March 14, 2025

In today’s note, we discuss pertinent developments for some of the stocks in the portfolio, including Agnico-Eagle Mines (AEM), GE Aerospace (GE), Paramount Global (PARA), Sirius XM (SIRI), Teladoc Health (TDOC) and UiPath (PATH).

Gold and silver continue to benefit from safe-haven buying, boosting our holding of Agnico-Eagle Mines (AEM).

Trump’s tariffs are directly, or indirectly, roiling some of holdings, including Sirius XM (SIRI) and UiPath (PATH). The favorable long-term outlooks for both stocks remain unchanged, however.

Comments on Portfolio Holdings

Turning to the portfolio, it was generally a bad week for equities, but gold and precious metals outperformed. Agnico-Eagle Mines (AEM) was one of only 16 NYSE-listed stocks that had the distinction of making a new 12-month high on Thursday while countless other stocks made new lows. There was no specific company-related news catalyst for the rally, other than a few recent reports of major financial institutions which have increased their stakes in Agnico. The latest move higher was mainly the result of safe-haven buying of gold-oriented assets while the trade war unsettles the broad market.

Worries that Trump might place tariffs on gold have resulted in significant movements of gold bars from London to New York. Additionally, recent speculation that the U.S. might revalue its gold holdings to provide the Treasury with up to $800 billion more is another likely driver behind the recent gold price surge. More recently, the possibility that the U.S. federal government will levy taxes on gold imports in the foreseeable future has increased costs for physical gold delivery while increasing associated borrowing costs. As Barron’s recently observed, “This created a kind of ‘short squeeze’ in which everyone who had bet on gold prices falling suddenly had to reverse their positions, driving prices even higher.”

However, David Jane, a portfolio manager at Premier Miton in London, believes gold is benefiting from excessive money availability on the part of investors. As he put it, “The positive correlation between gold and equities suggests to me that it’s excessive liquidity around the world that’s getting sucked into gold.”

Whatever the case, Agnico’s stock continues to perform well, and another reason could be the latest assay results from a 2024 exploration drilling program the company conducted on the Detour Easter Property in Ontario, Canada, of which Agnico owns an option to earn a 75% interest and which Wallbridge Mining owns a 100% stake. The results were reported by Wallbridge on Thursday,

Specifically, if Agnico exercises its option to earn the initial 50% interest on the property, a joint venture (JV) will be formed and Agnico will have a second option to earn an additional 25% interest by making additional expenditures of $28 million in skilled work within five years of entering into the JV agreement. Agnico is the operator of the project for the duration of the option period.

The assay found “significant…localized gold mineralization” at several targets, with 14 holes drilled and nine intercepted gold mineralization that “may warrant additional drilling.” The exploration strategy looks to be working, as the combination of geophysical surveys and drilling appears to be identifying new mineralized structures, which can guide future exploration efforts.

Granted, the results aren’t decisive but they’re encouraging enough to justify further exploration. And if follow-up drilling extends the mineralized zones and discovers more consistent gold grades, the project could become significant. As one industry source noted, “Given its proximity to Agnico’s Detour Lake Mine, even a moderate discovery could be of interest for future development or partnership opportunities.” AEM retains a Hold rating in the portfolio.

GE Aerospace (GE) announced on Wednesday a plan to invest nearly $1 billion in its U.S. manufacturing facilities and supply chain in 2025. The decision is intended to integrate advanced parts and materials into its operations.

According to a company statement, the investment, which is almost twice as much as last year’s, will focus on improving engine safety, quality and production efficiency. Additionally, GE Aerospace intends to expand its workforce by hiring 5,000 U.S. workers in 2025.

Around $500 million of the investment will be allocated to expanding production capacity for a key part for a leading narrow-body aircraft. GE also projected up to a 20% increase in deliveries for the engine this year. An additional $200 million in funding will be allocated toward the new T901 Black Hawk and Apache helicopter engines, alongside continued production of other military engines. GE remains a Hold in the portfolio.

In the ongoing drama between Paramount Global (PARA) and Project Rise, David Ellison’s Skydance has asked the Federal Communications Commission to reject a complaint that alleged the current $8 billion deal for Paramount “is short-changing Project Rise’s bid,” according to Bloomberg.

Skydance’s attorneys wrote to the FCC that Project Rise’s $13.5 billion January bid was “unserious” and was submitted too late to be considered. They further noted that the Project Rise’s co-chair Daphna Ziman’s previous company, Cinemoi North America, declared bankruptcy last year, and the other co-chair, Moses Gross, has no history of financing public company transactions.

“Even if Project Rise’s bid had been timely, it would not have merited serious consideration. Most notably, Project Rise has never demonstrated that it has the necessary financing,” the Skydance attorneys reportedly said in a letter to the FCC. Paramount still expects the deal with Skydance to close in the first half of 2025. PARA remains a Buy in the portfolio.

Sirius XM (SIRI) saw some share price weakness this week after comments the company made regarding recent advertising softness at an industry conference.

“In the last week-and-a-half we are starting to see a drop-off,” Sirius XM CFO Tom Barry said at the 33rd Annual Deutsche Bank Media, Internet & Telecom conference. “We had some softness on CPG and retail in the last couple weeks. We are also seeing more softness in other categories in the last couple of days.”

He added, “Right now we are a little concerned and cautious about where ad sales are going,” due to tariffs, inflation and “just overall uncertainty in the market.”

While he believes there are some risks due to macroeconomic factors, Barry said he feels “very comfortable” with the company’s financial guidance for 2025. I have no comment to make on this right now other than I see a host of companies reacting to the escalating tariff war in similar fashion, so I suspect this is more of a knee-jerk overreaction and not a reason for long-term worry. For now, I’m maintaining the Buy rating on the stock.

Teladoc Health (TDOC) last week announced a partnership with Gifthealth, a pharmacy provider for Eli Lilly’s (LLY) direct-to-consumer platform, LillyDirect.

As part of the deals, Zepbound, Lilly’s weight-loss therapy, will be available in single-dose vials to LifeMD patients and Teladoc Health members enrolled in its weight care program.

According to Seeking Alpha, the partnerships came days after Eli Lilly launched 7.5 mg and 10 mg single-dose vial formats of Zepbound at $499 through LillyDirect. After taking a one-quarter profit, TDOC remains a Hold in the portfolio.

Software provider UiPath (PATH) fell 15% on Thursday after its revenue forecast for full-year fiscal 2026 below market expectations, with the firm citing “significant increase in macroeconomic volatility.”

The company expects FY 2026 revenue of around $1.53 billion, which were 3% below Wall Street’s current estimates. Annual recurring revenue (ARR) is predicted to be around $1.82 billion, which would be a 10% year-on-year increase if realized. The company ended fiscal 2025 with an ARR of $1.6 billion, which amounted to a 14% increase.

In its fiscal Q4, UiPath saw revenue increase 5% to $424 million, with earnings of 26 cents per share that beat expectations by seven cents. In the earnings call, management referenced a “significant increase in macroeconomic volatility over the past two weeks” particularly in the U.S. public sector, with “external uncertainty affecting customer budgets and sharp fluctuations in foreign exchange rates.”

Despite the headwinds, the company reaffirmed that UiPath’s agentic platform “remains integral to long-term plans.” That said, the firm is also taking a conservative approach to fiscal 2026 guidance, with additional caution to account for ongoing economic uncertainty.

On a more positive note, the company achieved record non-GAAP operating margin and strong adjusted free cash flow generation. Moreover, on Thursday, U.S. District Judge William Alsup ordered thousands of federal employees fired by the Trump administration to be reinstated within the next week. Industry analysts believe this decision could have a positive impact on UiPath’s public sector business.

Moreover, the company’s strong exposure to the early-stage AI boom should bode well for UiPath’s long-term viability. Short-term, of course, we’ll have to wait and see if PATH responds favorably to the ruling. Also, keep in mind that the Trump administration plans to appeal the ruling, which could create additional near-term volatility. The shares, however, maintain a Buy rating in the portfolio.

RATINGS CHANGES: In terms of ratings changes this week, I’m recommending that we sell Brookfield Wealth Solutions (BNT), which was purchased in January 2022 at around 42 a share. I believe the stock has run its course for this cycle and that, as a reinsurance specialist, it remains particularly vulnerable to adverse selling conditions if we are indeed heading into a bear market. By selling here, we’re exiting BNT with a 16% profit.

NEW POSITIONS: None this week.

Friday, March 14, 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 18 minutes and covers:

• Trump’s tariffs remain the focus of investors, and while many wonder how far he will proceed, Trump has already answered that question.
• A short-term tradable low is likely near, but a final “panic” low could be on the immediate horizon.
• Final note
  
  • We’re exiting Brookfield Wealth Solutions (BNT) due to insurance sector risk.

Market Outlook

In the ongoing discussion of the potential for a bear market to unfold, a notable name that keeps cropping up is Dr. Ed Yardeni. The widely respected Wall Street economist has been front and center in the current obsession of the news media, namely, the possibility for a U.S. recession this year.

This is relevant since Yardeni has long insisted that bear markets are caused by recessions, so it’s only natural that his market musings are attracting great interest right now. On Thursday, the long-term bull published a market note that took many on Wall Street by surprise. He sounded a surprisingly cautious note on the broad market outlook while cutting his 2025 and 2026 S&P 500 targets.

In other words, the old bull is pulling in his horns a bit—something he seldom does.

“It has dawned on Wall Street (and us!) that President Trump’s tariffs aren’t negotiating chips to help the U.S. lower tariffs around the world, promoting free trade,” wrote Yardeni. “They’re trade barriers, triggering other countries to respond in kind, and they jeopardize U.S. inflation and economic growth.”

Up until now, Yardeni had assumed—along with most economists—that Trump was bluffing over the tariff issue and had expected the president to back off the tariffs he has imposed on several countries once an escalation of the trade war threatened the economy. But so far, Trump has shown no signs of taking his foot off the gas pedal.

This refusal to back down from an escalating global trade war has engendered endless speculation among investors and analysts alike over whether or not a recession will be the result. Since recessions can only be fully realized in retrospect, my two cents on this subject is certainly no more informed than anyone else’s. But for what it’s worth, I’ll add it anyway.

While I admit it’s possible Trump might ultimately cave in to Wall Street’s demand and scale back his tariffs, I don’t believe he will. Both Trump and his cohort (Elon Musk) have implicitly stated in the past few months (before the latest tariff war even began) that Americans could expect a certain measure of economic discomfort in the foreseeable future as a result of Trump’s economic policies.

More specifically, Trump said on February 2 that Americans can expect to feel “some pain” from the emerging trade war that was catalyzed by his tariffs against China, Canada and Mexico. Even more ominously, Musk stated as far back as last October that if Trump won the White House, both he and Trump would inflict “temporary hardship” on Americans by means of both tariffs and spending cuts. During a “Telephone Town Hall” during Trump’s presidential campaign, Musk said:

“President Trump is supportive that everyone’s taking a haircut here because America’s got to live within its means, and we can’t be a wastrel.” Reporting on this statement in HuffPost last fall, Arthur Delaney pointed out that “taking a haircut” is essentially “an informal financial term for when an asset loses value.”

So, if we take both Trump and Musk at their words, then we must assume their current policy pursuit is methodical and deliberate. That is, both knew in advance that a bear market and/or recession could possibly result from it, but that such an outcome would not deter them from pursuing it. Therefore, I have no reason to believe that Trump will back down from the trade war until his economic goals have been achieved.

With this in mind, I think it’s warranted to entertain the idea that equities could be in the early stages of a bear market. Granted, a full-on bear market hasn’t been formally confirmed yet, but with so many technical signs pointing to the bears being in control of the intermediate-term trend, I believe a defensive stance is warranted until the weight of evidence shifts in favor of the bulls.

As of Thursday, the S&P 500 Index (SPX) is down “only” 10% from its year-to-date high. That’s technically “correction” territory, and with this milestone having been achieved, many analysts are now looking for at least a technical bounce to unfold in the days immediately ahead.

A recoil rally is certainly possible from here, but what concerns me is that the NYSE Advance-Decline (A-D) line hasn’t even broken its 200-day moving average yet and has remained remarkably firm in recent days despite the sell-off. This suggests to me that the retail crowd hasn’t yet capitulated, and I’d be surprised if we didn’t see something corresponding to a mini-panic before the next market low is in.

What’s more, the latest AAII weekly sentiment survey revealed that 59% of investors were bearish while only 19% were bullish. That’s unquestionably an elevated level of bears from an historical perspective, but it’s still a bit under the 60% bearish reading from February 26, which suggests panic hasn’t set in yet. I noted previously that it normally takes around four weeks of elevated bearish readings in the AAII poll (i.e. more than 50% bears) before a tradable bottom is in, so we might have to undergo another week or so of selling pressure before we get a meaningful market low in place.

Bottom line: caution is still in order.

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.

Portfolio

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