July 12, 2024

Wells Fargo (WFC) kicked off the Cabot Turnaround Letter earnings season today, showing solid EPS of $1.33/share, which exceeded estimates by 4 cents. WFC also beat revenue estimates by $410M, coming in at $20.69B, but the stock is trading lower this morning as the company posted a 9% YoY decline in net interest. We moved this one to HOLD back in the May 27 issue at 60, and it just hasn’t quite been able to clear that prior high. Given that we have a 119% overall gain on this stock in the rear-view mirror, and that interest rates – and therefore WFC earnings – are only likely to go lower from here, we’re moving this one to SELL.

While we’re at it, we’re going to move our other bank stock – Capital One Financial (COF) – to SELL as well for the same reasons. They’re due to report earnings in a couple weeks, but the stock hasn’t quite been able to get up above Bruce’s 150 target. And with interest rates having peaked, there’s just no sense in chancing a 5-10% drawdown from here … nobody ever went broke taking profits.

And on an opposite note, I got a question from Andrew about our position in Agnico Eagle Mines (AEM) asking if we should take profits given that the stock is approaching Bruce’s price target. The truth is that I have mixed feelings on the matter. On one hand, I genuinely think the precious metals sector is about to RIP higher as interest rates come down. On the other hand, the multiple for AEM is so big compared to others in the sector that I’m moving it to HOLD.

If you want to lock in profits (not a bad idea) that can be accomplished either by selling a percentage of shares (25-50%) or applying a trailing stop of 10-20% and just HOLD while declining rates and a falling dollar cause precious metals to blast off. I suspect there is more torque to be had in smaller-cap gold and silver names – for instance, Catalyst Report member Coeur Mining (CDE), Endeavour Silver (EKX), or B2Gold (BTG) – while the more risk-averse among you might prefer to just downshift to the precious metals ETFs (GLD, SLV).

Friday, July 12, 2024, 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 13 minutes long and covers:

• Initial note
  
  • Earnings results, ratings changes, and some thoughts on rates, the dollar, and gold.
• Comments on recommended companies
  
  • Dril-Quip (DRQ) announced that some previously issued financial statements should no longer be relied upon due to an error in the classification of inventory write-downs pertaining to $19.3 million related to the 2018 global strategic plan and $47.7 million from the 2021 global strategic plan. These items were incorrectly classified under “Restructuring and other charges” instead of “Cost of sales” as per ASC 420-10-S99-3 guidelines.
  • Treehouse Foods (THS) will report financial results for its second quarter before the market open on Monday, August 5, 2024.
  • Six Flags (FUN) completed its merger with Cedar Fair and is now trading under the ticker FUN. We adjusted historical entry prices and exit targets to reflect the new share structure and pricing in the tables below.
  • Mohawk Industries (MHK) will announce 2Q results on Thursday, July 25 after the bell.
  • U.S. Steel (X) will release financial results for the second quarter 2024 on Thursday, August 1, 2024, after the close.
  • Nokia’s (NOK) second-quarter and half-year financial report on July 18, 2024, at approximately 8 a.m. Finnish time (EEST).
  • Newell Brands (NWL) announced its second-quarter 2024 earnings results will be released Friday, July 26, 2024, prior to market open.
  • Elanco Animal Health (ELAN) completed the divestiture of its aqua business to Merck Animal Health (MRK) for roughly $1.3 billion in cash, with over $1 billion available for paying down debt in Q3.
  • Walgreens Boots Alliance (WBA) declared a quarterly dividend of 25 cents per share payable on September 12, 2024, to stockholders of record as of August 21, 2024.

Please know that while I don’t yet personally own shares of all Cabot Turnaround Letter recommended stocks – including the stocks mentioned in this note – that will materially change over time.

Please feel free to share your ideas and suggestions for the podcast and the letter with an email to either me at mwarder@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.

Portfolio

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