April 4, 2025

In today’s note, we discuss pertinent developments for some of the stocks in the portfolio, including Agnico Eagle Mines (AEM), Alcoa (AA), Atlassian (TEAM), Centuri Holdings (CTRI), SLB Ltd. (SLB) and Starbucks (SBUX).

Gold miner Agnico Eagle Mines (AEM) is well positioned in the ongoing tariff war to benefit from increasing safe-haven gold demand.

We’re cutting Atlassian (TEAM) and Starbucks (SBUX) from the portfolio over broad economic concerns, while adding Intel (INTC).

Comments on Portfolio Holdings

It was a nasty week for the market, and while some holdings fared better than others, there was definitely some bloodshed in the portfolio, so let’s get right to it.

Agnico Eagle Mines (AEM) was downgraded to Neutral from Buy with a $110 price target at UBS on Monday. Although the bank believes Agnico will continue to deliver against its guidance while generating robust free cash flow and increasing cash returns to shareholders, it sees “limited near-term volume growth” and believes the company would need to “re-rate further to justify material upside with gold at $3,000 an ounce.”

The analysts at UBS further said Agnico’s relative valuation looks “stretched” after an outperformance that was driven by industry peers struggling against production guidance, cost inflation and questionable M&A track records. UBS also noted that at 8.2x its spot enterprise valuation-to-EBITDA, Agnico now trades in line with its five-year average multiple and implies the stock is discounting a more than $3,000 gold price.

I happen to disagree with the firm’s assessment of AEM’s upside being limited. Instead, I see AEM as a continued prime beneficiary of the ongoing secular gold bull market, which is being driven by a number of catalysts—not the least of which is the persistence of global economic uncertainties. For this reason and others, I’m maintaining a Hold rating on the stock.

Moving on to Alcoa (AA), which owns two of the four primary aluminum smelters in the U.S., the company is currently front-and-center in the tariff debate. It started last March with the White House’s imposition of a 25% tariff on all steel and aluminum imports, including from Canada. That has obviously put some fairly persistent downward pressure on the stock, especially compared to some of its competitors that aren’t as reliant on aluminum sourced outside the U.S.

Indeed, most of Alcoa’s aluminum production is outside the U.S.—in fact, 85% of it is sourced from foreign countries—and it’s clear that Trump wants to repatriate production of the metal. Of the 2.2 million tons of aluminum the company produces each year, 42% of it is made in Canada and shipped to the U.S.

Since 2000, the U.S. aluminum industry has seen an 82% reduction in the amounts of the metal produced domestically, which has left the nation heavily dependent on foreign imports of the metal. The company’s CEO has emphasized that Alcoa is “aligned with [Trump’s] wanting to bring back manufacturing jobs to the U.S.,” but he said the best way to do this is to bring Canadian metal into the U.S. to support the firm’s downstream customers (such as the auto industry and other major users of the metal).

The White House is trying to revive U.S. industrial manufacturing through the tariff policy. But Alcoa has made clear it won’t be making long-term investment decisions based on Trump’s tariff structure, which Alcoa said “can change overnight.” In other words, the company seeks clarity from the White House and demands an exemption from the tariffs in order to better comply with the government’s demands to produce more aluminum domestically.

Moreover, Alcoa said it wants the federal government to make efforts towards reducing energy costs, which it said is the biggest constraint for expanding domestic aluminum production—especially since a typical smelter uses as much electricity (the biggest input cost for aluminum) as a small city. Specifically, the CEO said his company’s decision to invest in the U.S. in the future won’t be based on tariffs, but on a more benign energy policy.

Alcoa also warned the tariffs could cost the U.S. aluminum sector 100,000 jobs (including 20,000 direct jobs), as well as a 12% job reduction in the global aluminum industry. As of early April, the White House hasn’t granted Alcoa the exemption it seeks, although it has held off on the imposition of any new tariffs, which should provide at least some relief for Alcoa. (As an aside, Australia is another point of origin for Alcoa’s aluminum, and it has said it will likely replace its Australian aluminum output to the U.S. in the wake of the tariffs.)

At a recent industry conference, the firm’s CEO indicated that the global aluminum market presents “significant opportunities” for consolidation, and he suggested that M&A “could enhance efficiency and competitiveness within the industry.” He also signaled a willingness to engage in further M&A discussions with potential suitors, with many observers predicting the tariff war will facilitate consolidation within the aluminum industry due to the needs of producers to achieve economies of scale and reduce costs.

Beyond the near-term impacts of the tariffs, the aluminum industry in general—and Alcoa in particular—should benefit longer term from the ongoing transition to alternate forms of energy production, which heavily utilize aluminum. Alcoa also sees opportunities in the emergence of low-carbon aluminum in terms of creating new smelting technologies (which Alcoa is presently exploring).

Further, with the market for bauxite (the main ore for aluminum) extremely tight and prices near record highs, it’s creating global aluminum industry supply constraints. This in turn is expected to drive steady mid-single-digit annual growth in aluminum demand for many years to come, in turn further driving the potential for Alcoa to benefit from this trend—especially through strategic M&A.

In the latest company news, Alcoa announced this week that it has formed a joint venture with IGNIS EQT to support operations at the San Ciprian complex in Spain, in which Alcoa will maintain 75% ownership and operational control, while IGNIS EQT will hold 25%. The agreement allows for the planned restart of the San Ciprián smelter in 2025, following its 2021 curtailment due to high energy costs.

Bottom line, I still like Alcoa’s long-term investment potential since it’s a key supplier of a critical metal whose demand profile isn’t going to diminish. I’m maintaining a Hold rating on the stock for now.

Shares of Atlassian (TEAM) came under heavy selling pressure on Thursday and were down 11% for the day. I had hoped the stock would find support above the 200-day moving average and rebound from there, but that was not the case as Atlassian and its enterprise software cohorts fell under Wall Street’s pessimism.

Specifically, the consensus view seems to be that the newly imposed tariffs could result in a significant slowdown in software spending. Analyst Jim Reid of Deutsch Bank commented on this view Thursday, stating: “In short, the tariffs put in place last night were extraordinary both in terms of scale and in how they were calculated, with President Trump announcing reciprocal tariffs under the International Emergency Economic Powers Act (IEEPA) as he declared a national emergency over the trade deficit.”

We’ve already taken a three-quarters profit in the stock over the last few months, and before our remaining one-quarter position evaporates into the loss column, I’m going to go ahead and recommend that we take our remaining profit in TEAM and exit the stock completely. I’m unsure of how this admittedly sensitive stock will fare in this environment, and I don’t have as much confidence in it as I do the other stocks in our portfolio. So, I’m assigning it a SELL rating.

In some good news for Centuri Holdings (CTRI), the company this week said it secured more than $360 million in new awards in projects for utility, energy and data center customers. The strategic infrastructure services specialist said the new work includes construction of substation and underground electrical infrastructure to support development of data center sites.

It also consists of a new scope of work to provide essential grid resiliency for a leading U.S. electric utility: significant industrial, generation, and mechanical work for utility and energy clients in the Northeast. The project further involves the modernization of utility distribution infrastructure across the U.S. and Canada, including a “significant” Midwest water infrastructure project and core electric and natural gas system upgrades.

Prior to Thursday’s broad market meltdown, investors were pleased with the news and rewarded CTRI with a 13% rally over a two-day period. Shares were down 8% on Thursday, but the stock continues to hold above recent lows. Like most stocks, it remains vulnerable to further market volatility shocks in the coming days, but I’m maintaining the Hold rating in the portfolio.

SLB Ltd. (SLB) was awarded a major drilling contract from Woodside Energy (WDS) this week for the ultra-deepwater Trion project in offshore Mexico; financial details were not provided. According to Seeking Alpha, SLB said it will oversee the delivery of 18 ultra-deepwater wells using artificial intelligence-enabled drilling capabilities to improve operational efficiency and well quality.

The full scope of the contract includes digital directional drilling services and hardware, logging while drilling, surface logging, cementing, drilling and completions fluids, completions and wireline services. The field will be developed with 18 wells drilled in the initial phase for a total of 24 wells drilled over the life of the project, and with initial production slated to begin in 2028. SLB maintains a Buy rating in the portfolio.

Another stock that gets the ax in the portfolio in light of tariff-related uncertainties is the admittedly economically-sensitive coffee retailer, Starbucks (SBUX). It was a nice turnaround story while it lasted, and we were able to take a 50% profit in our holding not long ago. But the stock has been hit hard by the tariff wars—and for good reason. The company’s strategic plan isn’t fully panning out in the current economic environment, and if indeed the U.S. is headed for a recession (as a growing number of economists are predicting), then the turnaround is obviously going to take a lot longer to get going than I previously anticipated.

Most recently, the company has reported a disturbing trend of declining customer transactions, negative comparable growth and lower margins. These metrics aren’t likely to improve anytime soon in the face of the accelerating trade war, so I see no reason to maintain a Hold rating on the remainder of our position in the stock. Accordingly, I’m downgrading our half position in SBUX to a full SELL.

RATINGS CHANGES: Atlassian (TEAM) has been downgraded from Hold to Sell.

Starbucks (SBUX) has been downgraded from Hold to Sell.

NEW POSITIONS: I’m initiating new a long position in Intel (INTC) as of Friday with an initial upside target of 50. BUY

Friday, April 4, 2025 Subscribers-Only Podcast:

Covering recent news and analysis for our portfolio companies and other topics relevant to value/contrarian investors.

Today’s podcast is about 21 minutes and covers:

• The latest market carnage can be categorized as a panic, which carries a silver lining for investors.
• Newsletter writer sentiment suggests a major low is very near.
• We look at two potentially strong rebound candidates from a relative strength perspective.
• Updates on several portfolio holdings, including the latest developments for aluminum maker Alcoa (AA).
• Final note
  
  • Intel (INTC) is looking promising after the addition of the new turnaround CEO.

Market Outlook

Since early February, the bears have enjoyed the upper hand in this market as the tariff war continues to unfold. Heading into this week, the market was making strides toward recovery and even had a fairly strong showing at mid-week despite the trade war’s escalation.

Unsurprisingly, the more conservative NYSE stocks showed more relative strength versus the more speculative Nasdaq issues, as the 50 largest-cap stocks on the Big Board outpaced the 50 biggest Nasdaq stocks this week. Equally unsurprising has been the continued strength of the defensive-oriented utilities and consumer staples sectors as investors continue to prefer safety over speculation.

On Thursday, however, the bottom fell out as investors weighed the potential impact of the latest round of tariffs, and the verdict was far from bloodless. Stocks plummeted in their worst single-day showing since the 2020 Covid crash, with the S&P 500 losing 5% for the day and the Nasdaq Composite dropping 6%.

As contrarians, we’re always looking for the silver lining in the storm clouds, and there were at least two such examples that I found in this storm’s aftermath. The first is that new 52-week lows on the NYSE were at 550. Back in the days before the internet, it was an established rule of thumb that when the new lows printed in the daily newspapers took up at least four columns, it was regarded as a strong sign of a market bottom. That normally meant around 1,000 new lows in a single day, give or take.

After Thursday’s carnage, we’re more than halfway to that level, and it wouldn’t surprise me to see that milestone reached either Friday or by early next week. And while the final price low could still be a few days away, I suspect the market will be in an exceptionally “sold out” condition sooner than perhaps most investors anticipate.

Another potential silver lining is in terms of investor sentiment as measured by the weekly bull/bear polls. Not only are investors still playing defense, but so too are investment advisers. According to the latest data from Investors Intelligence, the percentage of advisers and newsletter writers that are in the “correction” category—that is, they’re uncertain whether the market is bullish or bearish and are therefore noncommittal—is 42%. That’s the highest reading for this category since the major market low that was posted during the summer of 2015.

To be fair, there was a similarly high reading in the “correction” camp in the Investors Intelligence poll back in early 2022. And while the 40% “correction” reading back then did mark a temporary bottom for the market, it didn’t stop the bear market that eventually followed.

As analyst Tom McClellan noted in his latest market insight, this development may not necessarily mean a major low is in place for the equity market, but it suggests we’re getting very close to at least a temporary low that would allow for a worthwhile broad rally—and perhaps an opportunity to scoop up some relative strength opportunities (of which I’ll have more to say about in a minute).

For now, my advice is to remain defensive and avoid the temptation to “catch the falling dagger” since an oversold market can always become even more oversold before it finally bottoms out. The good news, in my estimation, is that this latest sell-off is more of a news-induced panic than a classic market decline (which can happen for no immediately obvious reason).

And panics, while always nasty, tend to be short-lived since they’re reactionary by nature, with the added benefit of participants knowing exactly what caused it. This in turn allows the market to recover in fairly short order once investors’ emotions cool down since the catalyst is easy to address. Moreover, post-panic rallies tend to be extremely vigorous, which provide excellent opportunities for bargain buyers.

Stocks of Interest

Another positive aspect to a plunging market is that it throws into sharp relief the extremely small number of stocks that are showing relative strength. That is, stocks that were already coming off major lows before the market sell-off began and, during the plunge, were actually moving higher against the main trend. Stocks exhibiting this type of behavior are normally under accumulation by informed investors with deep pockets, and they also tend to be the first ones out of the gate once a general recovery sets in.

A couple of stocks falling under the relative strength category happened to already be on my watch list, so let’s briefly examine them. The first is Bunge Global (BG), which is one of the world’s largest diversified agriculture and food companies by market cap.

Bunge engages in commodity trading (including purchasing and storage of crops from farmers), processing (into edible oils, protein meals and other products), along with producing biodiesel and ethanol (through joint ventures with other companies).

The company recently made headlines with Canada’s approval of the firm’s proposed takeover of Viterra, the world’s largest agriculture network that connects producers and consumers of ag products. The merged company would create a global ag-trading and processing giant worth $34 billion, and put Bunge closer in scale with its main competitors Cargill and Archer Daniels Midland (ADM).

Bunge compares exceptionally well in terms of valuation when compared to its industry peers, and its revenues are projected to steadily accelerate over the next few years as global food demand increases. A generous dividend (current yield 3.5%) is an added consideration. If you agree with my assessment that the next couple of years will witness an ag sector revival, BG is worth keeping high on your watchlist—and likely worth a nibble around current prices.

Granted, this isn’t a classic turnaround but is more of a special situation or cyclical rebound opportunity. But what impresses me the most about Bunge right now isn’t as much as its solid fundamental backdrop, but its relative strength compared with the rest of the market. In the daily chart for BG, you can clearly see the stock has clearly edged higher over the last eight weeks after bottoming in early February and even made some headway in the face of this week’s market panic. This is a tell-tale sign of informed, or “smart money,” buying interest.

Another stock currently high on my watch list—and I’ve finally decided to pull the trigger and add it once again to the portfolio—is the semiconductor giant Intel (INTC). This is a stock that made the Cabot Turnaround Letter portfolio late last year, but after a fitful rally effort, the stock failed to impress me and I realized my addition of this stock was premature, so I dropped it. But in the last few months, the stock has not only carved out a substantial base but has also shown clear relative strength in the last few weeks while the market has come under tariff-related selling pressure.

The story here is well known, so I won’t bore you with the details, but the potential catalyst the stock really needed to find its legs (so to speak) is the recent addition of new CEO, the Silicon Valley veteran Lip-Bu Tan.

He has a successful track record as both a startup investor and a turnaround CEO, having led the successful rebound of chip design software leader Cadence (CDNS). For the task ahead of him at Intel, Tan’s strategic focus is on revitalizing the firm’s manufacturing strength, improving the foundry business, exploring robotics and expanding into AI, while also streamlining operations and prioritizing customer needs. He also plans to attract new engineering talent in order to drive innovation and new product development.

He also plans to explore the possibility of spinning off non-core assets, which could produce some new potential opportunities for turnaround-focused investors. This is part of Intel’s bigger strategy under Tan of improving bandwidth and focusing resources. And he further aims to “eliminate bureaucratic obstacles and create an environment where breakthrough ideas can flourish.”

Industry analysts seem to agree that it’s a solid turnaround plan, and the major institutional investors on Wall Street seem to believe in Tan. This is clearly a big reason for the stock’s relative strength in recent months, although the fact that semiconductors have thus far dodged Trump’s tariffs is undoubtedly another. I’ll have more to say about Intel later in the podcast.

Please know that while I don’t yet personally own shares of all Cabot Turnaround Letter recommended stocks, this will materially change in the coming weeks as I become fully integrated as your new chief analyst.

Please feel free to share your ideas and suggestions for the podcast and the letter with an email to either me at cdroke@cabotwealth.com or to our friendly customer support team at support@cabotwealth.com. Due to the time and space limits we may not be able to cover every topic, but we will work to cover as much as possible or respond by email.

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