June 18, 2025

*Editor’s Note: You are receiving your weekly Cabot Value Investor update a day early as the Cabot offices will be closed tomorrow, Thursday, June 19, in observance of the Juneteenth market holiday.

Is the Wall of Worry About to Topple Over?

Tuesday’s edition of The New York Times had a stock-centric article titled, “The S&P is Nearing a Record. Really.” The subtext, of course, is that stocks have climbed near February all-time highs despite a bevy of geopolitical tensions, potential economic landmines, and widespread investor and consumer pessimism. As I wrote last week, the market has fully recovered from its tariff-fueled cratering of late March and early April, but lingering uncertainties threaten to derail it at any moment … and that was before Israel and Iran started bombing each other.

And yet, so far, the seeming tidal wave of existential market threats has not reversed the market’s recent gains. Sure, the rally has fizzled in recent weeks, with stocks essentially unchanged in the last month as the S&P has hovered around 6,000 since mid-May. But volatility, which spiked to near-historic levels in early April, remains tame, with the VIX below the all-important 25 level since early May. The fear that gripped the market in March and April has mostly abated. In its place, complacency has taken hold.

And that’s perhaps the point that the Times is trying to make. Rarely has a market this close to all-time highs ever felt less that way. Investor sentiment, according to the AAII survey, remains less bullish than the historical norm. Consumer confidence, while improved from the multi-year lows seen from March through May, is still at a one-year low. Stocks are truly climbing the proverbial “Wall of Worry” these days. And actually, they’re no longer climbing it. They’re planted firmly on the couch, eating chips and watching bad TV, waiting for a reason to get up and move.

That reason may be coming, as I wrote last week. Long pauses in the market are common, but eventually a breakout arrives. And with the deadline on the 90-day tariff pauses on some 130 countries just three weeks away (July 9) – not to mention the fast-escalating tensions in Iran, Israel and Ukraine – I fear the next big stock move will be down, not up. But any pullback could be temporary, especially if tariff deals are struck or on pause again, and if global tensions ease. As always, it’s best to invest based on the evidence in front of us, not what could be coming down the pike.

Keep your antennae at full mast. But don’t preemptively stop investing in good companies. We have a full 10-stock portfolio in Cabot Value Investor right now for a reason, with a market-shattering return of roughly 13% year to date. You can make money in this stagnant market. Even if it’s to The New York Times’ – and probably the average American’s – surprise.

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.

Send questions and comments to 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.

This Week’s Portfolio Changes

None

Last Week’s Portfolio Changes

None

Upcoming Earnings Reports

Wednesday, June 24 – Carnival Corp. (CCL)

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 ($10.9 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 it generates from its ongoing business operations) 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%.

AEG shares trade at 7.7x forward earnings estimates, 0.6x sales and have an enterprise value/revenue ratio of just 0.55 – 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 had a rough week, falling nearly 7% on no company-specific news. European stocks were down about 2% this week, and it’s possible AEG – which had stretched to multi-year highs at the beginning of June – is getting punished more as a stock with “meat on the bone.” I expect it will bounce back shortly. We still have a solid gain on it, and an even better total return if you include the generous dividend. AEG now has 18% upside to our 8.00 price target. 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 12x 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 1.2x book, cheaper than all but Citigroup among the big banks), and history of resilience makes for an enticing formula.

BAC shares were mostly unchanged this week, on no real news. A week ago, Goldman Sachs raised its price target on the stock from 46 to 52. We’ll maintain our more optimistic 57 price target, giving the stock 26% upside from here – an achievable goal, as long as tariffs don’t sink the economy. BUY

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 23x earnings estimates, BYDDY currently trades at roughly a quarter of its five-year average forward P/E ratio (89.6). And its price-to-sales ratio (1.3) 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 have been on a rollercoaster of late, and this week the cars were pointed down, with the stock sinking to its lowest point since early May in a down week for Chinese stocks. The only company-specific news was that the company plans to introduce its most affordable model yet – the Dolphin Surf, with a starting price of just $25,000 – in Europe, likely in an effort to capitalize on the company’s recent momentum on the continent. BYD outpaced Tesla’s EV sales in Europe for the first time in April, demonstrating major progress in the company’s push to become a global brand. But, price cuts in China of as much as 34% on 22 of its models have given some investors pause of late, and the stock peaked about a month ago. The price cuts are temporary, however, and the growth in Europe and elsewhere is encouraging. Thus, you could treat this pullback as a buying opportunity. But having sold half our shares last month after the stock reached our 115 price target, I’ll officially stay on Hold for our remaining half-position. HOLD HALF

The Cheesecake Factory Inc. (CAKE) is ubiquitous. With more than 350 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 16.5x 2025 EPS estimates and at 0.8x sales. With shares trading at 9% below their 2017 and 2021 highs, there’s plenty of room to run.

CAKE shares were up 2.5% this week and have been trending higher of late, mostly on no news. The latest earnings report continues to act as a catalyst for the share price. Sales of $927 million were in line with estimates and marked a 4% year-over-year improvement, while adjusted EPS of 93 cents topped the consensus estimate of 91 cents and were 27% higher than the 73 cents it earned a year ago. Comparable-store sales inched up 1% while the restaurant’s cash and cash equivalents ballooned to $135 million compared to $84 million at the end of 2024. Debt, however, soared from $452 million to $627 million.

During the quarter, the company opened eight new restaurants: Three North Italia locations, three Flower Childs and two FRC restaurants. Cheesecake Factory plans on opening 25 new restaurants in total in 2025. All told, a solid quarter.

The stock is now up more than 18% since the report. It still has 10% 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’s on track for close to $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 12.2x forward earnings estimates and at 1.1x sales.

DKS shares tumbled 6% this week to give back most of their gains from the previous week. Tariff uncertainty is surely acting as a roadblock for the stock at the moment, as most of its products come from places like China, Taiwan, Japan, Indonesia and Thailand – countries that have been targeted with the highest tariffs.

The company itself has done nothing wrong. First-quarter earnings were mostly good. Adjusted EPS of $3.37 merely met estimates, but the company beat top-line targets as revenue increased 5.2% year over year, to $3.17 billion. Also, same-store sales improved 4.5%. EBITDA came in well ahead of estimates ($483 million vs. $442 million expected), while the company confirmed its full-year revenue guidance of $13.75 billion at the midpoint. Cash flow isn’t a problem, as evidenced by Dick’s pending purchase of Foot Locker (FL) for $2.4 billion.

After a delayed rally following the Q1 report, DKS shares are slumping again. Hopefully, the stock can get moving again once we move past the July 9 tariff pause deadline – assuming there’s good news by then. DKS has 43% 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 11.2x EPS estimates and 0.75x sales.

Meanwhile, as a master limited partnership (MLP), ET is a very generous dividend payer, with a current yield of 7.3%. 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.

ET shares continue to bounce around in the 17-18 range, where they’ve been since early May. It’s a bit disappointing that the stock didn’t get any kind of bump from the 8% rise in crude oil prices in the week since the Israel-Iran conflict commenced. However, the stock is up sharply since its early-May earnings report, and there’s been a void of company-specific news since, so perhaps higher crude oil prices were already baked in, to a degree. A push above resistance in the mid-18s could be bullish. In the meantime, ET has 34% upside to our 24 price target. BUY

KBR, Inc. (KBR) is an industrial conglomerate that has its hand in a lot of big revenue-generating pies – aerospace, defense, energy, engineering and intelligence. Its Government Solutions segment provides support for agencies including NASA, militaries in the U.S., U.K., and Australia, among others, and infrastructure projects from Indonesia to the Middle East. Its Sustainable Technology Solutions segment helps engineer energy projects, helps companies and governments transition to more sustainable forms of energy, and provides energy security solutions in markets like the Middle East. KBR also dabbles in cybersecurity, national security solutions, surveillance, global supply chain management, data analytics and much more.

As with most industrials, business slowed to a crawl in the aftermath of Covid due in large part to supply-chain issues. After peaking at $7.3 billion in revenue in 2021, sales dipped to the $6 billion range in 2022 and 2023. Last year, however, brought a new record high of $7.74 billion; this year, the analysts see revenues at $8.76 billion, a 13% improvement, and stretching to $9.5 billion in revenue next year. And after failing to turn a profit in 2023, the company is on track for a record $3.85 in EPS this year (up 15% from 2024) and $4.27 next year.

While sales have surpassed pre-Covid levels, however, shares haven’t consistently followed suit, peaking in late 2024 but currently trading at 27% below its apex. At 13.9x earnings and 0.88x sales, the stock has rarely been cheaper, trading well below its five-year averages (forward P/E of 18.5, price-to-sales north of 1.0).

KBR shares finally got a bit of a bump, up more than 1% this past week on no news. I think this low-beta stock can get back to its 72 highs from last November, so I’ve set that as the price target. That would give shares 36% upside from here. 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 10x earnings estimates and at just 1.6x sales. A solid dividend (2.7%) adds to the appeal of this mid-cap stock.

ADT shares were stagnant this week but remain just shy of their 2025 highs around 8.6. There’s been no news. The sideways market combined with a stock that rarely has news outside of quarterly earnings reports means ADT could be running in place until the market gets going again. Thankfully, we already have a 16% gain on the stock, and the 2.7% dividend yield pays us while we wait. ADT has 20% upside to our 10 price target. BUY

Carnival Corp. (CCL) is one of the two largest cruise companies in the world, along with Royal Caribbean (RCL), as the two combine to own 63% of the market. The difference between them? While RCL shares reached new all-time highs earlier this year (though they’re down more than 27% since), CCL shares have never come close to getting back near pre-Covid levels, when the stock peaked in the low 70s in 2018. CCL currently trades at 17.75 a share and hasn’t gotten any higher than 28 (this January). So the stock trades at a quarter of its all-time highs at a time when sales are higher than ever and profits are back in the black after four straight years of losses. Revenues were up 15.9% in 2024 to $25 billion and are estimated to top $26 billion (+4.25%) this year, with EPS expanding by 30% to $1.84.

After grinding to a halt for two years during Covid, the global travel industry is alive and well as people want to get out and see the world again, making up for lost time after being cooped up for so long. You see it among airlines, which reported record travel numbers last year. But that was the first year airline passenger numbers had topped pre-Covid totals; cruises reached a record in 2023, and last year were 30% higher than their 2019 totals.

Trading at a mere 12.6x EPS estimates and 1.3x sales, CCL is a cheap way to play the post-Covid travel boom – at a time when cruises are thriving like never before.

CCL shares were off about 2.5% this week, finally pulling back slightly after a huge run-up the previous month-plus. The stock might not stay down for long: Carnival reports earnings next Wednesday, June 24. Expectations are fairly high: Analysts are looking for 7.4% sales growth and for earnings per share to more than double from 11 cents last year to 24 cents this year. If it can surpass those estimates the way it has the last four quarters, CCL may quickly resume its march higher.

The stock has 18% upside to our 28 price target. We have a gain of more than 30% on it in just over six weeks. 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 $83 billion, 170 million customers in over 30 countries, that pays a dividend (2% 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 0.34x 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.

CI shares gained about 1% this week but have largely been flat over the past month. The company launched a new generative AI assistant to help members more easily navigate their health benefits and medical costs. It includes personalized provider matching, real-time cost tracking and plan selection support that allows customers to compare different benefit plan options.

The stock has 34% upside to our 420 price target. BUY

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

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