March 20, 2025

Market’s “March Madness” Could Deliver Big Winners Down the Road

March Madness starts today. It’s my favorite sporting event of the year, as the possibilities and unpredictability of a 68-team basketball tournament involving 18-to-23-year-olds never fail to deliver on its “madness” moniker. It’s messy, it’s volatile, and you never know what’s going to happen next. Sort of like the stock market in the era of Trump, tariffs and angst-ridden Fed announcements like yesterday.

Granted, an unpredictable and volatile market is not half as fun as a basketball tournament where all that’s at stake is the $10 entry fee to my bracket pool (OK, and maybe a few small side bets on DraftKings!). But the swiftness and depth of the recent pullback – it’s the fifth-fastest correction in the S&P 500 in the last 75 years – does present immense opportunity when the selling finally subsides.

Consider what happened after the other corrections during this two-and-a-half-year bull market.

From July to October of 2023, the S&P pulled back more than 10% to reach its lowest point since that April. By the end of November, it had recovered all of those losses.

Last July and August, the Nasdaq corrected more than 13% and the S&P – while avoiding a technical correction – was down about 8.5% in just three weeks. It recovered nearly all of those losses by the end of August and was at new all-time highs by mid-September.

In both cases, it took stocks roughly six weeks to unravel the damage done that, in the moment, seemed like it might take months to dig out from. Now, that doesn’t mean that’s what will happen this time. Tariffs are still very much a problem; the threats of inflation, a sagging economy or the dreaded “stagflation” remain; interest rates are likely to stay high at least through the first half of the year; and there’s no guarantee we’ll avoid a third bear market in six years.

But here’s a fun stat, courtesy of my colleague Brad Simmerman (which he got from Fundstrat’s Head of Research, Tom Lee): Of the six other S&P corrections that were as fast or faster than the current one, the market was higher a month later five times (the 2020 Covid crash being the lone exception), and higher three, six, and 12 months later all six times (with median gains of 9%, 15%, and 21%, respectively). In other words, flash market corrections like the current one almost always precipitate buying in the months, and year, that follow. Again, that doesn’t automatically mean they’ll follow suit this time around. But forceful, possibly over-reactionary selling like we’ve seen over the last month typically proves to be overdone, and – spotting an opportunity – bargain hunters step in and offer the market a life raft.

Of course, value investors like us are already taking advantage of the microwaved correction. The Vanguard Value Index Fund ETF (VTV) is up 2.5% in the last week, our portfolio is up 6.5% since our last update, and value stocks as a group continue to outperform growth stocks. In the midst of one of the “maddest” Marches for the market in recent memory, things could be a lot worse. And, like its historic predecessors, let’s hope this swift correction begets an equally speedy recovery in the coming weeks.

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

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Last Week’s Portfolio Changes

Dick’s Sporting Goods (DKS) Moves from Hold to Buy

Upcoming Earnings Reports

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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.

Aegon Ltd. (AEG) is a mid-cap ($10.8 billion) Dutch life insurance and financial services company that’s nearly 180 years old. Its largest and perhaps most recognizable business is Transamerica, a leading provider of life insurance, retirement and investment solutions in the U.S. With more than 10 million customers, Transamerica targets America’s “middle market,” and its wholly owned insurance agency World Financial Group – which boasts 86,000 independent insurance agents – helps facilitate the insurance part of Transamerica’s business plan.

Aegon also does business in the United Kingdom, as Aegon U.K. is a leading investment platform with 3.7 million customers and is trying to become the U.K.’s leading digital savings and retirement platform. Aegon Asset Management is the company’s global asset management wing. And Transamerica Life Bermuda is the name for Aegon’s life insurance business in Asia. The company has customers all over the globe, with major hubs in Spain, Portugal, France, Brazil and China.

Aegon’s sales peaked in 2019, when the company raked in a record $68.7 billion as the pre-Covid market hit a crescendo. Covid hurt ($42 billion in 2020), and the 2022 bear market hurt even worse (Aegon actually lost $4 billion that year), but the company has since rebounded, with 2023 revenues coming in at $32 billion. While revenues mostly held steady in 2024, the company became profitable again, reporting $797 million in net profits in the second half of 2024 alone, with free cash flow of $414 million. This year, the company expects its operating capital generation (the amount of capital a company generates from its ongoing business operations, excluding one-time events) to improve 46% and its cost of equity to shrink. Meanwhile, Aegon is returning its extra cash to shareholders in droves, announcing a $1.25 billion share repurchase program over the next three years, and upping its dividend payout by 19% last year, resulting in a very generous current dividend yield of 5.3%.

AEG shares trade at 8x forward earnings estimates, 0.4x sales and have an enterprise value/revenue ratio of just 0.35 – cheap on all fronts, and with the growth picture improving. AEG is far from sexy, but it has a history of churning out steady returns.

AEG shares were up more than 7% this week on no news. The big upmove is at least partly a byproduct of continued strength in European markets and an improved week for global markets – and value stocks in particular – as a whole. The stock is now up more than 13% year to date but still has 19% upside to our 8.00 price target. BUY

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 11.3x forward earnings estimates, it’s cheap, even after doubling the market in the last year.

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 1.1x book, cheaper than all but Citigroup among the big banks), and share price momentum makes for an enticing formula.

BAC shares were up 6% this past week to quickly recover their losses from the previous week. There was no major company-specific news. Shares remain well off their February and November highs near 48, but the quick recovery from the early-March selling bodes well. As long as the U.S. market remains solid and can avoid the recession or stagflation doomsday scenarios, this undervalued big bank stock should thrive.

BAC has 36% 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, it’s on track for $106.4 billion, or 25% growth, with another 20% 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 90% 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. At 19x earnings estimates, BYDDY currently trades at less than a quarter of its five-year average forward P/E ratio (89.6). And its price-to-sales (1.39) ratio is about half the normal five-year ratio. As BYD continues to expand globally, look for its valuation to catch up with its industry-leading performance.

BYDDY shares are up more than 17% in the last week to reach new all-time highs above 107! Another technological breakthrough is what’s driving shares of the Chinese EV giant this time. BYD unveiled a car that can be charged as quickly as a gas-fueled car – five minutes. Called the Super e-Platform, it features faster-charging batteries, a 30,000 RPM motor and new silicon carbide power chips. Able to charge at two kilometers per second, the Super e-Platforms can charge 400 kilometers in just five minutes – the fastest charging speed of any mass-produced electric vehicle.

Coming on the heels of its dual announcements of the new God’s Eye self-driving technology and AI features enhanced by a new deal with Chinese upstart DeepSeek, BYD is suddenly looking like the most advanced electric vehicle producer in the world, making its goals of becoming a dominant global force – and not just China’s top EV maker – look more realistic by the day.

BYDDY shares are now just 7% shy of our 115 price target. If the stock gets there, we may reassess the value proposition again after already upping the target from 90 after it quickly blew past that. But right now, this looks like the best stock in the portfolio, and one that’s finally starting to fill its massive potential. BUY

The Cheesecake Factory Inc. (CAKE) is ubiquitous. With 345 North American locations, chances are you’ve eaten at one, indulged in their specialty high-calorie but oh-so-tasty cheesecakes and browsed through menus long enough to be a James Joyce novel. But despite being seemingly everywhere already and nearly a half-century old, the company is still growing.

Sales have improved every year since Covid (2020), reaching a record $3.44 billion in 2023. In 2024, revenues expanded to $3.58 billion. But the earnings growth is the real selling point. EPS more than doubled in 2023 (to $2.10 from 87 cents in 2022) and swelled to $3.28 in 2024, a 56% improvement.

It’s still expanding too, opening 26 new restaurants in 2024, with plans to open another 25 this year. Those aren’t just Cheesecake Factories – the company also owns North Italia, a handmade pizza and pasta chain; Flower Child, a health food chain that caters to those with special diets (vegetarians, vegans, gluten-free, etc.); and Blanco, a Mexican chain owned by Fox Restaurant Concepts, which The Cheesecake Factory Corp. acquired in 2019.

CAKE shares trade at 12.7x 2025 EPS estimates and at 0.64x sales. The bottom-line valuation is well below the five-year average forward P/E ratio of 15.6; the price-to-sales ratio is in line with the five-year average.

With shares trading at 20% below their 2017 and 2021 highs, there’s plenty of room to run.

CAKE shares recovered some of their recent losses, bouncing 3% this week on no news. With consumer sentiment in sharp decline due to tariff and inflation fears, restaurant stocks like Cheesecake Factory have had a rough go of late. And while the stock is down 15% from its February highs, it’s still up 1.5% year to date and trading well north of its 200-day moving average. With momentum possibly returning, this looks like a great entry point if you don’t already own shares.

CAKE has 35% upside to our 65 price target. The 2.3% dividend yield adds to the appeal. BUY

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 should top $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 just under 13x forward earnings estimates and at 1.2x sales. To be sure, it’s not the cheapest stock in our portfolio. But it is one of the fastest growing – and pays a solid dividend to boot.

DKS shares were unchanged this week, which is a bit of a disappointment after the stock was knocked back 7.5% the previous week on the heels of a good-not-great earnings report. The results were fine: The sporting goods store beat Q4 estimates on both the top and bottom line, with EPS of $3.62 topping the $3.48 estimate, and $3.89 billion in sales ahead of the $3.76 billion expected. Also, same-store sales improved 6.4% in the fourth quarter (its best performance in two and a half years), 5.2% for full-year 2024, and earnings were up 15% last year.

So why the sell-off? Because guidance came in a bit cautious. 2025 sales guidance came in on the low end of estimates, while EPS guidance actually trailed previous expectations. However, Dick’s CEO said it lowered guidance as a precaution to account for tariff uncertainty, something many companies have done in recent weeks.

I would have thought the selling was overdone and that some level of bounce-back with the market would have been in order this week. Not so far. Let’s see how the stock behaves in the coming weeks. DKS has 28% upside to our 250 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 two 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 81 cents in 2025.

All of that EPS growth makes the share price look quite cheap. ADT shares currently trade at just 9.4x earnings estimates and at just 1.49x sales. A solid dividend (2.9%) adds to the appeal of this mid-cap stock.

ADT shares were up nearly 7% this week on no news. Though still shy of its February highs above 8, the stock is now up 14% year to date. Fourth-quarter earnings, reported in late February, have mostly acted as a tailwind. Fourth-quarter revenue improved 8% year over year, while adjusted EPS for full-year 2024 improved 25%. The company also reported record monthly revenue and customer retention. With improved cash flow (profit margin was up to 13% from a net loss in FY ’23), the company also announced a $500 million share repurchase plan this year.

There were some weak spots, however. Full-year 2024 revenue was down 1.7% year over year, and full-year EPS (69 cents) fell short of analyst estimates by 7%. So, the giveback in the share price after the initial fervor – at least in a weak market like this one – was reasonable. Now, investors are hopping back in. The stock has 26% upside to our 10 price target, and the 2.9% dividend yield adds to our decent return thus far. BUY

The Cigna Group (CI) is the fifth-largest healthcare company in the U.S., with $247 billion in revenue over the last 12 months. It’s a health benefits and medical care provider with a market cap of $80 billion, 170 million customers in over 30 countries, that pays a dividend (1.9% yield) and grew sales by 27% and adjusted earnings by 9% in 2024 and is expecting another 10% growth this year. And yet, the stock hasn’t budged much in two years and trades at a mere 10.9x earnings estimates and 0.37x sales. It’s the cheapest CI shares have been in more than a year.

Why the underperformance? Earnings have been inconsistent, with EPS declining 18.8% in 2023 and by 31.4% in 2021. But that appears to be changing, with double-digit growth last year and expected again in 2025, led by its Evernorth Health Services branch, which reported 33% revenue growth in the latest quarter. And healthcare stocks as a group were the second-worst performer of the 11 major S&P 500 sectors in 2024, up a mere 0.87%. As Baby Boomers reach their golden years, healthcare is more in demand than ever, so the sector won’t stay down long. And CI has a habit of outperforming when times are good.

CI shares just keep inching higher, even in the face of an aggressive market sell-off. The stock was up another 3% this week as the company reshuffled its leadership team in search of better growth, announcing a new president and chief operations officer (Brian Evanko) and a new chief financial officer and vice president (Ann Dennison). Both were promoted from within. The company is also ousting Eric Palmer, current CEO of its Evernorth wing.

The C-suite reshuffling provides a nice facelift for the company, although last quarter’s encouraging growth numbers probably helped more. Additionally, healthcare stocks have been the best-performing sector year to date – a complete reversal from 2024. But the real catalyst may be CI’s depressed value after the December sell-off – the stock still trades at a mere 10.9x forward earnings and just 0.37x sales. That’s uncommon value for a blue-chip health insurer.

With plenty of momentum, the stock still has 32% upside to our 420 price target. BUY

Peloton (PTON) was all the rage during Covid, as people stuck at home snatched up the stationary bike with a built-in, interactive touch screen like hotcakes, and revenues quadrupled in two years. Then, Covid ended, people stopped buying Pelotons, and PTON shares – up 700% in the last nine months of 2020 – fell to nearly zero, at a scant $3 per share. The selling was overdone, considering Pelton’s sales only fell off by about a third. Now, the bleeding has just about stopped, and the company is expecting to grow again in the coming year. Aggressive cost-cutting – the company is lowering costs by $200 million this (2025) fiscal year alone – has narrowed profit losses and allowed Peloton to generate free cash flow again. It’s using that cash to attract and retain customers, investing in software updates such as personalized workout plans and private “teams” for every subscriber. It’s offering new apps such as Strength+ and fitness “games.” And it is exploring new strategic partnerships to broaden its reach and perhaps start attracting new customers again.

Now that’s more like it! After a precipitous fall – PTON shares lost nearly half their value in less than a month from mid-February to early March – the recovery appears to be underway, with shares up more than 11% this week. Canaccord Genuity upgraded the stock from Hold to Buy last week, citing its loyal subscriber base, its position as the clear leader in the connected fitness industry, and that after such a sharp decline, shares are at a “turning point.” Canaccord has a price target of 10.

Coming off a mostly strong quarter, I think PTON has even more upside than that, but we downgraded to Hold a couple weeks ago due to the undeniable cratering in the share price. Let’s keep it right there, but another good week could convince us to restore a Buy rating. HOLD

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

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