October 16, 2025

As Tariff Fears Return, Expect a Value Stock Surge

Volatility is back, with the VIX spiking above 20 for the first time since early August and above 21 for the first time since June.

Tariffs are the reason. Specifically, escalating tariff rhetoric between the U.S. and China, which spooked the market into its worst one-day selloff since April last Friday, and has prompted wild intraday swings every trading session since. So far, the damage to the major indexes has been fairly limited (the S&P 500 is less than 2% off its highs, as of this writing), but under the surface, a few yellow flags have emerged, including the number of 52-week lows among NYSE-listed stocks topping the magic number of 40 (it’s up to 63) that typically precludes a more pronounced market pullback. We’ll see how much the just-underway third-quarter earnings season can act as a yin to tariffs’ yang and hopefully provide a relatively high floor for stocks in the coming weeks. As I wrote in this space last week, that may depend on whether companies can cross the relatively high bar of 8% earnings estimates.

Regardless, the return of volatility means we need to be on a bit higher alert for gyrations in our stock prices. Usually when the VIX stays above 20 for more than a few days, stocks tend to retreat – as they did in March and April. But remember: In a bull market (which I don’t think is going away anytime soon), when investors sell out of certain overinflated sectors (AI, anyone?), they typically rotate into more defensive stocks. That may well include value stocks, which outperformed both their growth stock brethren and the S&P 500 through the first five months of 2025, when volatility was high and uncertainty reigned.

Meanwhile, our Cabot Value Investor portfolio continues to outperform, despite having to cut bait with Energy Transfer LP (ET) last week at a 12% loss. Even with that misfire, we still have a 12.4% year-to-date gain on all open and closed positions, better than the 10.3% gain in the Vanguard Value Index Fund (VTV). Let’s stay the course, being wary of the surge in volatility but also possibly taking advantage of it if investors start seeking refuge in undervalued stocks and sectors, of which there are many.

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.

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This Week’s Portfolio Changes

None

Last Week’s Portfolio Changes

Energy Transfer LP (ET) Moves from Buy to Sell

Upcoming Earnings Reports

Thursday, October 23 – ADT Inc. (ADT)

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.

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 11.9x 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 1.4x book, cheaper than all but Citigroup among the big banks), and history of resilience makes for an enticing formula.

Bank of America reported strong Q3 earnings results on Wednesday, pushing shares up 4% and close to new 52-week highs! Earnings per share of $1.06 were 12% higher than the 95-cent estimate and 23% higher than the same quarter a year ago, while revenues of $28.2 billion marked an 11% year-over-year improvement. As one might expect from such a robust quarter for stocks, Bank of America’s trading and investment banking revenues improved sharply, with investment banking fees up 43% and equities trading up 14%. Net interest income, which accounts for more than half of revenues ($15.4 billion), improved 9% year over year.

We now have a double-digit gain on BAC shares, but the stock still has 10% upside to our 57 price target. If shares can break above their September highs in the wake of today’s earnings spike, it’s possible they could continue on to our target in the coming weeks. 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 19% 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 80% 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.

BYD shares pulled back 1.5% this week as they remain stubbornly within the mid-13s to mid-14s range they’ve been in since late August. There was no company-specific news, but rival Tesla’s launch of a new low-priced Model 3 and Model Y SUV recently made headlines. But Tesla’s version of “low-priced” ($36,990 for the Model 3, $39,990 for the Model Y) pales in comparison to BYD’s, which sells its Dolphin Surf model in Europe for a starting price of $26,380 (or 23,300 euros). Tesla investors seemed disappointed in the unveiling after a cryptic tweet from CEO Elon Musk got people’s hopes up the night before. We’ll see if the lower-priced Tesla models can slow BYD’s massive gains in Europe, where it surpassed Tesla sales for the first time ever this April. But it still doesn’t compete in terms of price, at least not with the Dolphin Surf.

We sold half our stake in BYD near its May highs and are letting the remaining half ride. Eventually, a break from its month-plus range will come, and I’m betting it will be to the upside. Maybe earnings (due out October 30) will do the trick. HOLD HALF

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 15.2x forward earnings estimates and at 1.4x sales.

DKS shares keep creeping toward our price target, advancing another 2.5% this week on no news. The stock is now within 6% of our 250 price target and is threatening to break above monthslong resistance in the low 230s. A stiff gust of wind (or a few good days for the market) could get it there. Keeping at Buy for now, since the stock was knocked back to as low as 208 as recently as last week after the U.S.-China tariff spat resurfaced (China manufactures many of Dick’s sporting apparel products). You could buy the next dip, if there is one. But at this point, DKS shares may be just as likely to reach our target as pull back to the low 200s again. Stay tuned. BUY

FedEx Corp. (FDX) needs no introduction. It’s the third-largest package courier in the world with a 17% global market share, behind only DHL (39%) and UPS (24%). In America, it’s second banana, behind only UPS, accounting for roughly a third of courier and local delivery revenue and 19% of total parcel volume.

Like every package delivery company, FedEx’s sales and earnings peaked during Covid, when people around the world did virtually all of their shopping online, and packages were zooming around the world like never before. In Fiscal 2021, which for FedEx ended in May 2021, the company’s revenue reached a then-record $83.8 billion, 20% better than any previous year. EPS came in at $19.77 that year, 15.6% higher than the previous (FY 2018) high. In Fiscal 2022, which essentially coincided with year two of the (roughly) two-year-long global pandemic, revenues swelled to $93.5 billion, though the company was less profitable ($14.52).

While there hasn’t been a big dropoff from those two Covid-enhanced years, sales have yet to eclipse that FY ’22 peak, while earnings haven’t come close to the FY ’21 apex. This year (FedEx’s Fiscal 2026 began in June) is on track to come closest to hitting those Covid highs, with analysts forecasting more than $89 billion in revenue and $18.53 in EPS. Next year, those numbers are expected to rise to more than $92 billion and a record $21.23 in EPS. These are projections, of course, but they’re reflective of a healthy and, in fact, incrementally improving global economy.

And yet the stock is quite cheap on a price-to-earnings (12.9x forward estimates), price-to-sales (0.6x) and price-to-book-value (1.9x) basis. The stock is well shy of its five-year averages in all three valuation metrics.

FDX shares pulled back more than 2% this week, likely on tariff fears, as FedEx is a play on a healthy global economy. Also, JPMorgan downgraded its rating on the stock to Neutral and lowered its price target slightly, from 284 to 274. Still, the package delivery giant is coming off a strong fiscal ’26 first quarter, with both sales and earnings easily topping estimates. Full-year revenue guidance was also boosted to a range of 4% to 6%, way north of the Wall Street estimate of 1.4%. If cooler heads eventually prevail in this U.S.-China war of words, the global economy should be fine – and so should FedEx’s business.

So I’d buy the dip if you don’t already own this undervalued growth stock. FDX has 27% upside to our 300 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 20% below its apex. At 14.8x earnings and 0.77x sales, the stock is quite cheap, trading well below its five-year averages (forward P/E of 18.5, price-to-sales north of 1.0).

KBR shares pulled back another 4% this week and have broken to a new 52-week low. That’s not ideal. So let’s keep this simple: if the stock does not rebound in a significant way on earnings in two weeks (October 30), it will likely be time to cut bait on it. There’s been no company-specific news of late, so perhaps it just needs a catalyst in a market that has largely ignored industrials (+1.5% in the last three months, seventh out of the 11 S&P 500 sectors). Keeping at Buy for now, but KBR needs to start showing some life soon to maintain a place in this portfolio. 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 85 cents in 2025.

All of that EPS growth makes the share price look quite cheap. ADT shares currently trade at just 9.6x earnings estimates and at just 1.6x sales. A solid dividend (2.6%) adds to the appeal of this mid-cap stock.

ADT shares were unchanged again this week as they continue to hang around the 8.7 area. There’s been no news. The company will report earnings in a week, on Wednesday, October 23, which could be just the thing to help shares break above 8.7 resistance. Analysts are anticipating 4% revenue growth with 10% EPS growth; the company has beaten earnings estimates in each of the last four quarters.

The stock has 15% upside to our 10 price target, and we have a solid 22% gain on it thus far. BUY

Cinemark Holdings (CNK) is the third-largest movie theater chain in the U.S., behind only former meme stock AMC Entertainment (AMC) and Regal Cinemas, which is privately held. It’s also the largest movie theater chain in Brazil, with a 30% market share. In addition to its flagship Cinemark, which began operation in 1977, the company owns Century Theatres, Tinseltown, CineArts and Rave Cinemas.

Business peaked in 2019, when the firm raked in a record $2.97 billion in revenue. It cratered to a mere $587 million the following year, thanks to Covid, but by 2022 it was back above the $2 billion mark, swelling to more than $2.7 billion in each of the last two years. This year, the company expects to top $3 billion in sales for the first time, which would mark an 8.5% uptick from last year.

And yet, despite sales being on track for a record year and earnings per share likely to trail only last year, the share price is more than 35% below its 2015 apex above 45 and about 30% below its pre-Covid, 2019 highs above 42. As we did with great success in both the airline industry and the cruise industry, I like finding sectors that were essentially wiped out during Covid, only to come roaring back to new heights due to pent-up demand.

CNK shares got back about half their losses from last week, rebounding more than 4% this week. The only news was that JPMorgan nudged up its price target on the stock from 37 to 38. Meanwhile, the movie theater industry remains on track for its best year since Covid, while Cinemark has a shot at its best year in terms of ticket sales ever. And yet, the stock trades well off its pre-Covid highs. Perhaps the October 30 earnings report can get shares back above the 30 level for the first time since July.

Let’s maintain our 42 price target, giving CNK a whopping 57% upside from here. BUY

J.M. Smucker (SJM) makes a lot of products that have been in almost every American’s pantry and pet food box for years: Smucker’s jelly, Jif peanut butter, Folger’s and Dunkin’ coffee, Hostess cupcakes, “Donettes” and mini muffins, Meow Mix and Milk Bones. Those generational hand-me-downs are why this family-run (currently run by Mark Smucker) company is still thriving 128 years removed from its 1897 founding. The stock has been equally reliable since it came public in 1994, but just dipped to a five-year low in June – which spells opportunity.

Despite finishing its 2025 fiscal year on a down note, Smucker’s is growing just fine, posting record sales ($8.73 billion) last year. Analysts expect the company to achieve a new sales record in FY ’26 ($8.98 billion) and to top the $9 billion mark in FY ’27. Earnings per share have been all over the place but are expected to swell from $9.13 in FY ’26 to $9.83 in FY ’27. So, the company is growing about as well as it ever does … and yet shares are a third off of their 2023 highs.

SJM shares tumbled roughly 3% for a second straight week as tariff fears likely scared a few investors away. There was no news this week, though earlier this month it was reported that Smucker’s will expand operations at its Hostess plant in Georgia, likely in an effort to counteract the closing of its Indianapolis Hostess plant sometime next year, as the company aims to become more efficient.

Shares are quite cheap, trading at 12x forward earnings estimates and 1.3x sales. They have 27% upside to our 130 price target. BUY

Shift4 Payments (FOUR) bills itself as the leader in secure payment processing solutions. Its fintech offerings are available in more than 75 countries and process more than 5 billion annual transactions, using over 100 payment methods. Based in Allentown, Pennsylvania, Shift4 was founded in 1999 by a 16-year-old named Jared Isaacman in his parents’ basement in New Jersey. Called United Bank Card at the time, it shortened the time it took for businesses to set up payment systems from a month to a day and offered free credit card readers – a rarity at the time. Today, after several rebrandings, Shift4 Payments (it took on the name of a payment gateway provider it acquired in 2017) processes payments for more than 200,000 businesses worldwide in the retail, hospitality, leisure and restaurant industries.

The company came public in June 2020 – one of the few IPOs on U.S. exchanges in the months after the onset of the pandemic. After debuting at 23 per share, the stock more than quadrupled to 101 a share by the following April. Then, the bear market arrived in 2022, and FOUR retreated all the way back to the low 30s by the middle of that year. It has since recovered, rising to new heights above 125 this February. But the tariff scare in early April took shares all the way back to the low 70s. They’ve recovered slightly since, but not much, trading at 80 as of this writing.

But the company never stopped growing. What was a $766 million (in revenue) company in 2020 now does more than $3 billion in revenue and is well on its way to topping the $4 billion mark this year. While not growing revenues as fast as it did in 2021 (+81%) or 2022 (+43%), Shift4 is on track to top 28% revenue growth for a third straight year. Sales are expected to expand by another 26% this year. Meanwhile, the company is now steadily profitable, with EPS expected to grow another 40% this year and 24% next year. And yet, the stock trades at 14x forward earnings – the cheapest it’s ever been aside from when it was 13.3x earnings this April – and 1.9x sales, well below its 2.6x average P/S ratio.

Fintech has become an off-Broadway term, swallowed whole by the AI tidal wave. But the industry never stopped growing, even if it’s not quite at the breakneck speed of a few years ago. And Shift4 is certainly one of the sector’s leaders.

FOUR shares gave back all of their 5% gain from the previous week, as four separate Wall Street analysts have lowered their price target on the stock this month. That said, every one of those price targets is still at least 13% above the current share price, with both Mizuho (100) and Raymond James (120) thinking the stock can get to triple digits. Our 110 price target is right in between those two estimates, giving the stock 45% upside from here. I’m betting this week’s pullback was more market-induced than anything. BUY

Current Recommendations

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

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