to have their best day in years, with the S&P 500 up more than 9% and the Nasdaq up more than 12%. That’s still not enough to fully repair the damage that’s been done in the last week (or last two months), but it’s quite a start.

Who knows how the tariff situation will evolve in the coming hours, let alone the coming days. So it’s best to focus on the evidence of the stock market.

Until yesterday afternoon, sentiment had rarely been worse, volatility, as measured by the VIX, is as high as it was during the Covid crash (a stark departure from just two weeks ago), and more than 1,200 stocks on the New York Stock Exchange were trading at 52-week lows. That’s all historically bad. But, taking the contrarian perspective, it could mean that the worst of the selling may be nearing an end. Typically, when the number of NYSE lows tops 1,000 (let alone 1,200), it coincides with a market bottom, as my fellow value investing expert Clif Droke noted in his Cabot Turnaround Letter update last Friday. Super-negative investor sentiment is often a “buy” signal. And volatility has almost never stayed this high for long.

Perhaps Tuesday was the bottom. Maybe it’s still days, weeks or even months away. The bigger-picture question is whether this market crash will mimic the February/March 2020 Covid crash, which lasted all of six weeks (technically, this crash started about seven weeks ago, on February 19), or be more akin to the 2007-09 Great Recession bear market, which was a slower burn that didn’t bottom for about 16 months. The answer will likely depend on how long Trump keeps up the tariff charade, and what happens to the global economy – Goldman Sachs put the odds of a U.S. recession at 45% prior to yesterday’s pause.

Until we get answers, things will remain volatile for some time. On the other side of this mess, there should be TONS of bargains. But right now, it’s about weathering the storm. And that means cutting ties with stocks that have simply fallen too much and would require a herculean effort – or simply too much time – just to get back to break-even. So today, we say goodbye to Peloton (PTON), which has plummeted along with most small caps and with the prospect of a greatly impaired economy slowing the company’s recent momentum.

In the meantime, if you have any questions about how to navigate these tariff-infested waters, please don’t hesitate to email me at chris@cabotwealth.com.

Also, please join me and my colleague Brad Simmerman on our weekly investment podcast, Cabot Street Check. You can find it wherever you get your podcasts, or you can watch us on the Cabot Wealth Network YouTube channel. Episodes “drop” every Friday, so we will have our latest thoughts on all things tariffs tomorrow.

This Week’s Portfolio Changes

Bank of America (BAC) Moves from Buy to Hold

Peloton (PTON) Moves from Hold to Sell

Last Week’s Portfolio Changes

Buy Energy Transfer LP (ET) with a 24.00 price target

Upcoming Earnings Reports

Tuesday, April 15 – Bank of America (BAC)

Growth & Income Portfolio

Growth & Income Portfolio stocks are generally higher-quality, larger-cap companies that have fallen out of favor. They usually have some combination of attractive earnings growth and an above-average dividend yield. Risk levels tend to be relatively moderate, with reasonable debt levels and modest share valuations.

Aegon Ltd. (AEG) is a mid-cap ($8.7 billion) Dutch life insurance and financial services company that’s nearly 180 years old. Its largest and perhaps most recognizable business is Transamerica, a leading provider of life insurance, retirement and investment solutions in the U.S. With more than 10 million customers, Transamerica targets America’s “middle market,” and its wholly owned insurance agency World Financial Group – which boasts 86,000 independent insurance agents – helps facilitate the insurance part of Transamerica’s business plan.

Aegon also does business in the United Kingdom, as Aegon U.K. is a leading investment platform with 3.7 million customers and is trying to become the U.K.’s leading digital savings and retirement platform. Aegon Asset Management is the company’s global asset management wing. And Transamerica Life Bermuda is the name for Aegon’s life insurance business in Asia. The company has customers all over the globe, with major hubs in Spain, Portugal, France, Brazil and China.

Aegon’s sales peaked in 2019, when the company raked in a record $68.7 billion as the pre-Covid market hit a crescendo. Covid hurt ($42 billion in 2020), and the 2022 bear market hurt even worse (Aegon actually lost $4 billion that year), but the company has since rebounded, with 2023 revenues coming in at $32 billion. While revenues mostly held steady in 2024, the company became profitable again, reporting $797 million in net profits in the second half of 2024 alone, with free cash flow of $414 million. This year, the company expects its operating capital generation (the amount of capital a company generates from its ongoing business operations, excluding one-time events) to improve 46% and its cost of equity to shrink. Meanwhile, Aegon is returning its extra cash to shareholders in droves, announcing a $1.25 billion share repurchase program over the next three years, and upping its dividend payout by 19% last year, resulting in a very generous current dividend yield of 6.2%.

AEG shares trade at 6.8x forward earnings estimates, 0.52x sales and have an enterprise value/revenue ratio of just 0.5 – cheap on all fronts, and with the growth picture improving. AEG is far from sexy, but it has a history of churning out steady returns.

AEG shares are down 17% since we last wrote, roughly in line with the bloodbath in European stocks. There was no company-specific news, and nothing has changed with the story here, as there are no tariffs on life insurance. But the investment solutions part of the business has surely taken a hit in the last week, which is perhaps why AEG has fallen more than some European titles. But that cuts both ways: when markets bounce back, so should AEG’s share price. Meanwhile, the life insurance side of the business should be unaffected.

AEG shares now have 45% upside from their current price. You could reasonably buy here or wait for the stock to establish a clear bottom to buy, if you haven’t already done so. Regardless, I think the recent selling has created a significant discount in a stock that had gotten off to a good start for us prior to the tariff fiasco. BUY

Bank of America (BAC) is perhaps the most resilient large U.S. bank. It bounced back from the Great Recession of 2007-08, when BAC shares lost 93% of their value. The stock has rebounded after losing half its value from the 2022 bear market and subsequent implosion of Silicon Valley and Signature banks in March 2023. Now, the bank has never been more profitable or generated more revenue. And at 9.5x forward earnings estimates, it’s cheap.

Warren Buffett has long seen value in BofA; it’s still the third-largest position in the Berkshire Hathaway portfolio, despite some recent trimming. So, we’re not breaking any new ground here. But sometimes the obvious choice is the right one. The combination of growth, value (BAC also trades at just 0.98x book, cheaper than all but Citigroup among the big banks), and history of resilience makes for an enticing formula.

BAC will again need to prove how resilient it is after the past week knocked shares back more than 17% (U.S. banks as a group were down 13%). Tariffs, if maintained as is, will undoubtedly have a negative impact on the U.S. economy, which will hit banks hard. So it would be reasonable to kick BAC to the curb given the steep losses and prospects of a potential recession. But I’m inclined to see how the next week plays out. For one, I want to see if Trump keeps the tariffs as they are despite overwhelming opposition even from inside his own party. And two, Bank of America reports earnings next Tuesday, April 15. Analysts are anticipating 4.2% revenue growth with 7.9% EPS growth. How actual results compare to those estimates could be a window into the bank’s health, and a beat could spark a rebound if the market can at least somewhat get its act together in the next week.

With those two potential catalysts in mind, I’m going to keep BAC in the portfolio for at least another week. But given our steep loss in the stock thus far, I think it’s prudent to downgrade to Hold. If you already own some, hang in there. But I wouldn’t be starting any new positions in the stock, at least not until after the earnings report. MOVE FROM BUY TO HOLD

BYD Company Limited (BYDDY) has long been one of China’s top automakers. What really sent its sales into hyperdrive, however, was when it made the switch to all battery electric and hybrid plug-in vehicles in 2022. Revenues instantly tripled, going from $22.7 billion in 2020 (a record, despite the pandemic) to $63 billion in 2022. In 2023, sales improved another 35%, to $85 billion. In 2024, revenues ballooned to $107 billion, or 25% growth, with another 24% growth expected in 2025. The EV maker has emerged as a legitimate rival to Tesla.

But there’s even greater upside. Right now, BYD does roughly 90% of its business in China, accounting for one-third of the country’s total sales of EVs and hybrids this year. The company is trying to change that, recently opening its full-assembly plant outside of China, with a new plant in Thailand starting deliveries. A plant in Uzbekistan puts together partially assembled vehicles. A plant in Brazil is expected to open early next year. And BYD has plans to open more new plants in Cambodia, Hungary, Indonesia, Pakistan and Turkey. Mexico and Vietnam are possible targets as well. Despite no plans to do business in America just yet, BYD is on the verge of becoming a global brand.

And while BYDDY stock has fared well, it hasn’t grown as fast as the company. At 17.3x earnings estimates, BYDDY currently trades at less than a fifth of its five-year average forward P/E ratio (89.6). And its price-to-sales (1.12) ratio is about half the normal five-year ratio. As BYD continues to expand globally, look for its valuation to catch up with its industry-leading performance.

BYD shares were off 12% this past week, but I don’t expect them to stay down long. That’s because BYD’s lack of presence in the U.S. market is currently an advantage, as it will thus not be subject to the 104% tariffs that took effect on Wednesday. Its expansion to other parts of the globe should be unaffected – and you could make the case it will actually accelerate as Tesla sales continue to slow all across Europe.

BYD will release first-quarter earnings on April 25. In the meantime, the stock has multiple catalysts in the form of its new superchargers, capable of charging an electric vehicle almost as fast as it takes to fill the tank of a gas-guzzler; its AI initiatives, propelled by a new deal with Chinese upstart DeepSeek; and its new God’s Eye autonomous driving feature that will soon be available in even its cheapest ($9,500) models.

So, don’t sweat the down week for the stock, as it was entirely market-driven. We still have a strong gain on BYDDY, and the stock has 35% upside to our 115 price target. BUY

The Cheesecake Factory Inc. (CAKE) is ubiquitous. With 345 North American locations, chances are you’ve eaten at one, indulged in their specialty high-calorie but oh-so-tasty cheesecakes and browsed through menus long enough to be a James Joyce novel. But despite being seemingly everywhere already and nearly a half-century old, the company is still growing.

Sales have improved every year since Covid (2020), reaching a record $3.44 billion in 2023. In 2024, revenues expanded to $3.58 billion. But the earnings growth is the real selling point. EPS more than doubled in 2023 (to $2.10 from 87 cents in 2022) and swelled to $3.28 in 2024, a 56% improvement.

It’s still expanding too, opening 26 new restaurants in 2024, with plans to open another 25 this year. Those aren’t just Cheesecake Factories – the company also owns North Italia, a handmade pizza and pasta chain; Flower Child, a health food chain that caters to those with special diets (vegetarians, vegans, gluten-free, etc.); and Blanco, a Mexican chain owned by Fox Restaurant Concepts, which The Cheesecake Factory Corp. acquired in 2019.

CAKE shares trade at 12x 2025 EPS estimates and at 0.60x sales. The bottom-line valuation is well below the five-year average forward P/E ratio of 15.6; the price-to-sales ratio is in line with the five-year average.

With shares trading at 25% below their 2017 and 2021 highs, there’s plenty of room to run.

CAKE shares were off about 13% this week, as the escalated potential for a U.S. recession surely isn’t good for the restaurant business. But let’s see how this plays out. There’s been no company-specific news, at least not since the restaurant expanded its already-extensive menu offerings last month. The U.S. economy hasn’t slowed yet, though next week’s March retail sales data could tell us a lot. No need to panic with this one yet. Keeping at Buy, with 47% upside to our 65 price target. BUY

Dick’s Sporting Goods (DKS) has been growing steadily for years.

From 2016 to 2023, the sporting goods chain’s revenues have improved 64%, from just under $8 billion to just under $13 billion. In 2024, topped $13 billion for the first time. It should top $14 billion this year.

Dick’s, in fact, has grown sales in each of the last seven years – including in 2020 and 2021, when most other retailers saw sales nosedive due to Covid restrictions. But Dick’s all-weather ability to keep growing no matter what’s happening in the world or the economy speaks to its versatility. Since Covid ended, however, Dick’s sales have entered another stratosphere. As youth sports returned in 2021, Dick’s revenues jumped from $9.58 billion to $12.29 billion. They’ve been rising steadily each year since and are expected to do so again this year.

But Dick’s isn’t purely a growth stock—it’s also undervalued. DKS shares currently trade at 11.6 forward earnings estimates and at 1.06x sales. To be sure, it’s not the cheapest stock in our portfolio. But it is one of the fastest growing – and pays a solid dividend to boot.

DKS shares had a rougher week than most in our portfolio, down 18%. That’s because much of the footwear and other sports apparel sold at Dick’s is made in places like China, Vietnam, and Indonesia, which received some of the steepest tariffs. If the tariffs hold (again, possibly a big “if”), it will force Dick’s to either raise prices significantly or swallow lower profit margins, neither of which would be good for business. For now, let’s wait and see. Fortunately, we had a solid gain on DKS prior to this past week’s bloodletting, so let’s keep this one at Buy for now and see how it behaves in the coming week. Maintaining a price target of 250, or 47% higher than the current price. BUY

Energy Transfer LP (ET) is one of the largest and most diversified midstream energy companies in North America, with approximately 130,000 miles of pipeline transporting oil and natural gas across 44 states. The company transports, stores and terminals natural gas, crude oil, natural gas liquids, refined products and liquid natural gas. Formed in 1996, Energy Transfer came public as a limited partnership in 2004 and has grown from a Texas-based natural gas supplier with 200 miles of pipeline to a national brand that spans nearly every state in the U.S. Today, Energy Transfer transports roughly 30% of all U.S. natural gas and 40% of all U.S.-produced crude oil.

And its reach is expanding, having inked several recent megadeals, including a joint venture with Sunoco (SUN). As the firm’s reach expands, so are its earnings and revenues. This year, EPS is expected to surge 15%, while revenues are on track for 8% growth. After a couple down years, the company has clearly recaptured momentum, with revenues expected to match their 2022 highs ($89 billion) this year and EPS ($1.47) hurtling toward a four-year high.

The stock has a history of outperformance, having beaten the market by almost 4-to-1 over the last one-, three- and five-year periods. But it’s off to a very slow start this year, and is trading at a mere 9.44x EPS estimates and 0.65x sales.

Meanwhile, as a master limited partnership (MLP), ET is a very generous dividend payer, with a current yield of 6.9%. The dividend is constantly growing – the company raised the payout by 3.2% in the fourth quarter and intends to raise it by another 3% to 5% this year. That kind of steady, high-yield income makes ET even more appealing in uncertain times like this one.

Our timing in adding Energy Transfer (ET) wasn’t great. Energy stocks had been the best-performing sector year to date prior to “Liberation Day.” Since then, crude oil prices have fallen more than 21%, dragging energy stocks down with them. ET was no exception, down more than 11% in its first week in the portfolio. Ugh.

At $62 a barrel (or lower), ET’s upside is a bit limited. But that’s also a four-year low, and oil prices tend not to stay down for too long, even during Covid. The high yield (8%) helps for now, and there’s been no news regarding the company itself. So let’s ride out the storm for now; hopefully, most of you waited to buy after last week’s recommendation and can now get in at a MUCH better price! I still am going to stick with our 24 price target.

One other note on master limited partnerships, which I failed to elaborate on last week: in exchange for the high yields, the tax implications on MLPs can be a bit complicated. Distributions are not taxed when paid; instead, they count as a reduction in the cost basis of the units. They generate a K1 form that must be filed at tax time. MLPs may incur Unrelated Business Taxable Income (UBTI) that could be taxable even in an IRA beyond a certain amount. If that sounds like too much of a burden for you come next April (and beyond), then ET might not be for you. But the trade-off is that MLPs generate high income (not to mention ET’s long history of share price outperformance). BUY

Buy Low Opportunities Portfolio

Buy Low Opportunities Portfolio stocks include a wide range of value opportunities. These stocks carry higher risk than our Growth & Income stocks yet also offer more potential upside. This group may include stocks across the quality and market cap spectrum, including those with relatively high levels of debt and a less clear earnings outlook. The stocks may not pay a dividend. In all cases, the shares will trade at meaningful discounts to our estimate of fair value.

ADT Inc. (ADT) is literally a household name.

It’s a 150-year-old home security company whose octagon-shaped blue signs with white lettering that say “Secured by ADT” are ever-present in neighborhoods across the country. ADT provides security to millions of American homes and businesses, with products ranging from security cameras, alarms and smoke & CO detectors, to door/window/glass break sensors and more, all of which can alert one of ADT’s industry-best six 24/7 monitoring centers if any one of those security systems is breached.

Business has been fairly stable, with annual revenues hovering in the $5 billion range for four of the last five years (2021 was an exception, with a dip down to $4.2 billion during Covid) and is on track to do it again both this year and next. But where the century-and-a-half-old company has really improved of late is profitability. The last three years marked the first time the company has been in the black in consecutive years, with earnings per share going from 15 cents in 2022 to 51 cents in 2023 to 69 cents a share in 2024. EPS is expected to improve to 81 cents in 2025.

All of that EPS growth makes the share price look quite cheap. ADT shares currently trade at just 9.3x earnings estimates and at just 1.48x sales. A solid dividend (2.8%) adds to the appeal of this mid-cap stock.

Just as ADT shares were really cooking, reaching 52-week highs above 8.2, along came tariffs to spoil the party. The stock took a hit, but less than most stocks: it’s “only” down 9.7% in the last week. There was no news, and tariffs shouldn’t impact the company’s business too much. Fourth-quarter earnings are due out later this month, which will likely be the next big news event that could drive the stock, aside from the ongoing wild market gyrations. I think the stock’s relative resilience (again … “relative”) this past week is a sign it won’t stay down long once the market rebounds, and that it’s unlikely to be held back much by the tariff drama.

ADT shares have 33% upside to our 10 price target. BUY

The Cigna Group (CI) is the fifth-largest healthcare company in the U.S., with $247 billion in revenue over the last 12 months. It’s a health benefits and medical care provider with a market cap of $89 billion, 170 million customers in over 30 countries, that pays a dividend (1.9% yield) and grew sales by 27% and adjusted earnings by 9% in 2024 and is expecting another 10% growth this year. And yet, the stock hasn’t budged much in two years and trades at a mere 10.6x earnings estimates and 0.36x sales. It’s the cheapest CI shares have been in more than a year.

Why the underperformance? Earnings have been inconsistent, with EPS declining 18.8% in 2023 and by 31.4% in 2021. But that appears to be changing, with double-digit growth last year and expected again in 2025, led by its Evernorth Health Services branch, which reported 33% revenue growth in the latest quarter. And healthcare stocks as a group were the second-worst performer of the 11 major S&P 500 sectors in 2024, up a mere 0.87%. As Baby Boomers reach their golden years, healthcare is more in demand than ever, so the sector won’t stay down long. And CI has a habit of outperforming when times are good.

CI was our “best” performer last week, falling “only” 5.5%, or less than half the market. After months of steady recovery, it’s clear investors don’t want to sell this stock, so I expect it to bounce back as soon as the market does. In fact, yesterday Mizuho raised its price target on the stock from 360 to 384. I think it has even higher upside than that and am maintaining my 420 target – 34% above the current price. BUY

Peloton Interactive (PTON) has totally imploded and has fallen well below my pain threshold. The company itself hasn’t done anything wrong, but shares have been plummeting on the prospects of a souring economy. Eventually, PTON may again be a worthwhile bargain. But right now it’s simply in freefall, and it’s not worth incurring further losses. This was a miss. Time to sell. MOVE FROM HOLD TO SELL

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

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