April 17, 2025

Has Calm Been Restored to Wall Street?

Regardless of your politics, “calm” is not a word you would likely use to describe the stock market under President Trump, at least through the first three months of his second term. But given the extreme tariff-fueled volatility that pervaded this time a week ago, that’s exactly how the last week has felt for investors: calm.

That is, of course, a relative term. The VIX is still north of 30; tariffs are very much still in the news, particularly as they relate to China; and the S&P 500 is still down more than 8% year to date. However, stocks have barely budged in the last week, and we aren’t seeing the same kinds of wild intraday swings that were making investors’ heads spin in the week-plus that followed the April 2 “Liberation Day” tariff announcements. And while the VIX above 30 is certainly high by historical standards, it’s well down from the peaks in the mid-50s we saw on this day a week ago.

Does it mean the worst of the early-2025 selling is behind us, and that a bear market (at least in the S&P) has been avoided? It’s too early to tell. It’s just one week; reciprocal global tariffs outside of China are merely on a 90-day pause and loom as a massive dark cloud that could come back into play; and one tweet or comment from the president could cause panic all over again. But, it’s progress at a time when investors desperately needed it.

And value stocks continue to outperform. The Vanguard Value Index Fund ETF (VTV), while also flat in the last week, is down only 3.5% year to date and never approached bear territory the way the major indexes did (the VTV was down “only” 14.5% at its trough). Plus, the sharp pullback in the market means there’s way more value out there than there was two months ago. With a forward price-to-earnings ratio of 19.1, the S&P is the cheapest it’s been in five years – since the bottom of the March 2020 Covid crash. What followed was one of the most powerful 20-month bull market rallies in recent history.

That doesn’t mean we’re destined for a similar V-shaped rally this time around. In fact, I’d bet against it. Rallies from such a sharp decline – and one that flipped the Nasdaq and the Russell 2000 from bull to bear, though not the S&P or the Dow – usually take time, with some fits and starts along the way. But if you’re a value investor, there’s more to choose from now than there was two months ago. The just-underway first-quarter earnings season will determine whether forward valuations remain this depressed – full-year guidance may be muted for some companies given the tariff uncertainty, and some may avoid concrete guidance numbers altogether.

For now, though, the combination of value and relative calm is appealing – or at least far more appealing than it was a week ago.

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

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This Week’s Portfolio Changes

None

Last Week’s Portfolio Changes

Bank of America (BAC) Moved from Buy to Hold

Peloton (PTON) Moved from Hold to Sell

Upcoming Earnings Reports

Thursday, April 24 – ADT Inc. (ADT)

Friday, April 25 – BYD Co. Ltd. (BYDDY)

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 5.8%.

AEG shares trade at 7.3x forward earnings estimates, 0.55x 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 were back with a vengeance this week, rising more than 10% to recover about half of the previous week’s losses. There was no news, and there hasn’t been much since the company reported second-half 2024 earnings in late February (Aegon reports earnings results in halves, not quarters). European stocks continue to outperform U.S. stocks, and AEG has performed even better, up 4% year to date. The stock has 31% upside to our 8.00 price target, and the 5.8% yield adds to the appeal. 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 10.3x 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 1.05x book, cheaper than all but Citigroup among the big banks), and history of resilience makes for an enticing formula.

Bank of America reported a strong first quarter on Tuesday, beating EPS estimates by 10% (90 cents vs. 82 cents expected), while revenue of $27.5 billion also surpassed the $27 billion estimate. Year over year, earnings improved 11%, while revenue climbed by 5.9%. Net interest income ($14.6 billion) also came in slightly higher than expected, while equities trading revenue improved 17% – no small feat during a down quarter for the market (although investment banking fees slipped 3% year over year).

In response to the mostly positive quarter, BAC shares were up from 37 to 38 and are up 11.5% since we last wrote. But shares have a long way to go to recover their losses since peaking above 47 in early February, and that will depend on the continued health of the U.S. economy. Fellow big banks JPMorgan (JPM), Morgan Stanley (MS), and Goldman Sachs (GS) have also topped Q1 estimates in the past week, which is a reflection of a U.S. economy that – as of this moment – remains in solid shape. As long as that remains the case, I think BAC has plenty of upside. It’s currently 52% below our 57 price target, but after downgrading to Hold last week, we’re going to maintain our Hold rating for at least another week to see if the earnings beat can provide a sustained tailwind. 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 20.2x earnings estimates, BYDDY currently trades at less than a quarter of its five-year average forward P/E ratio (89.6). And its price-to-sales (1.32) 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 bounced back nicely too, advancing more than 11% to recover about half their late-March/early-April losses. There was no major news, although the company reports earnings next Friday, April 25. BYD has gobs of momentum on the heels of a year in which it reported a record $107 billion in revenue, up 40% year over year, making it the top EV seller in the world, ahead of Tesla. The company’s inroads outside of China are becoming increasingly evident: seven out of 10 EVs sold in Brazil are BYD cars, and the company is about to open its first factory in Europe, with construction well underway on a plant in Hungary.

BYD does not yet sell to America, something that for most of its young history was seen as a disadvantage but, in an era of sky-high tariffs between the U.S. and China, can now be viewed as a positive, as tariff drama is unlikely to hold the stock back. Sprinkle in the new God’s Eye self-driving technology, a deal with fast-rising Chinese AI upstart DeepSeek, and a new electric battery charger capable of charging its models roughly as fast as it takes to fill up a normal car at a gas pump, and there’s a lot to like about BYD. The stock has 22% upside to our 115 price target, which seems like a conservative target despite the fact that we already raised it from 90. 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 12.7x 2025 EPS estimates and at 0.64x 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 20% below their 2017 and 2021 highs, there’s plenty of room to run.

CAKE shares bounced back 9% this week on no news. Citigroup lowered its price target on the stock to 62, which is still 31% higher than the current price. The stock is well off its 56 peak from February, but with earnings just a couple weeks away (April 30), a potential catalyst for a full recovery may be coming. The company has beaten earnings estimates easily in each of the last four quarters.

CAKE has 37% upside to our 65 price target. The 2.3% dividend yield helps. 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 13.1x forward earnings estimates and at 1.14x 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 were up 7% this week but remain down 20% for the year. There was no news, and earnings aren’t due out for about six weeks, so the stock may be riding the whims of the market and retail sales results that come out in the next few weeks. But tariffs are the big one. 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. China’s, of course, have escalated to 145%, though reciprocal tariffs on the other countries are on hold. Any positive news regarding tariffs – namely, if tempers between the U.S. and China cool and their sky-high tariffs on each other get reduced – that could be the biggest catalyst that propels this stock in the absence of any hard data.

DKS shares have 37% upside to our 250 price target. 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 10.3x EPS estimates and 0.7x sales.

Meanwhile, as a master limited partnership (MLP), ET is a very generous dividend payer, with a current yield of 7.6%. 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.

After a rough first week in the portfolio, ET shares had a much better second week, advancing nearly 15% to recover more than half their April losses. Crude oil prices are back above $60 a barrel after briefly dipping below that level, which helped. If oil prices can creep back closer to $70, ET shares may ride their coattails. Meanwhile, the 7.6% yield of this stock can serve as a flotation device for those who don’t mind the tax implications of owning an MLP in their portfolio. The stock has 39% upside to our 24 price target. 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 9.9x earnings estimates and at just 1.58x sales. A solid dividend (2.7%) adds to the appeal of this mid-cap stock.

ADT shares were up 7.5% on no news this week. The stock is now up more than 15% year to date – impressive outperformance in this market. There’s been no news, but earnings are due out a week from today (April 24). Analysts are looking for 3.2% revenue growth with 18.7% EPS growth. The company has topped EPS estimates in each of the last four quarters. Another beat could send shares back near their early-April highs. 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 $90 billion, 170 million customers in over 30 countries, that pays a dividend (1.8% 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 11.1x earnings estimates and 0.6x sales.

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.

It took several months, but CI has done it: the stock is back above our entry price! No small feat, swimming against the current of a down market, and after falling as low as the mid-260s in December. Now back above 330 and up 19% year to date, CI has momentum to spare, mostly on no news (earnings are due out May 2). The share price momentum is seemingly emboldening Wall Street – two prominent firms (Mizuho, Truist Securities) upped their price targets on the stock in the last week, though in fairness, another (Baird) lowered their target. Our target remains at 420, giving CI 26% upside. BUY

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

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