October 9, 2025

The Magic Number This Earnings Season

Third-quarter earnings season gets underway next week, and expectations are high. Economists are expecting 8% earnings growth among S&P 500 companies, according to data compiled by FactSet. It would be the eighth consecutive quarter of at least 8% profit growth among U.S. companies – perhaps the biggest reason stocks have been on a tear the last two years.

In recent quarters, earnings have come in well ahead of their “preseason” expectations, delivering double-digit growth in each of the last two quarters. Given how far stocks have climbed since the April Liberation Day-fueled bottom, it’s quite possible they’ll require a third straight quarter of double-digit earnings growth to keep advancing to new heights. Eight percent growth would certainly be nothing to sneeze at, but Wall Street – especially in this age of jaw-dropping earnings beats among artificial intelligence leaders – wants to be wowed. So earnings will likely have to not only cross a high earnings bar this season but do so with room to spare.

Of course, nothing has slowed this market for months. Not tariffs, not a slowing jobs market, not AI bubble fears, not a government shutdown. To doubt that this market can continue on its merry way through the end of the year would be to underestimate the power of stock market trends – which, as Tim Lutts, my former Cabot boss, used to say, always last longer than anyone expects.

So, let’s ride the trend, which has carried value stocks as well, with the Vanguard Value Index Fund (VTV) up nearly 11% year to date. The Cabot Value Investor portfolio has fared even better this year, with an average gain of 15% in 2025 on all open and closed positions. Who knows how much further stocks have to climb, or how many bumps there will be along the way. It’s very possible this monthslong rally is far from over. But another strong earnings season could stave off any weakness in the short term.

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

Energy Transfer LP (ET) Moves from Buy to Sell

Last Week’s Portfolio Changes

Buy Shift4 Payments (FOUR) with a 110 price target

Upcoming Earnings Reports

Wednesday, October 15 – Bank of America (BAC)

Growth & Income Portfolio

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

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 12.1x 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 1.4x book, cheaper than all but Citigroup among the big banks), and history of resilience makes for an enticing formula.

BAC shares were flat this week and may stay that way in the coming days ahead of next Wednesday’s (October 15) earnings release. Analysts anticipate 8.2% revenue growth with 16% EPS growth. Both would mark significant accelerations from the previous quarter (4.2% revenue growth, 3.2% EPS growth), and keep in mind the bank has topped earnings estimates in each of the last four quarters. The previous three earnings reports this year have given BAC shares a nice boost. Let’s hope that happens again and is enough to push the stock past its September (and 52-week) highs above 52.

BAC has 13% upside to our 57 price target. 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 2% 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 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. 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 pulled back more than 3% this week on no news. Shares are still up 2% in the last month but keep meeting resistance in the low 230s. A break above that level could quickly send them on their merry way to our 250 price target. With the holiday shopping season not far off, it could get there by Christmas – if not sooner. BUY

Energy Transfer LP (ET) retreated another 2% this week and has now broken below 17 support to trade at its lowest point since May. With crude oil and natural gas prices still stubbornly low, with no signs of perking up anytime soon, I have lost patience with this position. And now it’s at five-month lows. So let’s sell while our losses are still modest (around 12%) and open up a spot in the Growth & Income Portfolio for a stock that has far more immediate upside. SELL

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 mostly held firm this week, hitting the pause button after a nice run-up in the three weeks since the package delivery giant reported strong Q3 earnings on September 18. Earnings per share of $3.83 beat the $3.61 projection, while sales of $22.24 billion also topped the $21.66 billion estimate. CEO Raj Subramaniam said it best when summing up the package delivery giant’s fiscal ’26 first quarter: “Despite significant volatility and uncertainty around the global trade environment, our results demonstrate the resilience we have built into our network.” Other encouraging numbers from the quarter included a 6% uptick in average daily volumes and a boost in full-year 2026 revenue guidance, to a range of 4% to 6%; Wall Street had anticipated a mere 1.2% sales growth this year.

That rosy outlook demonstrates the ongoing health of the global economy. Plus, FedEx’s one losing segment – FedEx Freight, which saw operating results fall in the quarter due to lower revenue and higher wages – is going to be spun off into its own publicly traded company in June 2026.

We set a price target of 300 when we added FDX to the portfolio last month, and it’s off to a nice start. Shares still have 26% upside to reach that 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 12.9x earnings and 0.6x 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 pulled back 1.5% this week and are bumping up against – but not breaking below – two-month lows. So perhaps it will get a bounce soon. The absence of company-specific news likely hasn’t helped. The company doesn’t report third-quarter earnings until October 30, so the stock could remain in a relatively holding pattern until then. The most recent news was that KBR plans to spin off its mission technology solutions unit, which serves military and other government agencies, in the second half of 2026. Activist investor Irenic Capital Management had been pushing for the spin-off in an effort to shed an underperforming segment (similar to FedEx’s plan to spin off FedEx Freight). Once the spin-off occurs (again, likely not for another year or so), KBR will focus on its other, better-performing operations, including energy transition and emissions reduction.

KBR shares have 50% upside to our 72 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 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 this week as they continue to hang around the 8.7 area. There’s been no news. The company will report earnings in two weeks, on October 23, which could be just the thing to help shares break above 8.7 resistance. 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.

After a big rally in September, CNK shares have pulled back sharply the last couple weeks, down 8% this week but still north of their early-September lows. There’s been no obvious reason for the pullback, and I fully expect the stock to find support in the low 25s, if it even gets there. Movie theaters are well on their way to their best year since Covid, and Cinemark is on track for its best year for ticket sales ever. And yet, the stock is still in this two-steps-forward, two-steps-back mode. Eventually, I think that will change, perhaps when the company reports earnings at the end of the month (October 30). In the meantime, this looks like a good entry point for those who don’t already own the stock.

CNK shares have a whopping 62% upside to our 42 price target. 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 were off nearly 3% this week. The only news was that the company plans to spend $120 million to expand its Hostess manufacturing plant in Columbus, Georgia. Smucker acquired Hostess, the maker of Twinkies, Donettes and Ho Hos, two years ago, for $5.6 billion, but has had to eat $2 billion in write-downs related to the brand since, prompting it to reduce its SKU count by 25%. The expansion of the Georgia plant, which will add 48 jobs, is likely an effort to counterbalance the impending closing of its Indianapolis plant next year. So, the company is attempting to become more efficient, at least in the Hostess wing.

Shares are quite cheap, trading at 12x forward earnings estimates and 1.3x sales. They have 23% 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 is off to a great start for us, up more than 5% in its first week in our portfolio! The only news was that the company’s board of directors declared a $1.50-per-share dividend for holders of its 6% Series A Mandatory Convertible Preferred Stock. Not sure if that one moved the needle much; more likely, the stock was bouncing off five-month lows in the 76-77 range after a sharp pullback from the low 90s in late August and as high as 106-107 in July. Hence, this stock being added to the “Buy Low Opportunities” portfolio.

We have set a price target of 110 on FOUR, giving shares another 37% upside from here. So far, so good. BUY

Current Recommendations

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

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