Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the April 2021 issue.
This month we look at defense industry stocks. These stocks have been left aside as investors rush to capture post-pandemic winners, and as the market has doubts about the Biden administration’s commitment to defense spending. Yet, these concerns appear overdone, and investors aren’t considering the possibility of a ramp-up in response to rising global tensions. We discuss six interesting stocks.
We also look at high yield bonds. Our call in February 2020, that “the Sun May Be Setting On High Yield Bonds,” appears to be the right one once again. Yield levels and spreads have returned to remarkably low levels. Our discussion also outlines what favorable and unfavorable conditions look like.
Our feature recommendation is pet health company Elanco Animal Health (ELAN). This company has produced mediocre operating and stock price performance since its 2018 spin-off from Eli Lilly. Yet, changes appear to be coming with the arrival of a credible activist that is reshaping the board of directors.
We also include comments on recent price target and rating changes, including our recent Sell recommendations on Valero Energy (VLO) and Volkswagen AG (VWAGY).
Please feel free to send me your questions and comments. This newsletter is written for you. A great way to get more out of your letter is to let me know what you are looking for.
I’m best reachable at Bruce@CabotWealth.com. I’ll do my best to respond as quickly as possible.
Cabot Turnaround Letter 421
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Defense Stocks—Time to Go on Offense?
In the excitement to capture the momentum in post-Covid economic re-opening stocks, investors seem to be leaving aside the defense contractors. These companies produce large-scale weapons and related equipment for the United States and allied governments. Several factors may be behind this neglect, including uncertainty regarding the Biden Administration’s priorities, possible spending limits imposed by the surging federal budget deficit and avoidance by investors who emphasize favorable environmental, social and governance (ESG) traits. Also, the defense industry is generally slow-growth, sending investors elsewhere to look for faster growth.
However, these concerns appear to be overdone. President Biden is prioritizing an upgrade and modernization of the military, including ramping up defense capabilities against potential hostilities across the Pacific region, which is broadly supported by both political parties. Large budget deficits don’t seem to be much of a constraint these days. Importantly, global threats are rising, and investors are underestimating the potentially significant secular increase in defense spending if the United States and its allies become involved in a “great powers” conflict. One optimistic view on spending: during the Vietnam War, defense spending was about 6.8% of GDP, whereas in 2019 it was only 3.3%. If the U.S. increased its spending to only 5% of GDP, and if only 20% of the incremental $340 billion in spending was used to buy hardware (currently about 19% of the defense budget goes into hardware), the incremental $65 billion would equal Lockheed Martin’s total annual revenues.
The defense industry is somewhat unique. It has one very large (sometimes only one) customer – the United States government. That single customer has immense negotiating power. Also, complex projects, like building a highly-advanced nuclear submarine, create potentially costly execution risks.
However, defense contractors have valuable strengths, as well. First, their revenues don’t follow the economic cycle, nor do their chief customer have bankruptcy risk. For many contracts, there are few bidders, as the industry has consolidated to only a handful of “primes,” while barriers to entry are almost insurmountably high. Once awarded, a contract can provide stable revenues for potentially decades, with switching costs so high that there is little chance that the contract could be lost. The government helps underwrite research and development costs as well as early production costs, greatly reducing contractors’ risks. When volumes ramp up and efficiencies are developed, the contracts can produce quite respectable profitability, particularly when frequent change orders bring higher incremental margins. Helping boost cash flow, capital spending requirements at defense contractors are generally low.
With the growing pressure to stay ahead/match China’s rapidly-developing capabilities, defense spending could accelerate. Next generation technologies, like remote-controlled and autonomous vehicles (drones), space weapons, hypersonic missiles and new anti-missile defenses, offer the potential for large and enduring contracts. Politics, budgeting and fiscal realities could dampen the appetite for these initiatives, but the secular trend is toward higher defense spending.
Nearly all of the prime contractors are out of favor, despite some recent upward moves. We have listed six defense companies below that look the most appealing, including a few specialized and smaller companies.
General Dynamics (GD) – General Dynamics is one of the primes, with a focus on naval combat vessels, land-based combat vehicles and ordinance, and a range of communications and other systems. The company is the prime contractor for the Navy’s Columbia-class nuclear submarine, which will continue into the 2040s. Its M1 Abrams tank contract and the Bradley Fighting Vehicles likely have many more years ahead.
A key segment, and a driver of its shares, is its valuable Gulfstream business jet franchise (which also produces jets for the military) that dominates its industry with a 50% market share. Gulfstream should rebound from its pandemic-related weakness and its introduction of the new G700 next year. Lucrative aftermarket revenues are as much as 25% of this segment’s sales. General Dynamics has a reasonable balance sheet, pays an attractive (and recently raised) dividend and generates strong free cash flow.
Huntington Ingalls (HII) – There is a lot to not like about Huntington Ingalls, America’s largest shipbuilding company. The company generates low operating margins of about 9% (compared to low teens for other primes), it holds the weak end of the nuclear submarine duopoly and could see its Virginia-class submarine contract trimmed, and the long-term outlook for large nuclear-powered aircraft carriers (which provide about 33% of total revenues) is being doubted due to their vulnerability to modern missiles.
But, there is also a lot to like. Nuclear submarines are arguably the Navy’s highest-priority weapon category. Its monopoly on large-scale nuclear aircraft carriers will likely last for at least another decade and provide servicing and maintenance revenues for even longer. If the Navy shifts to smaller carriers, Huntington could be in a strong position to win those contracts. A recent acquisition positions Huntington as a leader in uncrewed undersea vehicles, a category that may have a major role in the future of naval warfare.
It is also the sole builder of two amphibious assault ships with encouraging long-term demand. Investors would cheer the divestiture of its low-margin IT services business as it would improve both the optics and reality of Huntington’s strategic focus and margin structure. Free cash flow will likely increase toward 100% of net income as its capital spending programs are winding down. The balance sheet is solid, with its modest debt partly offset by $500 million in cash.
Kaman Corporation (KAMN) – Founded in 1945 by aviation pioneer Charles Kaman, this company produces highly-engineered components, specialty fuzes (mechanical fuses) for missiles, and various assemblies. About 55% of its revenues are generated from the defense sector, with another 28% from commercial aviation. Its workhorse helicopter, the K-Max, offers the potential to enter the unmanned next-generation airlift segment. The shares remain at their 2017 level, largely due to weak commercial aviation volumes. Partly in response, Kaman is undergoing a cost-cutting program to boost its margins and free cash flow. Kaman has an active acquisition and divestiture program – one possible but perhaps unlikely catalyst would be the divestiture of its unrelated medical/industrial operations which produce almost 17% of total sales. We see mostly continuity from the planned CEO succession that occurred last September. Kaman’s sturdy balance sheet holds $104 million in cash and only $190 million in debt.
Lockheed Martin (LMT) – Lockheed produces a wide range of weapons systems. Its marquee contract is for the F-35 Joint Strike Fighter (about 30% of revenues), which likely has over 30 years of remaining life. It is also well-positioned in hypersonic missiles and missile defense systems, in vertical lift through its Sikorsky helicopter unit, and in non-nuclear-powered ships through a joint venture with FMM. Its pending $4.4 billion acquisition of Aerojet Rocketdyne, a specialist in rocket propulsion, could significantly increase its strengths in missiles and rockets, although this deal may run into antitrust issues.
The company has headwinds, as well. It is a partner with Boeing in the United Launch Alliance, which may see competition from SpaceX and Blue Origin. Its highly regarded former CEO, Marilyn Hewson, was replaced by James Taiclet, the former head of wireless tower giant American Tower early last year. Taiclet is highly capable but investors wonder how well his skill set will transfer to the complex defense industry. The company’s net debt is about 1x EBITDA and the shares pay an appealing 2.9% dividend.
PAE, Inc. (PAE) – With revenues of $3.1 billion, PAE is a 20,000-employee firm that provides a wide range of specialized field services to the U.S. State and Defense departments including infrastructure, training, intelligence, and other mission support services. One of its long-standing contracts (since the 1970s) is to provide high-profile support for large U.S. embassies around the world. Founded in 1955 as Pacific Architects and Engineers, the company was one of the largest providers of contract services during the Vietnam War. It was acquired by Lockheed Martin in 2006, then by a series of private equity firms and the founder’s family, who helped the firm diversify its client base, improve its margin structure and upgrade its service offerings. In February 2020 PAE went public via a merger with a specialty purpose acquisition company.
Earlier this month, the company’s CEO departed abruptly, which creates some uncertainty. But, as the company is undertaking a search, it provides the opportunity for an outsider to bring a fresh perspective. PAE’s balance sheet carries reasonable debt, and it looks well-positioned for another year of sizeable and improving free cash flow to help pay down that debt. While its ownership and leadership turnover create risks, its low valuation and new owners create interesting upside potential. Investors will want to be aware of a share base overhang from private equity and SPAC owners exiting their positions and from some dilution from public and private warrants and earn-outs.
Viasat (VSAT) – While only partly a defense contractor, Viasat owns and operates satellite-based telecom and Internet connections for locations that have no conventional links, including commercial jets, military battlefields, remote homes and ocean vessels. Its encryption systems have earned considerable acclaim for their security, helping build credibility for its military-related operations. The company recently won a contract from Delta Airlines to provide in-flight Wi-Fi service, with Delta paying for the build-out.
While Viasat competes directly with Elon Musk’s Starlink and other satellite networks, it continues to hold its market share as demand remains robust, suggesting that the market is fairly large for this service. Free cash flow will be limited as the company is building out its Viasat-3 constellation over the next few years. Recently, the founder/CEO passed the baton to his long-time COO but we expect few changes. Viasat’s balance sheet carries reasonable debt which will likely be reduced in coming years.
| Defense Stocks | ||||||
| Company | Symbol | Recent Price | % Chg Since Yr-End 2019 | Market Cap $Bil. | EV/ EBITDA* | Dividend Yield (%) |
| General Dynamics | GD | 181.54 | 3 | 51.5 | 12.1 | 2.6 |
| Huntington Ingalls | HII | 203.16 | -19 | 8.2 | 11.5 | 2.3 |
| Kaman Corporation | KAMN | 52.62 | -20 | 1.5 | 12.8 | 1.6 |
| Lockheed Martin | LMT | 364.71 | -6 | 102.2 | 10.0 | 2.9 |
| PAE | PAE | 9.19 | -11 | 0.9 | 8.3 | 0.0 |
| Viasat | VSAT | 49.65 | -32 | 3.4 | 8.8 | 0.0 |
Closing prices on March 26, 2021.
* Enterprise value/Earnings before interest, taxes, depreciation and amortization. Based on consensus estimates for fiscal years ending in 2022.
Sources: Company releases, Sentieo, S&P Capital IQ and Cabot Turnaround Letter analysis.
High Yield Bonds—An Oxymoron?
It has been a remarkable year for high yield bonds since our late February 2020 update, when we cautioned that “The Sun May Be Setting on High Yield Bonds.” Shortly afterwards, high yield bonds, along with nearly all “risk” investments, plummeted in price as the pandemic seized up global economies. Only a few months later, however, financial markets rebounded with a remarkable resurgence which still continues. The sunset, which ushered in a dark period in financial markets, was fortunately brief. But, today, it seems that the sun is getting lower in the sky once again.
High yield bonds, often referred to as junk bonds, have credit ratings below “investment grade;” that is, below BBB- (at Standard & Poor’s) or Baa3 (at Moody’s). The low credit rating is produced by heavy debt loads or volatile or no profits at the underlying companies. In terms of claims on the company’s assets, high yield bonds rank below more senior debt but above common stock. As such, high yield bond performance tends to be similar to that of equities (with considerable sensitivity to economic conditions) rather than that of investment grade bonds.
The attractiveness of high yield bonds can be measured by two traits. First, their absolute level of yields. A bond yield of 8%, all other things equal, is more appealing than a yield of 3%. And, second, their yield is in excess of risk-free Treasuries, which is termed “spread.” A yield spread of 5 percentage points above Treasuries is more interesting than a spread of only 4 percentage points, regardless of the level of interest rates.
An additional, subjective measure of attractive-ness is the degree of collateral protection provided by bond covenants, which can support the bonds’ value if the company goes bankrupt. The most favorable time to buy high yield bonds is when the economy and financial markets are struggling. Bond prices are low, reflecting investors’ heightened aversion to the risks and reality of elevated defaults. In recessions, the default rate may rise to 8% to 12%, compared to normal times when the default rate has averaged between 3% and 4%. The weak bond prices also provide appealing absolute yields (an 8% yield, for example, generates a 24% cash return over three years) and spreads over Treasuries. In periods of distress, spreads have reached 8 percentage points, and surged to as high as 20 percentage points in the 2008 financial market meltdown. Importantly, companies issuing new high yield bonds readily accept more restrictive covenants, which reduces investors’ downside risk. Once an economic recovery arrives, high yield bond prices typically rebound and yields and spreads shrink.
Recent high yield bond returns have been strong. Over the past five years, high yield bonds have generated an annualized 35.7% rate of return. This remarkable rate exceeds the robust 24.3% rate for investment grade corporate bonds and the otherwise impressive 16.2% rate for the S&P500. Most of the high yield bond gains have been driven by higher bond prices, which have been fueled by strong economic conditions and falling Treasury yields, along with a shrinking yield spread over Treasuries. The higher coupon rate for these bonds also helped propel returns.
Today, for investors, high yield bond conditions are the polar opposite of favorable. High yield bonds now yield about 4.5%, with a 3.61 percentage point (or 361 basis point) spread above Treasuries. This spread is approaching 30-year lows. Covenants are weak or non-existent (“covenant-lite” is a common industry term nowadays).
What is motivating investors to load up on high yield bonds, despite the narrow advantage? The surging economic recovery and an unquenchable thirst for yield in the near-zero interest rate environment. Critically, the belief that the Federal Reserve will backstop the bond market and that the government will provide economic stimulus if conditions get dicey has structurally altered investors’ perception of the risks of high yield bonds. If this belief holds true, then the small yield premium will have been worthwhile.
Taking advantage of this belief, companies issued a record $400 billion in high yield bonds last year, with the hefty pace continuing this year. American Airlines, recent issuer of $6.5 billion in fresh high yield bonds at a blended 5.575% interest rate, had to turn away offers to buy as much as $45 billion.
Combined with $3.5 billion in new leveraged loans, American’s $10 billion debt-raise was the largest in industry history, despite the company’s daily $30 million cash outflow. The airline may never be able to repay this debt, which is on top of its $32 billion in existing debt. American is by no means the only zombie-like company that could face bankruptcy if the future generosity of bond investors is tested by higher interest rates, credit market distress or a recession.
With yields and spreads currently heavily compressed, high yield bond investors must rely on price appreciation to generate meaningful profits. The recovering economy may help bonds retain their lofty prices by reducing the chances of defaults, but rising interest rates will weigh on any upside potential in bond prices. And, unlike stocks, the most a bond holder will receive at maturity is par value. Just as the return opportunity is limited, the risk potential is elevated. Investor enthusiasm leaves little room for all-too-common disappointments that seem to arrive every five to 10 years.
Today, like “working holiday” and “original copy,” high yield bonds have become an oxymoron – there is very little “high” about their yields. We view this as a time to be more fearful than greedy. Yet, prospective investors should be preparing now for when conditions become more favorable – the window of opportunity can close quickly in an era of aggressive government support.
Recommendations
Purchase Recommendation: Elanco Animal Health, Inc
| Elanco Animal Health, Inc 2500 Innovation Way Greenfield, Indiana 46140 (877) 352-6261 elanco.com |
|
Background
Elanco is one of the world’s largest animal health companies, with estimated 2021 revenues of $4.6 billion. It offers a broad range of products, including the Soresto and Advantage flea and tick collars, prescription treatments for various pet diseases and ailments, and farm animal nutritional enzymes, vaccines, antibiotics and other treatments. About 55% of its sales are produced outside of the United States.
Founded in 1954 within pharmaceutical giant Eli Lilly, the Greenfield, Indiana-based company was spun off in a September 2018 initial public offering. Lilly no longer owns any shares. In August 2020, Elanco acquired the animal health business of German company Bayer AG for $6.9 billion in cash and shares. The deal expanded Elanco’s pet care segment to about 50% of total revenues and boosted its new product pipeline.
Elanco’s shares remain nearly flat since its IPO at $24, even during the strong stock market. Investor have been disappointed in the company’s uninspiring near-zero revenue growth, which has been hobbled by weak new product introductions and its low-productivity research pipeline. Elanco’s stagnation compares unfavorably to the industry’s 3-5% growth rate and competitor Zoetis’ 5-10% growth rate. Further, Elanco’s EBITDA margin of about 22% in 2019 (before a pandemic-weakened 16% margin in 2020) significantly lags Zoetis’ margin (at about 44% in both years) and is not much better than poorly-positioned Phibro (at about 13-14%). In addition to chronic revenue and margin problems, Elanco’s debt is an elevated 5.6x EBITDA. Compounding investor frustration, a recent article in the USA Today highlighted potential safety risks in its Soresto flea and tick collars, sending the shares down nearly 20%. With all of these problems, Elanco shares remain out of favor.
Analysis
Elanco’s underperformance has not gone unnoticed or unchallenged. Activist investor Sachem Head (with an estimated $3.5 billion in assets) holds a 5.9% ownership stake and recently received a board seat. Sachem Head is not new to the animal health industry – in 2014, it partnered with activist Pershing Square to take a combined 10% stake in Zoetis that led to long-standing performance improvements. Also joining the board is the former Zoetis CFO and a former Zoetis board member who were instrumental in that company’s activist-driven turnaround. Sachem Head recently received support in its Elanco campaign from a new stake by highly-regarded activist Starboard Value. These oversight changes are likely to bring significant improvements in Elanco’s pace of innovation and revenue growth, along with wider profit margins.
Improved profitability would add to the company’s already-healthy free cash flow. Management has committed to directing much of this cash toward reducing its net debt to below 3x EBITDA by the end of 2023.
Supporting the overall Elanco story is the healthy tailwind of secular growth and recession-resistant demand for pet care products. Pet ownership continues to increase as does spending per pet, with these trends likely to continue into the foreseeable future. This growth provides plenty of opportunities for Elanco to participate.
While the Soresto publicity could reduce demand or prompt a recall of the highly-profitable $400 million brand, there appears to be no scientific data supporting the safety claims. We believe the long-term effects on Elanco will be readily manageable.
Like all stocks, ELAN shares carry risks. In addition to the issues discussed above, risks include the possibility of weak integration of Bayer Animal Health, strong competition and higher regulatory costs.
ELAN shares already discount considerable risk. On consensus 2022 estimates, which include only moderate improvements in its profits, ELAN shares trade at a reasonable 15.8x EBITDA. This compares to 22.4x for Zoetis and 12.1x for the weaker Phibro Animal Health company. Our 44 price target for ELAN is based on the shares reaching a modest 19x multiple.
The changes at Elanco look poised to produce a much more valuable company, with considerable opportunity for shareholders.
We recommend the purchase of Elanco Animal Health (ELAN) shares with a 44 price target.
Price Target Changes and Sell Recommendations
Several companies continue to show better fundamentals than we anticipated, so we raised our price targets on Signet Jewelers (SIG) from 49 to 65, Conduent (CNDT) from 6 to 9, BorgWarner (BWA) from 46 to 57, Baker Hughes (BKR) from 23 to 26 and Berkshire Hathaway (BRK/B) from 250 to 285.
We moved Valero Energy (VLO) to a SELL on March 5. The long-term outlook for refining is average although we see some interesting potential for their renewable diesel operations. However, our initial rationale was for an opportunistic purchase of a depressed stock with a huge and readily funded dividend. We’re fine with taking a 93% profit in the four months since our recommendation.
With its price surge to over 43, we moved Volkswagen AG (VWAGY) to a SELL on March 17. VW has moved past the diesel scandal by paying large fines and changing its leadership and governance. Also, it appears to be operating more efficiently and benefitting from a strong demand recovery, particularly in China. Management has alluded to a possible spin-off of its high-value brands like Porsche and its more prosaic Traton truck business. Most important, though, VW is positioning itself as a leader in electric vehicles and the battery technology that will power these vehicles. These changes prompted us to raise our price target mid-month from 24.50 to 30. However, the shares then surged to just over 43, largely on enthusiasm following its Power Day and other updates to investors. This price, when converting the ADR to ordinary shares, exceeds by 40% its prior €355 price, itself an artificially-induced peak during an epic short squeeze of the Porsche family.
While we appreciate Volkswagen’s progress and potential, the shares discount a prosperous future that may not arrive for at least a decade, and even then it may not be quite so golden due to intense competition and other hurdles. In the meantime, Volkswagen will still be a gas-powered vehicle producer with average profitability that remains vulnerable to cyclical car demand. As such, it is difficult to justify holding the shares. Since initiating with a Buy in March 2017 at 15.91, the position has produced a 182% total return.
Performance
The following tables show the performance of all our currently active recommendations, plus recently closed out recommendations.
Large Cap1 (over $10 billion) Current Recommendations
| Recommendation | Symbol | Rec. Issue | Price at Rec. | 3/26/21 Price | Total Return (3,4) | Current Yield | Current Status (2) |
| General Electric | GE | 7-Jul | 38.12 | 12.99 | -42 | 0.3% | Buy (20) |
| General Motors | GM | 11-May | 32.09 | 56.52 | +104 | 0.0% | Buy (62) |
| Royal Dutch Shell plc | RDS/B | 15-Jan | 69.95 | 38.35 | -15 | 3.5% | Buy (53) |
| Nokia Corporation | NOK | 15-Mar | 8.02 | 4.06 | -37 | 0.0% | Buy (12) |
| The Mosaic Company | MOS | 15-Sep | 40.55 | 31.15 | -16 | 0.6% | Buy (35) |
| Macy’s | M | 16-Jul | 33.61 | 16.42 | -34 | 0.0% | Buy (13) |
| Volkswagen AG | VWAGY | 17-May | 15.91 | 42.33 | +182 | 1.3% | SELL * |
| Credit Suisse Group AG | CS | 17-Jun | 14.48 | 12.87 | +3 | 2.4% | Buy (24) |
| Toshiba Corporation | TOSYY | 17-Nov | 14.49 | 17.42 | +22 | 0.5% | Buy (28) |
| LafargeHolcim Ltd. | HCMLY | 18-Apr | 10.92 | 11.73 | +17 | 3.1% | Buy (16) |
| Newell Brands | NWL | 18-Jun | 24.78 | 26.64 | +18 | 3.5% | Buy (39) |
| Vodafone Group plc | VOD | 18-Dec | 21.24 | 18.87 | -2 | 5.8% | Buy (32) |
| Mohawk Industries | MHK | 19-Mar | 138.60 | 195.67 | +41 | 0.0% | Buy (180) |
| Kraft Heinz | KHC | 19-Jun | 28.68 | 40.03 | +51 | 4.0% | Buy (45) |
| Molson Coors | TAP | 19-Jul | 54.96 | 51.37 | -3 | 0.0% | Buy (59) |
| Biogen | BIIB | 19-Aug | 241.51 | 276.63 | +15 | 0.0% | Buy (360) |
| Berkshire Hathaway | BRK/B | 20-Apr | 183.18 | 256.77 | +40 | 0.0% | Buy (285) |
| Wells Fargo & Company | WFC | 20-Jun | 27.22 | 39.76 | +47 | 1.0% | Buy (43) |
| Baker Hughes Company | BKR | 20-Sep | 14.53 | 22.34 | +57 | 3.2% | Buy (26) |
| Western Digital Corporation | WDC | 20-Oct | 38.47 | 67.28 | +75 | 0.0% | Buy (69) |
| Valero Energy | VLO | 20-Nov | 41.97 | 79.03 | +93 | 5.5% | SELL * |
| Altria Group | MO | 20-Mar | 43.80 | 52.50 | +22 | 6.6% | Buy (66) |
Mid Cap1 ($1 billion - $10 billion) Current Recommendations
| Recommendation | Symbol | Rec. Issue | Price at Rec. | 3/26/21 Price | Total Return (3,4) | Current Yield | Current Status (2) |
| Mattel | MAT | 15-May | 28.43 | 20.19 | -16 | 0.0% | Buy (38) |
| BorgWarner | BWA | 16-Aug | 33.18 | 45.74 | +47 | 1.5% | Buy (57) |
| Conduent | CNDT | 17-Feb | 14.96 | 6.77 | -55 | 0.0% | Buy (9) |
| Adient, plc | ADNT | 18-Oct | 39.77 | 41.83 | +6 | 0.0% | Buy (42) |
| JELD-WEN | JELD | 18-Nov | 16.20 | 27.33 | +69 | 0.0% | Buy (28) |
| Meredith Corporation | MDP | 20-Jan | 33.01 | 30.87 | -5 | 0.0% | Buy (52) |
| Lamb Weston Holdings | LW | 20-May | 61.36 | 80.64 | +33 | 1.1% | Buy (85) |
| GCP Applied Technologies | GCP | 20-Jul | 17.96 | 24.75 | +38 | 0.0% | Buy (28) |
| Albertsons | ACI | 20-Aug | 14.95 | 19.52 | +32 | 2.0% | Buy (23) |
| Xerox Holdings | XRX | 20-Dec | 21.91 | 24.98 | +16 | 4.0% | Buy (33) |
| Ironwood Pharmaceuticals | IRWD | 21-Jan | 12.02 | 10.89 | -9 | 0.0% | Buy (19) |
| Viatris | VTRS | 21-Feb | 17.43 | 14.36 | -18 | 0.0% | Buy (26) |
Small Cap1 (under $1 billion) Current Recommendations
| Recommendation | Symbol | Rec. Issue | Price at Rec. | 3/26/21 Price | Total Return (3,4) | Current Yield | Current Status (2) |
| Gannett Company | GCI | 17-Aug | 9.22 | 5.35 | +17 | 0.0% | Buy (9) |
| Oaktree Specialty Lending Corp. | OCSL | 18-Aug | 4.91 | 6.16 | +48 | 7.8% | Buy (7) |
| Signet Jewelers Limited | SIG | 19-Oct | 17.47 | 58.88 | +241 | 0.0% | Buy (65) |
| Duluth Holdings | DLTH | 20-Feb | 8.68 | 15.73 | +81 | 0.0% | Buy (17.50) |
Most Recent Closed-Out Recommendations
| Recommendation | Symbol | Category | Buy Issue | Price At Buy | Sell Issue | Price At Sell | Total Return(3,4) |
| Weyerhaeuser Co | WY | Large | 12-Apr | 21.89 | *Nov 20 | 28.14 | +70 |
| Barrick Gold | GOLD | Large | 19-Feb | 13.05 | *Nov 20 | 26.90 | +109 |
| GameStop | GME | Mid | 19-Apr | 10.29 | *Nov 20 | 16.56 | +61 |
| Freeport-McMoran | FCX | Large | 13-Aug | 28.21 | *Nov 20 | 23.39 | -8 |
| DuPont de Nemours | DD | Large | 20-Mar | 45.07 | *Jan 21 | 83.49 | +87 |
| ViacomCBS | VIAC | Large | 17-Jan | 59.57 | *Mar 21 | 64.37 | +16 |
| Trinity Industries | TRN | Large | 19-Sep | 17.47 | *Mar 21 | 32.35 | +92 |
Notes to ratings:
1. Based on market capitalization on the Recommendation date.
2. Price target in parentheses.
3. Total return includes price changes and dividends.
4. Prices and returns are adjusted for stock splits.
SP Given the higher risk, we consider these shares to be speculative.
* Indicates mid-month change in Recommendation rating. For Sells, price and returns are as-of the Sell date.
The next Cabot Turnaround Letter will be published on April 28, 2021.
Cabot Wealth Network
Publishing independent investment advice since 1970.
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Chairman & Chief Investment Strategist: Timothy Lutts
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