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Cabot Turnaround Letter 421

March 31, 2021

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.

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Cabot Turnaround Letter 321

February 24, 2021

Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the March 2021 issue.

This month we look at post-bankruptcy energy stocks. Companies that have emerged from bankruptcy are generally shunned by investors, as are energy stocks in general in the current market. Combined, these two traits offer some attractive investment opportunities. We discuss four of them.

We also look at tobacco stocks. Shares of these companies have fallen sharply in recent years due to an acceleration in the decline rate of cigarette volumes. However, that trend appears to be moderating, leaving the shares undervalued yet paying high dividend yields. Our feature recommendation, Altria Group (MO), is a stand-out value among the group.

We also include comments on recent price target and rating changes, including our recent Sell recommendations on Trinity Industries (TRN) and ViacomCBS (VIAC).

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.

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Cabot Turnaround Letter 221

January 27, 2021

Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the February 2021 issue.

This month we look at energy pipeline stocks. These companies are heavily out of favor, yet a secular shift in their strategic priorities may finally restore their appeal. We list five that look attractive.

We also explore some bargains in the United Kingdom. This island nation is dually challenged by Brexit and the pandemic. We highlight seven stocks that have company-specific turnarounds that look promising.

Our feature recommendation is Viatris (VTRS). Created through the recent merger of Mylan and Pfizer’s Upjohn division, this company is now one of the world’s largest generic pharmaceutical manufacturers. Viatris should generate stable revenues and solid free cash flow, but investor skepticism is high. With the shares trading at a low 4.3x earnings, the step-up in leadership quality and transparency, and an attractive 5.2% dividend yield, the shares look poised for considerable gains.

We also include comments on recent price target and ratings changes, including our earlier sell recommendation on DuPont.

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.

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Cabot Turnaround Letter 121

December 23, 2020

This month we review how the capital markets performed in 2020 and provide our outlook for 2021. We look at the broad equity market and trends below the surface, including growth/value, large/small and sector returns. We also briefly discuss the global equity and commodity markets as well as the U.S. fixed income markets. Our outlook starts with a review of how our 2020 outlook turned out, then dives into what we see for 2021 for the S&P 500, touches upon the rising influence of the two “Easts” and our wariness about speculation, and concludes with some timeless perspective about investing.

The issue also reviews the high yield bond market. We follow the high yield bond market as it provides a different perspective on equity markets. Importantly, there is considerable overlap among high yield bond investors, turnaround investors and private equity investors who may acquire undervalued companies.

Each January, we highlight our “Top Five” stocks for the coming year, based on a combination of favorable risk/return and timeliness. For 2021, our Top Five includes Conduent (CNDT), Meredith Publishing (MDP), Newell Brands (NWL), Signet Jewelers (SIG) and Wells Fargo (WFC).

Our feature recommendation is Ironwood Pharmaceuticals (IRWD). The market views Ironwood as a failed pharmaceutical company but its low share valuation, steady/rising profits and the presence of an effective activist investor make the stock a stand-out value, in our view.

The letter also includes a summary of our recent sales of GameStop (GME) and Freeport-McMoran (FCX), our price target increases for Trinity Industries (TRN), Adient (ADNT), DuPont (DD) and General Motors (GM) as well as the full roster of our current recommendations.

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.

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Cabot Turnaround Letter 1220

November 25, 2020

Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the December issue.

With the year-end approaching, investors often sell for reasons unrelated to a stock’s outlook. This month we describe some of these reasons, including tax-loss selling, window-dressing, performance bonus protection and the desire for a fresh start in the new year. We discuss seven stocks that look vulnerable to this type of selling yet seem likely to bounce once the selling pressure relents.

We also look at the airline industry – now in the throes of a near-term depression. We believe the outlook for a recovery is improving despite the recent “third wave” of rising Covid case counts. Clearly these stocks carry risks, most prominently that passengers don’t return to flying as much, even after a vaccine and other safety protocols should make flying safe again. Our discussion delves into some of the industry’s arcane metrics, as these help clarify (at least for those with a wonkish interest, like me) the drivers of the downturn and a likely recovery. We highlight five promising discount airline stocks.

Our feature recommendation is the office equipment company Xerox Holdings Corporation (XRX). The market tends to dismiss this company, but its robust cash flow, cash-heavy balance sheet, low valuation and 4.6% dividend yield offer strong value.

The letter also includes a summary of our recent sales of Peabody Energy (BTU), Weyerhaeuser (WY) and Barrick Gold (GOLD), our price target increase for Freeport-McMoran (FCX) and the full roster of our current recommendations.

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.

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Cabot Turnaround Letter 1120

October 28, 2020

Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the November issue.

This month we look at the oil refining industry. Unlike many technology stocks, this group is the opposite of “priced for perfection.” The industry’s products will remain relevant for a long time, despite investors’ enthusiasm for a shift to electric-powered vehicles. Also, the pandemic will eventually pass and demand for refined products (gasoline, diesel, heating oil and jet fuel) will return, lifting these company’s earnings and stock prices. We acknowledge the tax and regulatory risks but see real value in the higher quality and better-financed refinery companies.

We also look at technology turnarounds. Successful tech turnarounds are rare, so our discussion briefly explores why this is the case and identifies six that have interesting turnaround potential.

Our feature recommendation is the oil refining company Valero Energy (VLO), offering what we see as the best risk/reward traits among a group with strong cyclical turnaround potential.

The letter also includes a summary of our recent sale of Amplify Energy (AMPY) and our change to a Sell rating on Consolidated Communications (CNSL), as well as the full roster of our current recommendations.

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.

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Cabot Turnaround Letter 1020

September 30, 2020

Thank you for subscribing to the Cabot Turnaround Letter. We hope you enjoy reading the September 30th issue.

This month we look at stocks that might benefit from the (eventual) arrival of a post-Covid world. Currently, the news seems uninspiring – new cases are accelerating in some regions that may foreshadow a return of economically-crippling lockdowns, and hopes are dimming for a vaccine in the near future.

Many stocks have surged already in anticipation of this yearned-for world, but many remain moribund. Some laggards are likely to be zombies – still alive but burdened with overwhelming debt loads. We avoided these, and instead found several that should prosper with the return of a fully-opened economy and also have more resilient capital structures to help them endure while we all wait.

We also looked at publicly-traded chicken processors and found that the sky is not actually falling, even if the shares seem to imply an atmospheric tumbling. Near-term wholesale chicken prices have become meaningfully but temporarily depressed, in our view. We highlight three stocks and discuss their risk/return nuances, along with a fourth intriguing commodity food company.

Our feature recommendation, Western Digital (WDC), trades at a depressed valuation but has major strategic changes underway.

The letter also includes a summary of our recent sale of Gilead Sciences (GILD) as well as the full roster of our current recommendations.

Please feel free to send me your questions and comments. This newsletter is written for you and 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.

Thanks!

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September 2020

September 1, 2020

The Turnaround Letter has been acquired by the Cabot Wealth Network, a family-owned business based in nearby Salem, Massachusetts. Founded in 1970 by Carlton Lutts, Cabot is celebrating its 50th year in business, having served hundreds of thousands of investors. The company focuses exclusively on publishing high-quality investment newsletters and currently has a portfolio of 20 advisory services.

In this issue you’ll read about an energy company and a powerful catalyst for turnarounds.

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August 2020

August 1, 2020

This year, individual stock performance has largely been driven by a single narrative: how well the underlying companies are positioned for a pandemic-striken world. Those with strong digital-economy businesses have surged, while those with physical-economy businesses have stalled, or worse.

In this issue we recommend a life insurance stock and talk about Dow laggards with rebound potential.

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July 2020

July 1, 2020

Like many consumer goods producers, companies that make apparel and related products have experienced sharply lower sales and profits with the stay-at-home restrictions during the pandemic. But, for companies that make everyday apparel, particularly those with enduring brands or an outdoor/active lifestyle focus, demand should eventually return to healthy levels.

In this issue, we list seven companies that we believe offer interesting recovery potential.

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June 2020

June 1, 2020

Fortunately, most banks entered the current downturn in much better condition than when they entered the 2009 financial crisis. Meaningfully higher capital levels, stronger loan reserves, more stringent risk controls and tighter cost structures will all help support banks’ financial health in the difficult period ahead.

In this issue, we recommend six banks whose weak share prices imply an overly dour economic outlook.

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May 2020

May 1, 2020

Like most consumer industries, residential housing construction is declining sharply in the wake of the Covid-19 shutdown. The industry’s recovery, which was accelerating at the beginning of the year, is now reversing rapidly.

In this issue, we review five homebuilders whose valuations appear to overly discount the industry’s recovery prospects.

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April 2020

April 1, 2020

With consumers focused on social distancing and lockdowns to help prevent the spread of the coronavirus, many restaurants have no revenues, while others are generating a little income through delivery and pick-up. Yet, despite this uncertain outlook, the crisis will eventually subside.

In this issue, we highlight six restaurant companies with both the survivability and price discount traits.

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March 2020

March 1, 2020

Although it is plenty large to be relevant (its economy is the 9th largest in the world and is comparable in size to that of Canada), to many investors Brazil remains a regional backwater mired in political scandals and weak corporate governance. Weak oil prices combined with poor government leadership led to sharp recessions in 2015 and 2016.

However, the country’s fortunes may be turning upward. In this issue, we look at five companies that should benefit from Brazil’s incipient turnaround, and also have appealing turnaround potential in their own right.

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February 2020

February 1, 2020

With the market near record highs, many stocks are trading well above the $1,000/share price level. Investors tend to dismiss stocks with basement-level prices, so we explored this maligned group in search of neglected value.

In this issue, we look at the several of our recommended stocks in this range.

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