May 8, 2025

Warren Buffett Isn’t Worried. Should You Be?

Warren Buffett isn’t concerned about the market’s slow start this year. “What’s happened in the last 30, 45 days is really nothing,” the Oracle of Omaha said at Berkshire Hathaway’s annual shareholder meeting last weekend. In the grand scheme of market history, he’s right.

From February 19 to April 8, the S&P 500 plummeted 18.9% on a closing basis – just shy of a bear market. There have been two previous bear markets in the benchmark index in the last five years alone – the high-inflation-induced decline in 2022, and the quick-but-deep market implosion brought on by Covid in the spring of 2020. There was the three-month, 19.9% dropoff in the index from September through December of 2018, with the bottom coming on Christmas Eve. And in 2011, large-cap stocks tumbled 18.8% from early July until early October.

That’s five drop-offs of 18% or more in a 14-year span – more than one every three years. Sprinkle in the 10 other bear markets Buffett has witnessed in his 94 years – not to mention the near-misses like we just experienced – and you can see why he considers this year’s tariff-induced correction (technically a bear market in both the Nasdaq and the Russell 2000) to be “nothing.”

And consider this: After the previous four pullbacks of 18% or more in the last 14 years, the S&P has bounced back to eclipse the pre-correction level within a year every time. Now, that’s assuming a bottom has already been put in this time around, which is no guarantee given the lingering tariff uncertainty and ongoing market volatility (the VIX is still near 25). But if the worst is indeed behind us – and with the S&P back above its 50-day moving average and nearing the 200-day line, I’d say it’s more likely than not – then it’s reasonable to expect the index to stretch to new highs by next April, if recent history is any guide. A recession, the return of high inflation, or certainly the dreaded “stagflation” could halt another market comeback in its tracks. But if we can avoid those disaster scenarios, chances are stocks will be higher than ever a year from now.

To be fair, Buffett’s Berkshire Hathaway (technically it won’t be his much longer, as he announced plans to step down as CEO at the end of the year and hand the reins to Greg Abel, though he’ll remain on as chairman) currently holds a record amount of cash, $347.7 billion, up from $334.2 billion at the end of 2024. That tells you even the world’s greatest value investor isn’t buying much these days. (He’s not alone, as money market fund totals have reached a record $6.9 trillion.) But 70% of Berkshire’s portfolio is still in stocks and bonds. And that means you should stay invested too – especially now that there are far more value opportunities after the 19% February-to-April drawdown.

Speaking of which, we just added a new travel-related stock, Carnival Corp. (CCL), to our Buy Low Opportunities Portfolio in last week’s issue, and it’s off to a very good start for us (+9.5%). All told, our portfolio – including both open and closed positions – has outperformed the market since I took over a little more than a year ago, in April 2024, with an average gain of better than 13% vs. an 8% gain in the S&P during that time. Let’s hope that outperformance continues as we beef our portfolio back up after selling out of a couple positions during the market downturn this year.

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

New Buy: Carnival Corp. (CCL), with a price target of 28.00

Upcoming Earnings Reports

None

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 ($10.7 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 6.3%.

AEG shares trade at 7.7x forward earnings estimates, 0.6x sales and have an enterprise value/revenue ratio of just 0.56 – 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 up more than 5.5% this week on no news. The stock has recovered all its early-April losses and is closing in on a new 2025 high. This boring but reliable stock is now easily in the black for us and 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 11.1x 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 1.12x book, cheaper than all but Citigroup among the big banks), and history of resilience makes for an enticing formula.

Last month’s promising first-quarter earnings report continues to act as a tailwind for BAC shares, up another 4% this week. Bank of America beat Q1 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).

BAC shares are still well below their early-February highs above 47, but it appears they’ve left their early-April lows (34) in the dust. The stock has 39% upside to our 57 price target. The stock is back above its 50-day moving average but just shy of its 200-day line. If and when it eclipses that mark, we’ll restore our Buy rating. For now, keep holding if you own shares. 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 21x 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 (1.29) 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 are up 4.5% this week as the stock continues to toggle between 94 and 104 in the wake of last month’s earnings. It was another impressive quarter for the company. Profits for the Chinese EV maker exactly doubled in the first quarter, its best bottom-line performance in nearly two years, while sales improved 36.4% to 170.4 billion yuan. Market share in its home market of China – where it does roughly 90% of business, though it’s making a hard charge at expanding globally (BYD is targeting 800,000 cars exported this year) – increased to 13.6%, up from 12.1% in Q1 a year ago. Coming on the heels of introducing a new God’s Eye self-driving car technology and rolling out a charger capable of charging up to 300 miles in just five minutes, the first-quarter earnings report only adds to our bullishness on BYD. The stock has 16% upside to our 115 price target, which was already raised from the original 90 target and still seems conservative given the company’s massive potential for global growth. 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 13.9x 2025 EPS estimates and at 0.67x 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 are up 1.5% since last Wednesday’s earnings report. Sales of $927.2 million were in line with estimates and marked a 4% year-over-year improvement, while adjusted EPS of 93 cents easily topped the consensus estimate of 91 cents and was 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 $135.4 million compared to $84.2 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 has 29% 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 12.9x forward earnings estimates and at 1.15x 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 more than 3% this week as tariff fears eased somewhat. There was no company-specific news. The company will report earnings on May 28. The stock is still well off its January highs as Liberation Day sent tremors through the share price. That’s because few large-cap U.S. retailers have more of a vested interest in which countries ultimately get tariffed – and by how much. 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 north of 200%, 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 – could be the biggest catalyst that propels this stock in the absence of any hard data.

The stock is well below its January highs. It has 31% 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.

Energy Transfer reported good quarterly results on Tuesday, with EPS of 36 cents beating estimates by 37% and last year’s 32-cent total by 12%. Revenues were down, however, with the $21 billion total falling short of last year’s $21.63 billion mark and even further short of the $23.4 billion estimate. EBITDA improved by 5.7% year over year. Wall Street appears to be focused on the positives of those mixed results, pushing shares up more than 5% on Wednesday (they were down for the week prior to that, likely because crude oil prices have dipped below $60 a barrel again). For the week, ET shares were 1% higher. They have 44% upside to our 24 price target. But right now, oil prices being at four-year lows is holding them back. 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 10.1x earnings estimates and at just 1.57x sales. A solid dividend (2.7%) adds to the appeal of this mid-cap stock.

ADT shares were up 5% this week on no company-specific news. It seems the stock is still getting a boost from last month’s strong earnings results. Revenue improved by 7% to $1.27 billion; adjusted EPS came in at 21 cents; GAAP operating cash flows shot up 28%; and the company reported record customer retention rates, with recurring monthly revenue up 2% to $360 million. Also, the company returned $445 million to shareholders in Q1 in the form of buybacks and dividends. In February, ADT’s board approved a $500 million share repurchase plan.

We have a nice gain on ADT thus far, and the stock still 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 10.5 EPS estimates 1.08x 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 had an excellent first week in the Buy Low Opportunities Portfolio, rising 9.5% on no company-specific news. Shares are still down more than 20% year to date, so the stock is likely benefiting from some bargain hunting now that the market has perked up. It appears to have left its early-April lows (16) in the dust, at least for now.

The stock has 41% upside to our 28 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 $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 11.3x earnings estimates and 0.39x 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.

Last week, I wrote that it was possible, given the powerful run-up in CI shares this week, that an earnings beat was already priced in. Sure enough, that’s what’s happened since last week’s earnings report. CI shares are off about 2% despite topping EPS estimates by more than 6% last Friday. EPS came in at $6.74 in Q1, up from $6.47 a year ago, and Cigna raised its full-year profit guidance slightly, to $29.60 from $29.50. Lower-than-expected medical costs in its insurance business and strong performance in its pharmacy benefit management wing were the highlights. Cigna’s recent sale of its Medicare business to Health Care Service Corp. was fortuitous, coming at a time when Medicare and Medicaid funding is in question, something that sank rival UnitedHealth’s earnings last quarter. Revenues improved 14.4% year over year. There was a lot to like from Cigna in the quarter, even if it hasn’t impacted the share price yet.

The stock is up more than 20% year to date. It has 26% 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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