This is a multi-part series covering my favorite investment themes (an ode to Peter Lynch’s six “story types”). Today, I’m looking at asset plays.

This is part 9 covering the 15 investment themes I look at frequently. My goal is to improve pattern recognition and pull out the characteristics of the best (and worst) ideas in each category. Plenty of case studies and actionable ideas included.

As a recap, we’ve already covered:

• Part 1 — beaten down shares (my favorite source of idea generation)

• Part 2 — spin-offs (my favorite source for actionable investments) ($)

• Part 3 — post-reorg equities (infrequent but actionable)

• Part 4 — management changes (good ones are uncommon but actionable) ($)

• Part 5 — insider buying (a checklist of what to watch for)

• Part 6 — activist investing (highly actionable source of investments)

• Part 7 — public LBO & deleveraging stories (volatile ideas good for the watchlist)

• Part 8 — inflection investing (the crown jewel for big returns) ($)

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Asset Plays

An overarching theme with these asset-based ideas is that there’s some undiscovered value hiding somewhere in the business or on the balance sheet. It could be a hidden gem segment/division or a 40-year old property marked at cost.

Another theme here is “what’s the catalyst?”

Typically, an undiscovered asset tucked in the back corner of a balance sheet doesn’t become “priced into” a stock until there’s some monetization or realization event. Many value investors have gone to the graveyard known as sum-of-the-parts (SOTP) investing.

To make things more complicated, there are subtle differences in the sub-genres of asset-based investing. Here’s my list (I’ll comment on my favorites at the end):

1. Sum-of-the-parts (SOTP)

2. Stub shares

3. Hidden assets

4. Low P/B

5. Net-nets

6. Liquidations

7. Cash shells

8. Balance sheet transformations

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• Cheapest stock in a severely beaten down industry (30-50% declines on average)

• Shares trading at 5.7x earnings and 6.5x EBITDA with 3.6x leverage

• New CEO started Jan 2026 = management change situation

For new subscribers — these write-ups are meant to be a “jumping off point” for the idea generation process (i.e. a surface level review). Each write-up includes: 1) company background; 2) why the idea is interesting; and 3) fair value estimate.

Check out past write-ups here and my home base page here.

Recent write-ups include:

• 04/09/26 — My 30 second review of super cheap Gen Digital

• 04/06/26 — Upcoming spin-off at Middleby ($)

• 03/23/26 — A look at GameStop fundamentals

• 03/16/26 — Green Dot upcoming sale + spin ($)

• 03/09/26 — CBIZ growth to value transition

• 03/02/26 — Ziff Davis sum of the parts ($)

• 02/16/26 — Recent merger at Dauch yielding huge synergies

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Quick Value

Nomad Foods (NOMD)

Ticker: NOMD
Price: $10
Shares: 142.1m
Market cap: $1.4bn
Valuation: 5.7x P/E
Theme: management change (+ beaten down)

Staples and CPG brands are getting clobbered lately with most stocks down 30-50% over the past year:

Instead of working A-Z, I figured I’d just start with the cheapest name on the list… here are my notes…

Background

Starting with some history:

• 2006 — Unilever sold European frozen food brands Birds Eye and Iglo to private equity firm Permira for €1.7bn.

• 2014 — Nomad was founded as a SPAC in 2014 by Noam Gottesman and Martin Franklin (Jarden founder and had a few other successful SPACs), they still own ~15% of the company today.

• 2015 — Nomad acquires Iglo Group for €2.6bn from Permira at an 8.5x EBITDA multiple.

• 2016-2021 — Sales grew (in part from €1.2bn spent on acquisitions) from €1.9bn to €2.6bn and shares steadily climbed from ~$10 to $30+ at peak before finishing 2021 around $25.

• 2022-2025 — Pandemic-era volumes declining, revenue growth entirely from price increases, cracks in CPG industry. Shares from $25 to $12.

• 2026 — Disappointing guidance during 4Q25 earnings call. New CEO kicking off turnaround (inning #1 here).

All sales come from frozen food categories and are concentrated in the Western European region. These are dominant brands with #1 or #2 positions in most markets and product lines.

Some notes about the European frozen food industry:

• Categories and markets Nomad competes in valued at ~€26bn (per annual report) = 11-12% market share

• The pandemic saw significant pull-forward in demand and a “normalization” period is still ongoing

  

• European consumption of frozen foods is still far behind US levels on a per-capita basis… management views this as a secular growth tailwind

  

• Again, the product portfolio is entirely frozen foods sold in Europe. The sales mix skews toward protein with a heavy mix of fish & seafood (33% of sales) and vegetables (25%)

  

• Nomad noted they had 50%+ market share in “core” product lines (70% of revenue) during their 2020 investor day… as of 4Q25, that position fell to 39% (though still the #1 brand in most markets)

Why it’s interesting…

I wouldn’t characterize Nomad as a special situation, but it does have certain elements. The 2 things that get me excited here: (1) it’s the cheapest stock in an industry getting hammered lately; and (2) it’s a management change story with a relatively new external-hire as CEO.

1) New Management

Let’s start with the management setup since it’s easier and more interesting…

From my “guide to management changes” article (link below), I laid out a checklist of things I look for in a new CEO:

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A quick backstory (or jump straight down to the idea):

On a personal level, the past few weeks/months have been absolutely nuts — ~20,000 miles traveled for one of our OpCos, closed on an acquisition in the insurance space, completed a divestiture within an OpCo, knocked out a balance sheet recap, and wrapped up the first part of a (first ever) capital raise…

That left very little time to explore new stock ideas at a time where the markets had/have lots going on!

So last night, I’m flipping through a few names on my watchlist, got to Gen Digital (GEN, $19), and it completely stopped me in my tracks…

This idea first hit my radar in late 2019 when Symantec (as Gen was known back then) sold their enterprise software business to Broadcom for ~$11bn and become a pure-play consumer software company with $1.50+ earnings power.

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Here is my 30 seconds of (re)work on the idea:

1. First, I needed a refresh on what the company does (it’s been 5 years since I wrote about it) — Turns out they acquired some additional brands which now include Norton, LifeLock, Avast, and MoneyLion as their core products (it’s like a better version of Ziff Davis (ZD) for those who follow it)… revenue is mostly subscription-based with a “freemium” model in some cases, MoneyLion is a fintech neobank so it’s a slightly different model. Flipping through my 5-year-old quick value note and I saw this “Big Goals” slide suggest ~$3 earnings power in 3-5 years time, from a $1.44 starting point in FY21 (we’ll come back to this):

   

2. Then I checked the chart which shows it went nowhere for 5+ years — GEN is a major market underperformer and almost certainly getting caught up in the “AI disruption” narrative (shares down from $30+ to $19). Maybe a bit of a falling knife here?

   

3. Then I looked at the valuation — It’s way off historic multiples… at 7x forward earnings, GEN trades at nearly a 40% discount to its 5-year median P/E multiple (which would make this a $30+ stock). [The light-orange-shaded area behind the P/E multiple are earnings per share.]

   

4. Next, I wanted to see what earnings trends looked like — If the stock is getting pummeled, then earnings must be awful right? Nope. They’re steadily making progress on the “$3 per share earnings power” laid out in the “Big Goals” slide from earlier. In fact, analyst estimates have Gen at $2.87 EPS in FY27 (calendar 2026) which is spitting distance from their original plan and another year of 10%+ EPS growth.

   

I’m making this out to be a simpler story than it probably is… there are some risks and counterarguments here:

• There’s a decent amount of debt — $8bn net debt on $2.5bn EBITDA = ~3.2x leverage (and 5.3x trailing free cash flow of $1.5bn)

• I’ve done zero work on churn or customer retention for these consumer software products which is clearly important to the thesis

• MoneyLion was acquired in April 2025 so growth benefits are rolling off — on the other hand, management is restarting share buybacks with $305m spent in the past quarter (~2.6% of current market cap)

Summing it up…

There are 606m shares outstanding x $19 = $11.5bn market cap. Net debt of $8bn makes it a $19.5bn enterprise value.

FCF is consistently >$1-1.5bn (10-15% FCF yield) and while management is targeting less than 3x leverage, they are starting to balance debt paydown with buybacks.

A simple mean reversion thesis would have this trading close to $30 per share on 10-11x earnings. That’s ~60% upside from here. What about the downside? Ziff Davis might be a decent proxy, and at lows it traded around 4-5x earnings. On $2.60-2.80 per share, I’ll call that $11-14 downside target (25-40%).

So this is something like 1.5-2.5x upside/downside ratio.

The market seems to be pricing GEN like a melting ice cube consumer software business. That group is down 20-30% over the past year while trading at 7-8x forward earnings at the moment:

Would you pick GEN out of the options on this list?

Hmm…

Disclosure: no position in GEN as of this writing, but I’ll probably add a starter position by week’s end; and then I’ll actually open up the 10-K and do some homework :) DYODD

P.S. if you enjoyed this post, give it a “like” or a “share” — thanks for your support :)

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• Shares are flat since 2017 — a “coiled spring” chart

• Upcoming spin-off (2Q26) of smaller and faster growing food processing business

• Stock trading at ~14x earnings with solid FCF conversion and modest leverage

For new subscribers — these write-ups are meant to be a “jumping off point” for the idea generation process (i.e. a surface level review). Each write-up includes: 1) company background; 2) why the idea is interesting; and 3) fair value estimate.

Check out past write-ups here and my home base page here.

Subscribe now

Recent write-ups include:

• 03/23/26 — A look at GameStop fundamentals

• 03/16/26 — Green Dot upcoming sale + spin ($)

• 03/09/26 — CBIZ growth to value transition

• 03/02/26 — Ziff Davis sum of the parts ($)

• 02/16/26 — Recent merger at Dauch yielding huge synergies

• 02/09/26 — Wholesale changes in the VDL portfolio ($)

• 02/02/26 — A look at Allison Transmission’s recent acquisition

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• After the meme stock era, CEO Ryan Cohen has stabilized ops at core retail business (profitable for first time since 2018)

• Board announced significant long-term incentive comp plan for Cohen in Jan 2026

• Cohen shared thoughts around “transformational” acquisition(s) in Jan 2026

For new subscribers — these write-ups are meant to be a “jumping off point” for the idea generation process (i.e. a surface level review). Each write-up includes: 1) company background; 2) why the idea is interesting; and 3) fair value estimate.

Check out past write-ups here and my home base page here.

Subscribe now

Recent write-ups include:

• 03/16/26 — Green Dot upcoming sale + spin ($)

• 03/09/26 — CBIZ growth to value transition

• 03/02/26 — Ziff Davis sum of the parts ($)

• 02/16/26 — Recent merger at Dauch yielding huge synergies

• 02/09/26 — Wholesale changes in the VDL portfolio ($)

• 02/02/26 — A look at Allison Transmission’s recent acquisition

• 01/26/26 — Multi-pronged special sit Teleflex ($)

• 01/19/26 — A look at the KBR upcoming spin-off

Quick Value

GameStop Corp (GME)

Ticker: GME
Price: $23
Shares: 448m
Market cap: $10.3bn
Valuation: 18x pre-tax earnings
Theme: Jockey

I’ll admit, this one is pretty far afield for me… but I’ve been curious about the news around this situation, enough to take a closer look. Here are my notes…

Background

GameStop operates 3,200 retail stores (as of FY24) across the U.S., Canada (since closed), Australia, and Europe selling video game hardware and accessories (consoles, controllers, etc.), software (new and used video games), and collectibles (apparel, toys, trading cards, etc.).

Some history is required to get the full picture here (note: GME uses the retail fiscal year so I’m mixing some fiscal and calendar years here):

• 2002-2016 — GameStop came public via IPO (~$2-3 per split-adjusted share). Revenue grew steadily from ~$1.1bn to $9bn+ and store count expanded from ~1,000 to >7,000. Shares went from $2 to $6.

• 2017-2019 — Secular decline fears ramped. Sold Spring Mobile AT&T retail stores. Revenue from $9bn+ to ~$6bn and saw first year of operating losses (FY18). Ryan Cohen takes initial stake in 2019. Shares went from $6 to $1.50.

• 2020-2022 — The “meme stock” era. Shares peaked at ~$120 (split-adjusted). Cohen named Board Chairman in 2021. Operating losses totaled $630m from 2020-2022. Shares from $1.50 to ~$18.

• 2023-2024 — Cohen named CEO late 2023. Store closures accelerate (~4,400 to ~3,200 at end of FY24). Operating losses fall from >$300m to $26m. Shares from $18 to $32.

• 2025-2026 — Store closures paving way to first year of profitability since 2018. Raised $3.4bn equity at ~$24.50/share. Raised $4.2bn from 0% convertible notes with conversion prices around $30. Announced long-term incentive plan for CEO Ryan Cohen. Shares from $32 to ~$23 (today).

Quite the journey for this company…

Today, Cohen owns roughly 9% of GameStop shares and this “bet” centers squarely around his capital allocation plans. If you’re unfamiliar with Cohen (founded and sold Chewy, activist investments, etc.) you can catch up via this wikipedia page.

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Why it’s interesting…

No amount of fundamental analysis will paint a picture for what GameStop will look like in 3-5 years. An investment here is mostly (entirely?) tied to the optionality from CEO Ryan Cohen and how they plan to deploy $9bn+ cash & securities. (Full transparency: I like bets on optionality.)

1) Fundamentals (the present)

Here is the overarching fundamental picture from 2016-3Q25:

As of Q3, pre-tax earnings are ~$1 per share with $11.60 per share in net cash & securities.

How is it possible that a company lost $1bn+ from 2019-2024 and is now turning in $220m+ EBIT at the operating company level while revenues continue to decline?

There are 3 factors helping out here: (1) gross margin is improving from a higher mix of collectibles which are more profitable; (2) SG&A continues to decline; and (3) leases are rolling off fast.

Through 3 quarters of 2025, collectibles were >30% of sales vs. ~16% in FY2022. At the same time, gross margins went from 23% to 32%. Hmm… how sustainable is this trend?

Next, SG&A is running $913m over the past 12 months vs. $1.7bn as of Oct 2022. That’s a 46% decline in overhead while revenue declined 36%. So both gross profit and overhead are contributing to the earnings turnaround.

Last, Cohen stepped into an enviable lease situation with ~53% of store leases expiring in FY2025 (as a reference, Circuit City had only ~10% of their leases expiring within 4 years when they filed for bankruptcy in 2009).

It’s no surprise they’re quickly moving toward profitability with a chance to walk away from significant chunks of underperforming stores. In fact, I wouldn’t be surprised to see earnings trends improve throughout 2026 based on the lease schedule alone.

What is the current earnings power at GME?

At the operating company level (core GameStop stores), we have a business producing $220m EBIT on $3.8bn total revenue.

In addition, the company’s pile of cash & securities produced $240m net interest income over the last 12 months and a run-rate closer to $360m.

Combined, that’s $220m operating company EBIT + $360m investment EBIT = $580m or $1.30 per share (pre-tax). At $23, you’re effectively paying 17-18x pre-tax earnings for this business.

Granted, they borrowed $4.2bn at 0% interest which they’re capturing a nice spread on. Those converts will either need to be repaid or converted into equity. So it’s not quite as favorable as the picture I’m painting.

Realistically, treat it as $5.1bn net cash & securities ($11.60 per share) and $0.50/share pre-tax earnings from the retail operating company. That works out to 23x pre-tax earnings for the core business net of cash. Not super cheap.

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2) Jockey (the future)

Forget all of that fundamental stuff for a moment…

Ryan Cohen has been CEO since late 2023 and we’ve (so far) seen a major improvement in core earnings and a significant amount of capital raised. What’s next from him?

There are 2 “developments” that seem important here:

1. The board granted Cohen a massive long-term pay package tied to performance

2. Cohen stated he wants to acquire a large, cash-flowing, consumer business

The pay package has major shareholder alignment. Cohen takes no salary, receives no cash bonuses, and no other stock incentives.

Instead, he has an “all or nothing” incentive plan consisting of options to buy 171.5m shares at a price of $20.66 broken down into 9 tranches with hurdles for market cap and cumulative EBITDA:

I like that it’s structured as pre-defined options which should prevent excessive dilution. We’re still waiting on the proxy filing to get important details and disclosures around this package which has not yet been approved by shareholders.

So what will they (he) buy?

We’re now reading tea leaves here, but it’s certainly interesting to speculate. Here are comments from Cohen during a recent Jan 2026 CNBC interview:

Hmm…

It sounds like conversations are potentially already in motion here, some of this commentary reads as though a 2026 timeline could be realistic.

What could they be looking at? Well here are some consumer businesses with a market cap between $10-40bn that are trading between 10-20x earnings:

There are several retailers in here which make sense from the growth comment (LULU, DECK, ULTA, HAS). Best Buy (BBY) is intriguing since it could have some synergy/overlap with GME stores and has a market cap below $15bn. Plenty of homebuilders, casinos, and auto parts on the list as well, but do those fit the “durable” and “growth” criteria?

The biggest deterrent (to me) would be seeing GME become another MicroStrategy bitcoin treasury stock, but Cohen said he views crypto as mostly an inflation hedge.

Summing it up…

At this point I’m just keeping some notes for myself and speculating on what this business could look like in a few years (different is the answer).

Things I’d want to understand or think about further:

1. If GME walks away from ~half their store base, what could earnings look like at the core retail business?

2. What will they do with the retail concept 3-5 years from now? Does it stabilize or do they sell it after getting profitable?

3. What acquisition targets are truly realistic? Both from a fit perspective and a size/affordability perspective.

Leave a comment if you’ve thought deeper about this one or what the company could be looking at acquiring.

Disclosure: no position in GME

P.S. I have not read any of Burry’s work on this stock.

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• Small-cap financial services company selling a division and distributing cash (~76% of current share price)

• Stub shares in newly created BankCo trading at implied 0.4x TBV and 4-5x earnings

• Significant earnings growth potential as balance sheet is repositioned over 2-3 years

For new subscribers — these write-ups are meant to be a “jumping off point” for the idea generation process (i.e. a surface level review). Each write-up includes: 1) company background; 2) why the idea is interesting; and 3) fair value estimate.

Check out past write-ups here and my home base page here.

Subscribe now

Recent write-ups include:

• 03/09/26 — CBIZ growth to value transition

• 03/02/26 — Ziff Davis sum of the parts ($)

• 02/16/26 — Recent merger at Dauch yielding huge synergies

• 02/09/26 — Wholesale changes in the VDL portfolio ($)

• 02/02/26 — A look at Allison Transmission’s recent acquisition

• 01/26/26 — Multi-pronged special sit Teleflex ($)

• 01/19/26 — A look at the KBR upcoming spin-off

• 01/12/26 — Supremex is super cheap and inflecting ($)

• 01/06/26 — Shares of Cinemark look beaten down

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• Shares down 42% YTD and ~70% off 2025 highs

• Recently completed Marcum acquisition ~doubled size of company

• 2026 guidance implies 16% FCF yield with management hungry for buybacks

• After years of consistent EPS growth (17% CAGR from 2016-2024), now seeing 4-7% EPS growth in 2026

For new subscribers — these write-ups are meant to be a “jumping off point” for the idea generation process (i.e. a surface level review). Each write-up includes: 1) company background; 2) why the idea is interesting; and 3) fair value estimate.

Check out past write-ups here and my home base page here.

Subscribe now

Recent write-ups include:

• 03/02/26 — Ziff Davis sum of the parts ($)

• 02/16/26 — Recent merger at Dauch yielding huge synergies

• 02/09/26 — Wholesale changes in the VDL portfolio ($)

• 02/02/26 — A look at Allison Transmission’s recent acquisition

• 01/26/26 — Multi-pronged special sit Teleflex ($)

• 01/19/26 — A look at the KBR upcoming spin-off

• 01/12/26 — Supremex is super cheap and inflecting ($)

• 01/06/26 — Shares of Cinemark look beaten down

Quick Value

CBIZ Inc (CBZ)

Ticker: CBZ
Price: $29
Shares: 62m
Market cap: $1.8bn
Valuation: 6.5x FCF (2026 guide)
Theme: Beaten down

Shares are getting pummeled lately as the stock transitions from a growth story (20-30x P/E) to a value story (7-8x P/E). Let’s take a look to see if this knife is worth catching…

Background

CBIZ is the 7th largest accounting firm in the U.S. providing services like audit, tax, and advisory work.

Historically, CBIZ has been an active acquirer of smaller firms, completing more than 120 acquisitions since 2008.

In 2024, they closed a substantial merger with 13th-ranked Marcum to become the 7th largest accounting provider at ~$2.8bn annual revenue.

This acquisition roughly doubled the revenue base and added substantial debt to the balance sheet (the acquisition was 50% cash and 50% stock issued to Marcum).

Today, there are 3 segments:

• Financial Services (83% of revenue) — Accounting, tax, transaction services, advisory, and consulting.

• Benefits & Insurance Services (15%) — Employee benefits consulting, insurance brokerage, payroll, and HR services.

• National Practices (2%) — Managed IT services for a single client dating back to 1999 (runs on 5-year contract renewals set to expire Dec 31, 2028).

Revenue is mostly fee-based in the core accounting segment (Financial Services) while Benefits & Insurance is commission-based (brokerage) and fee-based (consulting, payroll, etc.). The majority of revenue is recurring (more than 75%).

Why it’s interesting…

This name definitely checks the box for beaten down. Shares have round-tripped over five years from $30 (2021) to $90 (2025) and back below $30 as of this writing (the stock is down 42% YTD).

But why are shares getting killed?

At first, I thought it was purely an “AI disruption” stock. Eventually, Claude will manage your books and do your taxes, right? I believe this is partially a contributor, but the story is more nuanced than that.

From 2016-2024, earnings per share grew at a 17% annual rate from $0.76 (FY16) to $2.67 (FY24). In fact, each year saw at least 10% YoY growth in earnings. Pretty impressive even considering most of it was acquisition related. In addition to the 17% EPS CAGR, the share count remained flat and leverage stuck below 2x throughout that period. Sign me up!

Then the Marcum acquisition closed in late 2024 which doubled the size of the company, pushed leverage way above norms, added dilution, and flipped the story from “tuck in acquisitions” to “organic growth + buybacks.”

It was a growth stock and now it’s a value stock.

Left for dead.

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Looking at the fundamentals, you can see the consistent growth + margin expansion playing out. Share issuance was minimal and leverage consistently between 1-2x. The Marcum acquisition closed ~Nov 2024 with results fully embedded in 2025 and 2026E figures:

2026 guidance calls for modest revenue growth (2-5%) and earnings growth (4-7%). Both of which are way below long-run growth rates; although historic performance included plenty of inorganic growth.

Unpacking this outlook a bit further…

Revenue growth does not include any acquisitions, and with leverage >3x, plus a desire for more buybacks, it seems unlikely CBIZ will pursue any acquisitions in 2026. EBITDA growth comes from revenue growth and merger synergies offset by higher planned wages and incentive comp.

To recap: growth is slowing and leverage is 1-2x higher than “normal” levels.

So where does the company go from here?

We have some Soros-level reflexivity kicking in here…

Management was already excited by the prospects of share repurchases (they spent $160m in 2025 at an average share price of $66).

Shares are now down 56% from the average buyback price in 2025 and management is signaling they’re willing to extend their 2-2.5x leverage target in favor of buybacks. Here are their comments from the 3Q25 earnings call:

Given the opportunity we've had to allocate capital to share repurchases in 2025, the timing for achieving this range may shift to 2027. At our current valuation, we believe share repurchases are accretive.

The stock is trading at 6.5x FCF and 7.7x low end EPS guide. Way below long-run average multiples. Could we see a flurry of buyback activity here?

At this price, they could easily engineer 15% EPS growth in 2026.

Low end guide of $3.75 per share equates to $233m net income at a share count guide of 62m. If they can get shares down to 56m = $4.15 EPS (15% higher than the $3.61 put up in 2025).

That growth would require a 6m share buyback. At $30, they’ll need to spend $180m. At $33, they’ll need to spend $200m. Those levels still allow for a 0.25x reduction in leverage too.

Hmm…

What about the AI risks?

Things are moving fast and it’s hard to handicap what will happen to these consulting businesses (see RGP for an example of the downside scenario).

CBIZ clients are mostly medium-sized businesses needing professional guidance. Thinking of my own $30m company (perhaps a reasonable proxy for a CBIZ customer?) and with our complexity, there’s little (if any) chance I’d bring this work in house even with the advances in AI.

On the other hand, lower skill “people services” are getting killed right now. Again, look at the fundamentals for RGP to get a sense of what’s happening. The risks probably vary by service line (data entry + low level advisory as most vulnerable while compliance, payroll, audit/tax as least vulnerable).

What could shares be worth?

Peers are trading at a wide range of multiples from 7-14x earnings and 6-8x EBITDA.

From ~2017 through mid-2025, CBIZ was consistently trading between 17-20x earnings, which is a far cry from the current 7-8x earnings multiple. Here are some scenarios:

• Downside: HRB is trading at 6-7x earnings. If CBIZ sees margin compression / declining earnings ($3.50), then at 6x earnings = $21 per share or 28% downside. Obviously this could get a lot cheaper in a fear-driven sell-off.

• Upside: British competitor MHA trades at 11.8x earnings. At 11.8x my EPS estimate of $4.15 = $49 per share or 69% upside. Again, upside could be a lot more if we (ever) see a return to normal trading ranges.

This is nearly 2.5x risk/reward at the current price ($29). Hmm…

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Summing it up…

There’s a clear dislocation in shares today and perhaps it comes down to whether you believe that dislocation is a result of: (1) AI threat to this business model; or (2) the fundamentals and shifting story.

I spend a lot of time in the “main street” SMB world ($2-30m revenue businesses) and believe the risks from (1) are low for the foreseeable future.

This leaves us with the fundamentals which seems like a plausible reason for a massive sell-off. If investors were expecting a low-leverage 15%+ EPS grower and now have a high-leverage slow-grower, that will cause some turnover!

Fortunately, the recurring revenue + cash flow profile is so strong that deleveraging could/should be relatively fast. But it sounds like management has a preference for more buybacks and pushing out the deleverage target.

I may take a position here with a 2-4 quarter time horizon to see if management can bring this back to a 15-20% EPS growth story. I’ll need more time/evidence to determine the AI risk potential.

P.S. a sizeable insider buy would be an excellent “tell” for this name, but we haven’t seen much/any useful insider activity so far in 2026

Disclosure: I don’t own shares of CBZ today, but will likely start a position within the next week.

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Resources:

• 2025 Form 10-K

• 4Q25 earnings presentation

• 2024 Marcum acquisition presentation

• 2021 investor day presentation

• Maybe a most hated stock in the market? One of the cheapest in Russell 3000

• Shares are trading at 2.4x EBITDA, 3.6x FCF with 0.4x leverage

• No 2026 guidance sent shares down another 13% in Feb ‘26

• Inbound interest to acquire parts of the business ongoing

For new subscribers — these write-ups are meant to be a “jumping off point” for the idea generation process (i.e. a surface level review). Each write-up includes: 1) company background; 2) why the idea is interesting; and 3) fair value estimate.

Check out past write-ups here and my home base page here.

Recent write-ups include:

• 02/16/26 — Recent merger at Dauch yielding huge synergies

• 02/09/26 — Wholesale changes in the VDL portfolio ($)

• 02/02/26 — A look at Allison Transmission’s recent acquisition

• 01/26/26 — Multi-pronged special sit Teleflex ($)

• 01/19/26 — A look at the KBR upcoming spin-off

• 01/12/26 — Supremex is super cheap and inflecting ($)

• 01/06/26 — Shares of Cinemark look beaten down

Quick Value

Ziff Davis (ZD)

Ticker: ZD
Price: $27
Shares: 37.7m
Market cap: $1bn
Valuation: 2.4x EBITDA (trailing)
Theme: Beaten down

The VDL timeline as it relates to Ziff Davis:

• I first wrote about Ziff in Feb 2023 when it traded at $93. It wasn’t all that interesting at 9x EBITDA as the business was slowing post-COVID.

• Fast forward to March 2025 and at $40 it was getting more attractive.

• Finally, in Apr 2025, I took the plunge and bought the stock at $33.

• Now, it’s Feb 2026 and shares fell to $27 after reporting FY25 results.

Readers/followers are demanding some answers, so let’s take a look…

Background

Ask any boomer-aged IT person about Ziff Davis and you’ll get a hearty laugh and a “I haven’t heard that name in forever!” There’s some truth here, it’s a web 1.0 digital media business built on old school publishing principles.

What do they actually do?

There are 2 primary revenue streams: advertising (57% of FY25 revenue) and subscription/licensing (43%). It’s a conglomerate with 5 segments:

1. Technology & Shopping — Operate websites like PCMag, CNET and RetailMeNot which generate affiliate commissions (i.e. when a consumer is searching the web for “best laptops” and stumbles on a PCMag article, they click through and buy something from an affiliate website and ZD gets a cut). There are banner ads and other revenue streams, but it’s highly driven by web traffic. This segment is most “at risk” from changes in AI web search tendencies.

2. Gaming & Entertainment — IGN is a gaming news, reviews, and walkthroughs website with revenue coming mainly from display ads. There’s a healthy mix of paying subscribers at an average ~$120 per year too. This segment seems moderately insulated from AI search risks.

3. Health & Wellness — A handful of content and directory websites in this segment. Example: they operate a directory of “top doctors” for consumers looking in their area. Nearly 85% of revenue is advertising driven with small ticket subscriptions rounding out the rest.

4. Connectivity — Ookla is the main component here and likely the “crown jewel” within ZD. Since 2006, they’ve completed 66bn network speed tests and have 16k testing servers around the world. ISPs like Comcast, AT&T, etc. pay to license this data for their own network response efforts. There are ~25,000 customers paying an average ~$8,300 per year to access Ookla’s data.

5. Cybersecurity & Martech — 3 main pieces in here: IPVanish is a VPN service, VIPRE is a consumer/business cybersecurity subscription service, and Moz is a subscription service for small business SEO tools. Total subscribers in this segment are >1.2m paying ~$220 per year on average. AI risks seems low/medium in this segment.

Now, Ziff Davis only moved to this level of disclosure in the past year, so we have a limited view of segment financial history.

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• Completed mega-merger in Feb 2026

• Post-close, shares are trading at 4.5x EBITDA and 6-7x FCF

• Deal synergies are 17% of the current market cap = solid earnings growth?

For new subscribers — these write-ups are meant to be a “jumping off point” for the idea generation process (i.e. a surface level review). Each write-up includes: 1) company background; 2) why the idea is interesting; and 3) fair value estimate.

Check out past write-ups here and my home base page here.

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Recent write-ups include:

• 02/09/26 — Wholesale changes in the VDL portfolio ($)

• 02/02/26 — A look at Allison Transmission’s recent acquisition

• 01/26/26 — Multi-pronged special sit Teleflex ($)

• 01/19/26 — A look at the KBR upcoming spin-off

• 01/12/26 — Supremex is super cheap and inflecting ($)

• 01/06/26 — Shares of Cinemark look beaten down

• 12/29/25 — A look at stub Becton Dickinson ($)

• 12/22/25 — Initial look at Versant spin-off

• 12/01/25 — Gibraltar beaten down on acquisition announcement ($)

• 11/27/25 — New Aptiv (RemainCo) and Cyprium (SpinCo)

Quick Value

Dauch Corporation (DCH)

Ticker: DCH
Price: $7
Shares: 243m
Market cap: $1.76bn
Valuation: 4.4x EBITDA (2026 guide)
Theme: Acquisition

In Feb 2026, American Axle merged with Dowlais and rebranded as Dauch Corporation. To keep things simple, I’ll refer to standalone American Axle as “AAM” and the post-merger entity as “Dauch.”

Background

Dauch Corporation is a tier 1 auto supplier of driveline components (axles, driveshafts, differentials, etc.) and metal formed parts/products.

Some formative events in AAM’s history:

• 1994 — Company founded by Richard Dauch, acquired several manufacturing plants from GM.

• 1999 — IPO at $16-17 per share.

• 2017 — Acquired Metaldyne Performance Group for $3.3bn in cash, stock, and assumed debt. Sales jumped from ~$4bn to $7bn.

• 2026 — Completed merger with Dowlais Group for ~$3.2bn (cash, stock, and assumed debt). AAM shareholders own ~51% of the newly merged company.

Prior to the Feb 2026 merger, standalone AAM made driveline components (~70% of sales) for tier 1 automakers (GM, Stellantis, and Ford at ~70% of sales). Though sales have recovered from COVID 2020 lows, they are still at 90% of 2019 levels.

Standalone Dowlais was spun off from Melrose Industries in early 2023. Dowlais had fiscal 2024 sales of ~£4.3bn with ~80% consisting of driveline components (sideshafts and propshafts) and the remainder from “metal powder” components.

Perhaps the biggest benefit of this merger is the diversification away from GM, Stellantis, and Ford on a combined basis. Dowlais has a more diverse customer base with 72% of revenue from non-overlapping customers.

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Why it’s interesting…

AAM is not a highly-acquisitive company and the Dowlais merger is only the second meaningful M&A since the company came public in 1999.

That said, AAM has a checkered past of fundamentals.

They struggled for years with generating cash and reducing leverage. For reference, cumulative free cash flow was negative from 2002-2015 (14 years!).

And what did they do with the $2.4bn cumulative FCF produced from 2016-2025?

Literally all of it went to acquiring and repaying debt from the previously mentioned 2017 acquisition of Metaldyne Performance Group (MPG). An acquisition which led to no/minimal increase in EBITDA or annual cash flow.

But this is a new company…

Post-merger Dauch is now a relatively large player in the auto supplier industry with combined revenue at ~$12bn and EBITDA margins close to 14%.

What does the pro-forma company look like?

At closing, the new share count is 243m.

At $7.25 per share = $1.76bn market cap.

We don’t have a post-close balance sheet yet, but management indicated $4.2bn net debt from the 4Q25 earnings call. Call it a $6bn enterprise value.

Guidance, which includes 11 months of Dowlais, calls for $1.35bn EBITDA and $280m “adjusted” free cash flow on $10.5bn sales at the midpoint.

Cost synergies are estimated at $300m which is very high at ~10% of transaction value and 20%+ combined EBITDA. They’ll see $50-75m of these benefits in 2026 and $180m (60%) by the end of 2027. This is maybe the biggest piece of upside potential and at the same time, difficult to handicap. If they hit all $300m synergies, that would be 17% of the current market cap! This could mean easy earnings growth for years, regardless of overall auto production levels.

Restructuring costs and cash costs to achieve those synergies total $210-275m so true free cash flow will be close to zero in 2026. Management reports “adjusted FCF” as a key metric which excludes restructuring costs despite those costs totaling $577m from 2016-2025 (see chart below). And this is just standalone AAM, Dowlais also spent £212m over the past 2.5 years.

Defining a “normal” year of restructuring costs is key to determining future free cash flow levels. My guess is this bucket of $210-275m will come down over the next few years but not to zero.

I’m estimating $200-350m (true) FCF at $1.3-1.5bn EBITDA which works out to $0.82-1.44 per share. This assumes $100m of recurring restructuring costs and $500m capex (guiding to 4.5% to 5% of sales).

My big takeaway here: it’s going to take a while to reach a 2-2.5x leverage target unless I’m miscalculating the starting debt balance and leverage profile.

What are shares worth?

Estimates aren’t yet updated for the recently completed merger, but AAM historically traded at 4-4.5x EBITDA and 6-7x earnings. I don’t expect this valuation range will change much go-forward.

Taking my range of FCF estimates, I get:

• 6x low-end FCF of $0.82 = $5 per share (31% downside)

• 7x high-end FCF of $1.44 = $10 per share (38% upside)

That’s a pretty balanced risk/return setup at 1.2x. And it’s a levered cyclical, so when market volatility spikes, downside is likely higher than a rational estimate like this one.

Summing it up…

This is a sizable merger for a company not historically active in M&A. On the surface, the deal makes sense too, combining different products & customers in the driveline category.

There are easier bets in the auto supplier universe right now, but I’ll want to watch year one of this merger play out. I’d rather have more clarity on the FCF profile and balance sheet (management refers to this deal as “leverage neutral” but the pro-forma debt picture implies 0.5x incremental leverage?).

Resources:

• 2025 Form 10-K

• Merger proxy (Jun 2025)

There are likely two reasons for this: (1) the importance of private businesses to my net worth is significantly higher than public equities; and (2) my “shiny object syndrome” bleeds into public investing, causing me to prefer the idea generation phase over the portfolio management phase.

This laziness has paid off over the years as I’ve allowed winning positions a longer leash to run (and then continue running despite my desire to sell). Obviously, this had the same (negative) impact for losing positions; but so far, I’ve been right more often than wrong.

Why am I sharing this?

Because I find the easiest way for me to share “official” recommendations or personal portfolio holdings are “in bulk” with posts like these… and also as a reminder that I’m not a full-time investor :)

Here’s an example from last April when I shared 7 small-cap names I was buying during the tariff sell-off:

Of those 7 ideas — 3 were sold for a gain, still holding 2 with gains, and 2 are flat (i.e. underperforming).

Going forward, when I have recommendation updates, I’ll likely be doing them in a summary post like this one.

With that, here are some changes I’m making and a link to my “recommendations tracker” at the bottom:

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1) Auto Suppliers

Auto suppliers have been a fertile hunting ground since inventories and production volumes collapsed during the pandemic. More recently, the narrative around electric vehicles (i.e. slower adoption) is making waves in supplier valuations.

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• Compelling acquisition thesis of Dana’s off-highway business

• Stellar fundamentals: 30%+ EBITDA margins & 20%+ FCF margins

• Share cannibal: repurchased >65% of outstanding shares since 2012 IPO

• Shares trading at 8.5x EBITDA (after synergies) and 11.5x FCF (after synergies)

For new subscribers — these write-ups are meant to be a “jumping off point” for the idea generation process (i.e. a surface level review). Each write-up includes: 1) company background; 2) why the idea is interesting; and 3) fair value estimate.

Check out past write-ups here and my home base page here.

Recent write-ups include:

• 01/26/26 — Multi-pronged special sit Teleflex ($)

• 01/19/26 — A look at the KBR upcoming spin-off

• 01/12/26 — Supremex is super cheap and inflecting ($)

• 01/06/26 — Shares of Cinemark look beaten down

• 12/29/25 — A look at stub Becton Dickinson ($)

• 12/22/25 — Initial look at Versant spin-off

• 12/01/25 — Gibraltar beaten down on acquisition announcement ($)

• 11/27/25 — New Aptiv (RemainCo) and Cyprium (SpinCo)

• 11/17/25 — Turnaround + management change at SWK ($)

• 11/10/25 — Dole fully deleveraged, cheap, kickstarting buybacks

• 11/03/25 — 15 quick ideas in the portfolio & watchlist ($)

Quick Value

Allison Transmission (ALSN)

Ticker: ALSN
Price: $110
Shares: 84m
Market cap: $9.2bn
Valuation: 8.5x EBITDA (after synergies)
Theme: Acquisition

I caught this quick pitch on Allison Transmission from the Barron’s 2026 roundtable issue where Meryl Witmer pitched the stock at $98. It was compelling so I thought I’d take a closer look.

Here are my notes…

Background

Quick history — Allison Transmission (ALSN) was a division within GM since the early 1900’s until it was sold to private equity in 2007. GM needed to raise cash as the financial crisis was gaining steam. PE owners Carlyle & Onex grew EBITDA from $544m in 2008 to $712m in 2011, then took it public in early 2012. It was a quick fix of an undermanaged business, they even published a little case study on it. From 2007-2018, ALSN was managed by CEO Lawrence Dewey. David Graziosi took the CEO job in 2018 after acting as CFO from 2007-2018.

ALSN is the largest manufacturer of automatic transmissions for medium-and-heavy-duty commercial vehicles. They have a dominant market position in buses and class 6-8 trucks with ~80% market share.

A fully automatic transmission from ALSN might add $3,000 to $11,000 to the cost of a vehicle, but customers typically pay this premium for the reliability in heavy/harsh use cases (example: high start/stop frequency from a garbage truck).

There is only one segment for financial reporting, but they give us a detailed breakdown of revenue mix:

• On-highway applications = 70% of sales

• Parts & service = 21%

• Defense = 7%

• Off-highway = 3%

Less than 25% of sales come from foreign markets where penetration rates of automatic transmissions are much lower (close to 5%). This is a growth opportunity and a driving force behind the Dana acquisition.

Like most auto suppliers, it’s a highly concentrated business. ALSN’s top five customers represent more than 50% of sales and the top three customers (Daimler, PACCAR, and Traton) were 20%, 13%, and 11% apiece (44% total).

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Why it’s interesting…

The Dana acquisition closed on Jan 1, 2026 so the story is shifting to what can they do with this business in a few years.

First, a look at standalone ALSN

ALSN trades at $109 with a $9.1bn market cap (84m shares outstanding) and $4.2bn net debt makes it a $13.3bn enterprise value. This includes the recently closed $2.7bn Dana acquisition.

From a purely quantitative standpoint, this business is insanely profitable with mid-30% EBITDA margins and 20%+ free cash flow margins. Most auto suppliers have 5-10% margins with a few very good operators in the mid-teens.

Industrial businesses with this margin profile typically trade at 20x earnings or more, but ALSN historically trades at ~9.4x earnings and 7.8x EBITDA. The most “expensive” it traded was 15x earnings in early 2017.

Even today, after a big run (shares are +30% over the past 3 months), the stock is still trading at “only” 11.7x forward earnings.

So if the fundamentals are good, why does the stock consistently trade so cheaply?

Two things stand out here…

One, it’s a cyclical and slow grower. Revenue and EBITDA grew 2% and 4% annually since Carlyle & Onex bought the business from GM in 2007 through 2025 (midpoint guide). Along that 18-year journey, revenue and EBITDA fell 8 times; that’s a “cyclical decline” every 2 years or so.

Where are we in the cycle today? Management believes it’s bottoming in 2025 with production down significantly vs. 2024. Sales are expected to fall 7% vs. 2024.

Next are the EV risks.

Transmissions aren’t exactly a critical component in electric vehicles, which poses some terminal risk for the core business. This is where the Dana acquisition could be a significant long-term positive. With it, the revenue mix changes across several areas:

• Product mix for axles, gears, and gearboxes moves to pro-forma ~30% of sales

• Geographic mix for international markets moves from 22% to 44%

• End-market mix shifts from 3% off-highway to >50% off-highway

A typical powertrain consists of a motor (engine), transmission, driveshaft, differential, and axles. Electric vehicles are increasingly using “e-axles” which combine an electric motor, power, and transmission/gearbox into the axle (all as a single component). Combining Dana’s axle/gearbox expertise with Allison’s transmission expertise should allow them to develop a competitive e-axle offering long-term.

What does the Dana acquisition consist of?

For a $2.7bn purchase price, ALSN is getting $2.8bn revenue and $400m EBITDA (based on FY24 results). Margins are lower (14-15%), but capital requirements are also lower (2-3% of sales).

This business is struggling a bit more than standalone ALSN… in 2025, sales are down to $2.48bn (-8.2% from 2024) and EBITDA is down to $349m (-14% from 2024) based on TTM 6/30 results.

The headline purchase price was 6.8x EBITDA before synergies, but it’s closer to 7.7x when using $349m TTM EBITDA. Management is guiding to $120m cost synergies by 2027.

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Pro-forma financials & valuation

Based on 2024 results, this is a combined $6bn revenue and $1.6-1.7bn EBITDA business ($400m from Dana + $1.2bn from ALSN).

ALSN is guiding to ~$1.1bn EBITDA in 2025 and Dana is down to $349m as of 6/30 (it’s likely this will fall a bit further by yearend). Let’s call it $1.45bn EBITDA before synergies.

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As for cash flow, 2025 guidance is $610m FCF at the mid-point ($7.25 per share). Take the $349m acquired EBITDA less $120m incremental interest, $75m capex, and $40m taxes = $115m incremental FCF before working capital ($1.35 per share). Combined pro-forma FCF = $8.60 per share (12.8x P/FCF).

What will management do with this FCF?

Historically, they’ve been a massive share repurchaser. You could categorize this one as a share cannibal. Since coming public in 2012, they’ve repurchased >65% of outstanding shares (from 181m to 83m). Management is hinting they want to continue with buybacks while integrating and delevering the acquisition.

Leverage is increasing to ~2.9-3x while target leverage is closer to 2x. My guess is they’ll hit their target through a combination of cyclical recovery, synergies, and debt paydown via FCF.

Let’s ignore any cyclical recovery and take the $1.45bn starting PF EBITDA and add $120m cost synergies = $1.57bn by 2027. At a 2x leverage target = $3.1bn net debt vs. $4.2bn today; meaning they’ll need to repay $1.1bn by 2027.

Then take the $716m pro-forma FCF and add $120m synergies (taxed at 25%) = $806m by 2027. This works out to $2.2-2.3bn total FCF from 2026-2028. Say half of that goes to debt paydown and half to buybacks. Now FCF is closer to $850m and share count down to 76m or so = $11.20 per share (9.8x P/FCF).

Auto suppliers trade between 9-14x earnings and ALSN historically trades around 10x earnings (likely too cheap for a business like this?). If we use 12-14x earnings on $11.20 per share = $134-157 fair value (i.e. 22-43% upside).

If my estimates are optimistic and ALSN returns to a normal historic multiple, maybe we could see $10/share at 8-9x = $80-90 (18-27% downside).

Summing it up…

Risk/return seems pretty balanced here and ALSN is having a big run lately. It’s going to take time for this acquisition thesis to play out, so it’s not like we’ve missed the boat on this one. I’m planning to add this name to my watchlist and keep an eye on it for a better entry price. I’d be a buyer at closer to $90.

As a reminder to myself, I should take a quick look at the other party to this transaction: Dana (DAN). That business is a ~$3.3bn market cap, just received $2.7bn sale proceeds and announced a $1bn buyback authorization. Granted, those shares are up 80%+ since this deal was announced!

Disclosure: no position, adding to watchlist.

Resources:

• Acquisition of Dana off-highway business (Jun 2025)

• Pro-forma financials 8-K (Nov 2025)

• FY24 10-K

• Scrapped a spin-off in favor of selling SpinCo

• Then SpinCo divisions were sold (closing expected 2H26)

• Then management was ousted and in search of a new CEO

• It’s special sit combo meal: 1) beaten down shares; 2) balance sheet transformation; 3) management change

For new subscribers — these write-ups are meant to be a “jumping off point” for the idea generation process (i.e. a surface level review). Each write-up includes: 1) company background; 2) why the idea is interesting; and 3) fair value estimate.

Check out past write-ups here and my home base page here.

Recent write-ups include:

• 01/19/26 — A look at the KBR upcoming spin-off

• 01/12/26 — Supremex is super cheap and inflecting ($)

• 01/06/26 — Shares of Cinemark look beaten down

• 12/29/25 — A look at stub Becton Dickinson ($)

• 12/22/25 — Initial look at Versant spin-off

• 12/01/25 — Gibraltar beaten down on acquisition announcement ($)

• 11/27/25 — New Aptiv (RemainCo) and Cyprium (SpinCo)

• 11/17/25 — Turnaround + management change at SWK ($)

• 11/10/25 — Dole fully deleveraged, cheap, kickstarting buybacks

• 11/03/25 — 15 quick ideas in the portfolio & watchlist ($)

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• Shares of KBR are down 26% over the past year

• Upcoming spin-off of their government contractor business in 2H26

• At 12x earnings and 8x EBITDA, the stock trades at a big discount to peers

For new subscribers — these write-ups are meant to be a “jumping off point” for the idea generation process (i.e. a surface level review). Each write-up includes: 1) company background; 2) why the idea is interesting; and 3) fair value estimate.

Check out past write-ups here and my home base page here.

Recent write-ups include:

• 01/12/26 — Supremex is super cheap and inflecting ($)

• 01/06/26 — Shares of Cinemark look beaten down

• 12/29/25 — A look at stub Becton Dickinson ($)

• 12/22/25 — Initial look at Versant spin-off

• 12/01/25 — Gibraltar beaten down on acquisition announcement ($)

• 11/27/25 — New Aptiv (RemainCo) and Cyprium (SpinCo)

• 11/17/25 — Turnaround + management change at SWK ($)

• 11/10/25 — Dole fully deleveraged, cheap, kickstarting buybacks

• 11/03/25 — 15 quick ideas in the portfolio & watchlist ($)

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Quick Value

KBR, Inc. (KBR)

Ticker: KBR
Price: $45
Shares: 127m
Market cap: $5.7bn
Valuation: 11.8x P/E
Theme: Spin-off

KBR announced in September 2025 they would spin-off their government services business (Mission Technology Solutions) in mid-to-late 2026. They have yet to host a investor days for each company or set a date for the spin so this is an early look.

Background

Pre-split, KBR operates under two segments:

1. Mission Technology Solutions (MTS) — Formerly called “Government Solutions,” this segment is a traditional government contractor (BAH, LDOS, AMTM, etc.). Virtually all revenue comes from U.S., U.K., and Australian governments.

2. Sustainable Technology Solutions (STS) — Combination of IP licensing and consulting services mainly for “green energy” applications. Virtually all revenue comes from commercial customers.

Mission Technology Solutions (MTS) will be SpinCo. This is a traditional government contractor. Peers like Leidos and Booz Allen focus more on IT, data, cybersecurity, intelligence, etc. while the MTS business has a heavy mix of space and logistics revenue (i.e. training astronauts and managing military bases).

MTS had some false starts lately. They lost a large contract (TRANSCOM) in June 2025 for managing relocation logistics for military personnel and another contract for managing European bases as part of the Ukraine conflict.

The former contract was only a few months into launching, so it had minimal impact to earnings and cash flow. But it had $20bn revenue potential over a 9-year term which certainly dampened the multi-year revenue targets (more on that below).

Sustainable Technology Solutions (STS) will be RemainCo. There are two main revenue streams here: consulting services (design, engineering, feasibility studies, etc.) and IP licensing. Margins are 2x the MTS business and this segment is growing at a double digit pace (management guiding to 11-15% CAGR from 2023-2027).

Note: there was some segment realignment in early 2025 which pushed STS closer to the $500m EBITDA level. Supporting schedules go back to 2022 so the 2021 figures below are likely less reliable:

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Why it’s interesting…

First, at a surface level, KBR is trading at a significant discount to government contractor peers.

That group trades at 16-17x earnings and 12x EBITDA while KBR sits at 11x and 8x, respectively. That’s a 30%+ discount. In fact, KBR has the industry’s only negative total return over a 3-year period.

But we need more than just a cheap valuation before getting too excited.

Why are shares trading at a discount?

As mentioned earlier, KBR is in the penalty box for some operational mishaps and their “underperforming” MTS business. The TRANSCOM contract loss was a big blow to revenue growth.

Management set 2027 financial targets during their May 2024 investor day presentation. After losing the TRANSCOM contract, those targets were revised lower in July 2025. Revenue was the major reset (from $11.5bn to $9bn) while most other targets were maintained: EBITDA target unchanged at $1.15bn and operating cash flow lowered by $50m to $650m.

MTS has lumpy revenue growth since 2022 and EBITDA is roughly flat during that timeframe. The $13.4bn MTS backlog is starting to show growth (+6% from FY24 to 3Q25 and +16% since a 2022 low), so maybe things are turning a corner here?

At this point, a discount to peers is probably warranted. Also, MTS will be the smallest industry player post-spin (<$6bn revenue compared to $7-17bn for the rest of the group).

What about the STS business?

This is perhaps the “crown jewel” of the portfolio with double digit top-line growth, 20%+ EBITDA margins, and virtually zero capital requirements (STS spent $7m on capex in FY24 vs. $1.9bn revenue = 0.4% capex/sales).

STS is a major player in the global Ammonia industry through design, engineering & technology licensing (~50% market share).

Ammonia demand is growing and at the same time a very emissions-intensive process. New plants will likely need to be built, and many of them will be the “low carbon” variety supported by STS offerings. CF Industries is estimating a 7-8 MMT capacity shortfall to meet demand by 2029.

The STS business also supports energy (upstream, midstream, LNG), refining, petrochemicals, and renewables industries. You can see the ebbs and flows of revenue and profitability (from the 2024 investor day).

An early look at valuation…

For simplicity, I’ll take trailing corporate costs ($110m) and burden each company equally ($55m) plus an extra $10m each for standalone dis-synergies.

Let’s say the SpinCo government business deserves to trade at a discount to the broader contractor group (this is warranted given the mishaps and smaller scale).

• MTS — $573m EBITDA less $65m corporate costs = $508m. At 9x EBITDA = $4.6bn segment value.

Fortunately, there’s a relatively recent transaction which offers a nice comparison for STS. In May 2025, Honeywell acquired the catalyst and process technologies business from Johnson Matthey for £1.8bn at an 11x EBITDA multiple.

• STS — $493m EBITDA less $65m corporate costs = $428m. At 11x EBITDA = $4.7bn segment value.

That’s $4.6bn for MTS and $4.7bn for STS ($9.3bn total) less $2.05bn net debt = $7.25bn equity value or $57 per share (+30% upside) using 127m shares outstanding.

These are trailing results and apply zero credit for future growth or capital allocation.

Remember those 2027 targets?

Management set a 2027 goal of $1.15bn EBITDA before the TRANSCOM contract loss, then they reaffirmed that $1.15bn EBITDA target in July 2025 after the contract loss.

Here’s a look at summarized KBR financials since 2016 and including 2026-2027 sell-side estimates. It paints a picture of consistent growth, margin improvement, and cash generation. Leverage is steady from 2022-2025 and buybacks are increasingly favored since 2022.

You’ll notice 2027 EBITDA estimates ($1.02bn) are well below the $1.15bn EBITDA target.

Let’s say they get to $1.1bn EBITDA by 2027. The stock historically traded at 11-12x EBITDA, but let’s use 10x for an $11bn enterprise value. With no change in net debt ($2.1bn) = $8.9bn equity value or $70 per share (+55% upside).

Hmm…

Summing it up…

Both pieces of this upcoming spin have yet to host an investor day or initiate post-spin guidance, so consider this a “way too early” look at the business.

At the same time, most spins I’m looking at don’t have as clear “upside math” prior to the spin. On the other hand, I’m glossing over some of the risks and challenges here… STS has a history of lumpy revenue and earnings, but they’re seeing momentum recently. And the news around TRANSCOM indicate some serious ops challenges internally.

This one is going on my watchlist for now, but I could absolutely own this ahead of the spin and then adjust my preferences based on initial trading (i.e. if investors punt on MTS in favor of STS).

Disclosure: no position.

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Resources:

• FY2024 10-K

• Spin-off presentation (Sep 2025)

• Investor day presentation (May 2024)

• Revised investor day targets (July 2025)

• Canadian “cigar butt” trading at 3x EBITDA and 7x FCF

• Recent sale-leaseback transaction leaves company virtually unlevered

• Capital allocation ramping via combo dividends, buybacks, and tuck-in M&A

For new subscribers — these write-ups are meant to be a “jumping off point” for the idea generation process (i.e. a surface level review). Each write-up includes: 1) company background; 2) why the idea is interesting; and 3) fair value estimate.

Check out past write-ups here and my home base page here.

Recent write-ups include:

• 12/29/25 — A look at stub Becton Dickinson ($)

• 12/22/25 — Initial look at Versant spin-off

• 12/01/25 — Gibraltar beaten down on acquisition announcement ($)

• 11/27/25 — New Aptiv (RemainCo) and Cyprium (SpinCo)

• 11/17/25 — Turnaround + management change at SWK ($)

• 11/10/25 — Dole fully deleveraged, cheap, kickstarting buybacks

• 11/03/25 — 15 quick ideas in the portfolio & watchlist ($)

• 10/27/25 — ONEOK is a cheap midstream energy co

• 10/20/25 — Net-net in oilfield services ($)

• 10/13/25 — Solstice spin off from Honeywell

• 10/06/25 — Divestitures and delevering at Leggett & Platt ($)

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• Classic beaten down stock — shares down from $36 to $23 over past year (-36%)

• Capital allocation inflecting away from debt, toward capital returns

• Potentially overblown fears from Netflix/Warner acquisition

• Stock trades at ~10x FCF and <7x EBITDA

For new subscribers — these write-ups are meant to be a “jumping off point” for the idea generation process (i.e. a surface level review). Each write-up includes: 1) company background; 2) why the idea is interesting; and 3) fair value estimate.

Check out past write-ups here and my home base page here.

Recent write-ups include:

• 12/29/25 — A look at stub Becton Dickinson ($)

• 12/22/25 — Initial look at Versant spin-off

• 12/01/25 — Gibraltar beaten down on acquisition announcement ($)

• 11/27/25 — New Aptiv (RemainCo) and Cyprium (SpinCo)

• 11/17/25 — Turnaround + management change at SWK ($)

• 11/10/25 — Dole fully deleveraged, cheap, kickstarting buybacks

• 11/03/25 — 15 quick ideas in the portfolio & watchlist ($)

• 10/27/25 — ONEOK is a cheap midstream energy co

• 10/20/25 — Net-net in oilfield services ($)

• 10/13/25 — Solstice spin off from Honeywell

• 10/06/25 — Divestitures and delevering at Leggett & Platt ($)

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Quick Value

Cinemark Holdings Inc (CNK)

Ticker: CNK
Price: $23
Shares: 119m
Market cap: $2.74bn
Valuation: 11.9x P/E (stub)
Theme: beaten down

Shares of media companies were selling off hard leading up to the announcement of the Netflix/Warner acquisition which fits my theme of looking at beaten down stocks. Cinemark was trading at $30+ in November and now sits at $23.

Let’s see if there’s an opportunity here.

Background

Cinemark is the #3 movie operator behind AMC and Regal with 497 theaters and 5,653 screens in the U.S. and Latin America (of which, 304 theaters & 4,255 screens in the U.S.).

Market share, currently at 15% of North America, is growing since 2019 with smaller theaters being market share donors.

The business model essentially has 2 components to it: 1) admissions (ticket) sales; and 2) concession sales (popcorn, snacks, soda, etc.). Ticket sales operate under revenue-share agreements with movie studios and Cinemark keeps ~43-45% of each dollar sold. Sort of like a gas station, the ticket (gas) is a loss leader while concessions drive most of the profit (81% product margins).

Cinemark has the industry’s largest paying loyalty member base at 1.45m Movie Club subscribers. Plans start at $10.99 per month which is cheaper than both AMC and Regal loyalty programs. It won’t ever be a Costco model since they still need to share these revenues with the movie studios; instead, the goal is to drive loyal fans into seats and pay for concessions.

Movie theaters are driven largely by the number of film releases each year and the success of those films (box office). It’s an industry that was significantly impacted by COVID and again from 2023 Hollywood writer strikes.

Total attendance for Cinemark theaters was 200m as of 3Q25 (TTM) compared to 280m in FY2019 (i.e. ~72% of pre-COVID levels).

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Why it’s interesting…

Total box office sales are still only ~76% of pre-COVID levels ($11.4bn) and volume is similarly down.

Despite this, Cinemark is generating ~96% of 2019 sales levels from increased ticket pricing and concession spending.

Yes, this means volume is down/declining while prices are increasing substantially. It may not be sustainable at this pace, but it does make the subscription package more enticing.

Financials

Fundamentals are solid because the margins are so much higher on concession revenue. Concession sales per guest was $8.24 as of 3Q25 vs. $5.31 in 2019, a 55% increase.

Prior to the pandemic, Cinemark (and rival theater chain AMC) were big dividend payers. Both eliminated their dividends in 2020 and borrowed heavily to survive.

Since 2021, nearly all free cash flow was used to repay debt.

That capital allocation policy is turning a corner in 2025 with $200m spent on buybacks at an average price of ~$25 and a dividend reinstated.

Outlook & valuation

Industry results were severely impacted in 2024 (and to some extent 2025) from Hollywood writers and actors strikes. This had a delayed impact on production and film releases which has analysts excited about the potential for 2026 box office performance (most estimates are +10%).

Cinemark EBITDA estimates are steadily climbing as a result:

CNK has ~119m shares outstanding (per Q3 earnings call) x $23 = $2.74bn market cap. Net debt (excluding leases) is ~$1.42bn for a $4.16bn enterprise value.

FCF was $288m as of 3Q25 (9.5x P/FCF) and EBITDA estimates are $620m for 2025 (6.7x EV/EBITDA). Shares have historically traded between 8-9x EBITDA.

At 8x 2026 EBITDA estimates of $717m = $5.74bn EV or $4.32bn equity value. That works out to $36 per share vs. $23 today (+57% upside). It’s also where the stock was trading for parts of 2024 and 2025. Last, it gives no credit to future capital allocation despite a 10%+ FCF yield.

Hmm…

If you believe in the 2026 film slate, then shares could be extremely cheap here.

Management is hinting at continued buybacks and looking at M&A to improve their footprint.

I don’t own shares of this one and I’ve glossed over some of the risks here (i.e. heavy international ops with currency risks), but I like the setup and plan to do some additional work.

Disclosure: no position

Resources:

• CNK FY24 10-K

• CNK 3Q25 10-Q

• Investor presentation (Nov 2025)

• Spin/merge with Waters (WAT) set to close in 1Q26

• Exit multiple for SpinCo >20x in cash & stock deal

• Stub BDX attractively priced today

For new subscribers — these write-ups are meant to be a “jumping off point” for the idea generation process (i.e. a surface level review). Each write-up includes: 1) company background; 2) why the idea is interesting; and 3) fair value estimate.

Check out past write-ups here and my home base page here.

Recent write-ups include:

• 12/22/25 — Initial look at Versant spin-off

• 12/01/25 — Gibraltar beaten down on acquisition announcement ($)

• 11/27/25 — New Aptiv (RemainCo) and Cyprium (SpinCo)

• 11/17/25 — Turnaround + management change at SWK ($)

• 11/10/25 — Dole fully deleveraged, cheap, kickstarting buybacks

• 11/03/25 — 15 quick ideas in the portfolio & watchlist ($)

• 10/27/25 — ONEOK is a cheap midstream energy co

• 10/20/25 — Net-net in oilfield services ($)

• 10/13/25 — Solstice spin off from Honeywell

• 10/06/25 — Divestitures and delevering at Leggett & Platt ($)

This post is for paid subs, but as a “holiday discount,” grab 20% off for a limited time :) will be back with a free edition next Monday!

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Quick Value

Becton Dickinson (BDX)

Ticker: BDX
Price: $196
Shares: 285.5m
Market cap: $56bn
Valuation: 11.9x P/E (stub)
Theme: spin-off / stub

Background

In July 2025, BDX announced it would sell its biosciences & diagnostics solutions businesses in a Reverse Morris Trust transaction to Waters (WAT) in exchange for cash plus stock in the combined company.

At the time of announcement, Waters was trading at $350 per share which valued the transaction at $17.5bn ($4bn cash + $13.5bn stock). Since then, WAT has appreciated while stub BDX (“New BD”) flatlined, this increases the value of the transaction to ~$18.9bn ($4bn cash + $14.9bn stock).

BDX is reaping a large sum for these businesses at >20x EBITDA and more value is accruing to the stub:

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Today, I’m looking at inflection investments.

Sometimes you have major inflection points where you can anticipate change and I found the best thing that works for me, it may not work for others, is to really pile in with size in those particular trades. — Stan Druckenmiller

Here’s a recap of what we’ve previously covered:

• Part 1 — beaten down shares (my favorite source of idea gen)

• Part 2 — spin-offs (my favorite source for actionable investments)

• Part 3 — post-reorg equities (infrequent but actionable)

• Part 4 — management changes (good ones are uncommon but actionable)

• Part 5 — insider buying (a checklist of what to watch for)

• Part 6 — activist investing (highly actionable source of investments)

• Part 7 — public LBO & deleveraging stories (volatile ideas good for the watchlist)

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• Spin-off set to begin trading on 1/5/2026 (when-issued trading implies $47 share price, $6.8bn market cap)

• Shares trade at 4.7x EBITDA and 6.2x FCF with ~1.2x net leverage

• Capital allocation likely a mix of M&A and buybacks — $1bn buyback authorization implies ~14% of market cap

• SpinCo represents 6-7% of pre-split CMSCA shares ($30) — chance for a major sell-off?

For new subscribers — these write-ups are meant to be a “jumping off point” for the idea generation process (i.e. a surface level review). Each write-up includes: 1) company background; 2) why the idea is interesting; and 3) fair value estimate.

Check out past write-ups here and my home base page here.

Subscribe now

Recent write-ups include:

• 11/27/25 — New Aptiv (RemainCo) and Cyprium (SpinCo)

• 11/17/25 — Turnaround + management change at SWK ($)

• 11/10/25 — Dole fully deleveraged, cheap, kickstarting buybacks

• 11/03/25 — 15 quick ideas in the portfolio & watchlist ($)

• 10/27/25 — ONEOK is a cheap midstream energy co

• 10/20/25 — Net-net in oilfield services ($)

• 10/13/25 — Solstice spin off from Honeywell

• 10/06/25 — Divestitures and delevering at Leggett & Platt ($)

Quick Value

Versant Media Group (VSNT)

Ticker: VSNT
Price: $47 (when-issued)
Shares: 145m
Market cap: $6.8bn
Valuation: 4.7x EBITDA / 6.2x FCF
Theme: spin-off

On January 2nd, 2026, Comcast shareholders will receive 1 share of Versant for every 25 shares of Comcast (~3.6bn CMCSA shares outstanding = ~145m VSNT shares outstanding).

Background

Versant is a collection of linear cable networks and other assets.

Their networks are grouped into 4 core markets:

1. Political news and opinion — MSNBC (MS NOW)

2. Business news and personal finance — CNBC

3. Golf and athletics participation — Golf Channel

4. Sports and genre entertainment — USA Network, Oxygen, SYFY, E!, etc.

Here’s an overview of key channels and audience trends since 2017:

Revenue comes from 4 sources:

1. Linear distribution — sales to MVPDs (i.e. cable providers) usually on a per subscriber basis

2. Advertising — sales of advertising on cable networks and digital platforms based on ratings, subscribers, brand/quality, etc.

3. Platforms — sales from digital sites… this bucket is a mix of subscription and transaction revenue

4. Licensing — sales of Versant created content to other networks or digital platforms

Versant generated 83% of 2024 from pay-TV related sources. Except for platforms, each of these revenue streams are in decline.

Most of the news programming is created in-house, sports rights are purchased via multiyear contracts, and general entertainment is purchased via film/TV studios.

Versant gets the majority of viewers (62%) from live news & sports which, in theory, is better insulated from cord cutting. The remaining 38% is in the general “entertainment” category of scripted/unscripted content. Here’s how that mix of live programming stacks up against peers:

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Why it’s interesting…

The perceived view of Versant is a secularly declining “melting ice cube.” Recent results support that description, but there’s a good chance for estimates + valuation to become draconian.

1) Fundamentals

Sales and earnings are in decline (as is the case for all linear cable networks) primarily due to declining cable subs.

How bad are results?

Sales and EBITDA are declining at a 5% and 6% CAGR from 2016-2026 (based on guidance). Those rates of decline accelerated post-COVID. (Note: Comcast discontinued “cable networks” segment reporting in 2021; and 2025-2026 figures include standalone public company costs.)

“Traditional” cable subscribers were >100m in 2014 vs. ~50m at yearend 2024, a 6-7% annual decline. Traditional meaning Comcast, Charter, Cox, etc. vs. vMVPD providers like YouTube TV, Sling TV, Fubo, etc. The latter group is growing (mostly YouTube TV), but not yet at a pace to offset traditional cable sub losses.

Where is the cable distribution market headed?

It appears that pay-TV subs may finally be turning a corner? Total subs increased for the first time since 2017 according to MoffettNathanson. (This is a combination of traditional and virtual providers.)

At some point 5-10 years from now, it would seem the virtual providers like YouTube TV will overtake traditional providers and the overall pay-TV market will stabilize. The big questions are: 1) when will that happen; and 2) will the economics for networks be similar under a virtual pay-TV model.

Along the way, I expect cable networks will consolidate for scaled programming costs (in-house production, purchased content, sports rights, etc.) plus add other revenue streams (digital, OTT apps, etc.).

2) Outlook

With that overview of fundamentals + cable distribution, let’s look at where Versant is headed.

Historically within Comcast, cable networks saw little, if any, reinvestment. It was used for distributions and reinvestment elsewhere within Comcast (i.e. theme parks and broadband).

This will change as management invests outside of pay-TV via organic product launches (CNBC retail investor subscriptions, Fandango, MS NOW subscriptions, etc.) and acquisitions.

Guidance for 2026 includes investments in at least 2 product launches and capex/WC drag on cash flow:

• Sales declining 3-7% = $6.15-6.4bn

• EBITDA declining 7-14% = $1.85-2bn

• FCF declining 13-27% = $1-1.2bn

Management spoke about small scale acquisitions to diversify into non-pay-TV revenue sources (targeting 50% of revenue from non-pay-TV by 2030). They explicitly called out their lack of interest in horizontal acquisitions (i.e. buying more linear networks).

3) Valuation

Comps have varying business models and collections of assets. Unless or until we see another pure-play cable network spin, there aren’t great direct comparisons. AMCX is likely the closest peer at this point.

STRZ, AMCX, CMCSA, and PSKY have the lowest valuations at 4-6x EBITDA. Versant currently trades at 4.7x EBITDA, but has an industry-best balance sheet (<1.25x leverage vs. peers at 3-5x).

I’m comfortable using EBITDA as a valuation metric since the add-backs are minimal (no stock-comp add-back which is impressive).

• Starting with a near-term valuation using 2026 estimates… low-end guide is $1.85bn, at 4x = $7.4bn enterprise value. Assuming no change in the balance sheet ($2.25bn net debt) = $5.15bn equity value or $36 per share which is 23% downside. This seems very conservative.

• On the high-end using $2bn EBITDA at 5x = $10bn EV less $1.5bn net debt (partial credit for 2026 FCF) = $8.5bn equity value or $59 per share which is 26% upside.

• Roughly balanced risk/reward at ~1:1 here

What does Versant look like longer term?

This is where you have to start making some assumptions around growth rates, margins, and capital allocation. At the current $47 per share, estimates are extrapolating ~7-8% annual declines in revenue, ~14-15% annual EBITDA declines, and zero value creation from free cash flow.

That’s close to draconian in my view.

Especially with such a strong balance sheet and capacity for deploying capital.

P.S. here’s a video walkthrough of my estimates going out to 2030:

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Summing it up…

I’ve been buying CMCSA in the $27-29 range lately as markets are digesting the NFLX/WBD merger, so I’ll soon have a decision to make on Versant.

Versant owns some excellent assets and I probably have a more optimistic view on pay-TV beyond 2030 than the average investor. Two things I’m waiting for here:

1. I’d like to get a better sense for long-term estimates to see the implied decline rates for sales/EBITDA;

2. The current when-issued price of $47 works out to ~$1.90 per pre-split CMCSA share (that’s 6-7% of the current $30 CMCSA price); will this thing get puked the first week of January??

With current information, I’m probably buying a full position around $40 and a seller between $60-65.

Disclosure: I own shares of CMCSA

Resources:

• Versant Form 10 spin filing

• Dec 2025 investor day presentation

This is part 7 covering the 15 investment themes I look for. As a recap, we’ve already covered:

• Part 1 — beaten down shares (my favorite source of idea gen)

• Part 2 — spin-offs (my favorite source for actionable investments)

• Part 3 — post-reorg equities (infrequent but actionable)

• Part 4 — management changes (good ones are uncommon but actionable)

• Part 5 — insider buying (a checklist of what to watch for)

• Part 6 — activist investing (highly actionable source of investments)

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7) Public LBO / Deleveraging Stories

Picture this: a business with remarkably stable cash flows (non-cyclical) levers up to 5x EBITDA for an acquisition. They subsequently repay 2x of the leverage over 2-3 years.

What happens to the equity? Is it now 2x more valuable with a 3x levered balance sheet instead of 5x?

This is a deleveraging story in a nutshell.

It doesn’t always pan out this way (and you probably don’t want to build an entire portfolio around these sorts of bets), but it can be fertile hunting ground for new investment ideas.

The general setup I’m looking for — a business is levered at 3-5x EBITDA, trades at maybe 7-8x EBITDA or less, has reasonably stable cash flows and is committed to deleveraging to 2x or less. Consistent and noncyclical free cash flow is hugely important to making these work. In these situations, I also prefer to gauge leverage as debt-to-FCF over debt-to-EBITDA with 6x as a comfortable coverage level.

My checklist for public LBO / deleveraging situations:

1. Extreme cash flow stability — Minimal cyclicality, minimal working capital intensity, and modest capex requirements = highly predictable cash flow streams. Cannot stress this rule enough; I’ve been roped into cyclical delever stories which adds a variable in timing industry cycles.

2. Reasonable delever path — If buying at 5x leverage, the equity is going to be highly prone to sell-offs… I want assurances that the path to lower leverage is not reliant on “blue sky” scenarios only.

3. Bonus points for divestitures — Say the market is heavily discounting a business with 4-5x leverage, but cash flow is stable and the company has plans to divest assets or non-core businesses. I’m much more inclined to like a deleveraging situation with asset sale “optionality.”

4. Prepare for volatility — Need to be highly confident in valuation math and/or industry multiples… small changes in trading multiples will cause big drops in the share price with this much debt. Recognize that these holdings will be volatile; if you’re confident in your thesis + valuation, then sell-offs can create opportunities to add to your position.

5. How did they get there — What’s the back story? I like to know if high leverage was the result of a past acquisition, industry downturn, or bad decisions by management. This context affects my confidence in management to navigate the situation go-forward (or I might be looking for a potential management change scenario).

6. Capital allocation inflection — My favorite aspect of the deleveraging story: once debt goes from 5x to 2x, the company moves from capital constrained (repaying debt) to “all options on the table” for capital allocation. Buybacks start back up, M&A is back on the table, dividends are initiated, etc. And oftentimes management takes a more conservative approach to M&A given the scars from years of repaying debt.

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Some case studies:

• Berry Global (formerly: BERY) levered up to 4-5x on several occasions for large acquisitions and subsequently repaid to ~3-3.5x

  

• Transdigm (TDG) is an aftermarket aerospace parts roll-up with highly stable cash flows and low capex needs… management runs the company between 5-7x leverage and as cash flow grows they deploy into acquisitions or special dividends

  

• Molson Coors (TAP) levered up to 5x debt/EBITDA in 2016 for an overpriced acquisition of their MillerCoors joint venture… it took ~9 years to move from ~5x leverage to 2x leverage. Interestingly, shares are lower today than prior to the acquisition while free cash flow is unchanged!

  

• Civeo (CVEO) was spun off as a real energy-based real estate play in 2014, right before oil prices collapsed from $100+ to $30-40 per barrel. Leverage was >5x, the REIT plans were scrapped, and Civeo spent the next 10 years repaying debt. Today, the company is virtually unlevered and redirect capital into buybacks (see my article on activist investing too).

  

• Teva Pharmaceuticals (TEVA) piled up massive debts after a $40bn acquisition of Actavis in 2016 at near peak valuations. Again, it took the company close to 10 years to get leverage under control. Shares have responded nicely in 2025.

  

• Gibraltar Industries (ROCK) is an “active” idea in this bucket (here’s a link to my Dec 2025 write-up). The company announced an acquisition which will take this net cash balance sheet up to 4x+ leverage. Management has a clear path to repaying debt plus some divestitures on the horizon. Shares quickly re-rated down to 11-12x earnings to compensate for the debt profile.

  

Leave a comment with other public LBO case studies are active ideas in this bucket. This is a good category to monitor for periodic sell-offs.

This is part 6 covering the 15 investment themes I look for. As a recap, we’ve already covered:

• Part 1 — beaten down shares (my favorite source of idea gen)

• Part 2 — spin-offs (my favorite source for actionable investments)

• Part 3 — post-reorg equities (infrequent but actionable)

• Part 4 — management changes (good ones are uncommon but actionable)

• Part 5 — insider buying (a checklist of what to watch for)

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6) Activist Investing

Activist investing is an investor or group of investors publicly calling for change at a company (i.e. holding management accountable for past actions).

The typical activist investment looks something like this:

• Shares underperform the market/peers for a stretch of time, or there is a mispriced division within the company, or management is being nefarious

• An investor (usually hedge fund) buys up a large stake of 2-20% and files a 13D (SEC filing disclosing ownership and activist intent)

• That investor calls for board seats and operational/strategic changes at the company

• Activist wins board seats and CEO is replaced (possibly)

• Changes are slowly made and the stock may or may not work

This is an excellent hunting ground for new investments, and they’re usually highly actionable because the activist investor(s) want to work quickly to execute their thesis/plan. As a small/passive investor, it’s great to have another shareholder working on your behalf to create change.

My checklist of what to look at in activist situations:

• Standalone business merits — Are the business & share price interesting without the activist situation? I’d much prefer my investment not hinge entirely on activist success.

• Activist value creation math — What is the case for value creation? An activist thesis could include: spin-off, separation, or sale of a business unit (especially for underperforming conglomerates), turnaround plan stemming from incompetent operators, more aggressive capital allocation, sale of entire company, etc. The investor usually (but not always) lays out their thesis and the upside math behind it.

• Ownership structure — How much does the activist own? What does the rest of the cap table look like? I’m trying to place odds on the probability of a successful activist campaign here. Several activist funds is usually a better signal than a 1% owner trying to push for change.

• Long-term share performance — The longer shares have underperformed, the more likely an activist will have success in their campaign. Long-time shareholders become frustrated at long stretches of underperformance and swing their votes toward “change.”

• It’s not too late — Don’t get discouraged if the share price jumps after an activist announces their involvement. These situations typically take time to play out (12-36 months?). There’s usually plenty of upside after these situations go public.

• Avoid personal situations — Try to avoid activist situations where the driving force is a personal grudge or emotionally charged and less about the business fundamentals / creating upside.

Examples:

• Honeywell (HON) — Elliott Management laid out their thesis for a separation in a November 2024 letter to the board.

  

• Ingevity (NGVT) — Vision One Management Partners (former Icahn protege) owned ~1% of NGVT shares and called for divestitures and a new CEO in February 2025. The upside math centered around: divestitures, buybacks, and a re-rating of the core Performance Materials business. The activist was targeting upside of $124 from a then share price of $46. (Link to my March 2025 write-up at $47.)

  

• Darden (DRI) — Starboard laid out their thesis in a 294-slide presentation in September 2014.

  

• Canadian Pacific Railway (CP) — A very successful investment from Bill Ackman’s Pershing Square hedge fund. They installed veteran railroader Hunter Harrison to run the company using a straightforward playbook to become a more efficient railroad.

• JCPenney — A famously unsuccessful activist investment from Ackman. Installed an Apple executive to run the business with retailing strategies that never took hold.

• Civeo (CVEO) — In March 2025, Engine Capital purchased a 9.8% stake in CVEO and pushed for: 1) eliminating the dividend, 2) aggressively buying back shares; and 3) a sale of the company. Without hesitation, management agreed and adopted #1-2 on their list. (Link to my July 2023 primer on the accommodations industry.)

  

• Jack in the Box (JACK) — A few activist investors are showing up on the holder list at JACK (including Biglari with a ~10% stake). This is an actionable worth following.

Where to find activist ideas — These are a bit harder to chase down. Starboard Value, Pershing Square, Engine Capital, ValueAct, Corvex, Trian, Elliott Management, Engaged Capital, and Jana Partners are notable activist hedge funds focused on activism. I follow the holdings from these funds, watch for headlines around funds calling for board seats, and keep an eye on general financial media (WSJ, briefing.com, etc.).

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