Key Market Outlook(s) and Pick(s)

On Monday, I joined Taylor Riggs, Brian Brenberg, Jackie DeAngelis, Dagen McDowell, and David Asman on Fox Business’ The Big Money Show to discuss markets, the economy, Warren Buffett, and more. Thanks to Taylor, Brian, Jackie, Dagen, David, and Madison Murtagh for having me on:

On Tuesday, I joined Stuart Varney on Fox Business’s Varney & Co. for the full hour to discuss markets, outlook, tech, stock picks, and more. Thanks to Stuart and Peyton Jennings for having me on:

On Wednesday, I joined Liz Claman on Fox Business’ The Claman Countdown to discuss markets, outlook, AI, stock picks, and more. Thanks to Liz and Brooke Haliscak for having me on:

On Monday, I joined Allie Canal and Brooke DiPalma on Yahoo Finance’s Stocks In Translation to discuss investing, market outlook, our framework, and more. Thanks to Allie, Brooke, and Taylor Smith Clothier for having me on:

On Tuesday, I joined Marianne Star Inacay on Channel News Asia to discuss markets, outlook, a potential pullback, opportunities, and more. Thanks to Marianne for having me on:

On Wednesday, I joined Ashley Mastronardi on NYSE TV to discuss markets, outlook, stock picks, and more. Thanks to Ashley and Mel Montanez for having me on:

Cooper Standard CPS Update

A factory fire, a cyberattack, a labor strike, and extreme weather walk into a bar.

The bartender says, “Rough quarter, Cooper Standard?”

What should have been another textbook quarter of execution turned into a string of one-off disruptions completely outside Cooper Standard’s control. The fire at Novelis’ aluminum plant (which produces ~40% of the sheet aluminum used in the auto industry) halted Ford F-150 production, Cooper Standard’s largest and most profitable platform, which alone made up an estimated 10% of revenues in 2024.

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Add in a cyberattack that shut down Jaguar’s plants for five weeks, a GM labor strike in Korea, and even extreme weather events, and you have about as many hiccups in a quarter as you can script.

In typical shoot-first, ask-questions-later fashion, the market sold the stock off and flushed out the weak hands on the supposed “bad quarter.” We sat on our hands and watched the show.

That’s because despite all the noisy headlines that overshadowed this quarter, not a SINGLE ONE of these events has any lasting impact on the ACTUAL BUSINESS or our long-term thesis. Let me repeat. ZERO LONG TERM IMPACT ON THE BUSINESS OR OUR THESIS. Whether these temporary disruptions are resolved in December or March is completely immaterial to how we think about the stock.

What’s actually worth paying attention to, and even more impressive considering the barrage of short-term headwinds, is that Cooper Standard still expects to deliver significant margin expansion (~100 bps to 7.6% adjusted EBITDA margins) and generate positive free cash flow for the full year on sales that are flat to slightly lower. AKA management continues to focus on controlling what they can control (costs, efficiency, and execution), which is exactly what makes them best-in-class operators and one of the key reasons we got involved in the first place.

Not only that, but over the past few weeks we’ve gotten a clearer line of sight on the Novelis recovery. The plant is now expected to reopen EARLIER than initially anticipated (by year-end), and Ford has already confirmed that all lost F-150 production will be fully made up in the first half of 2026.

So for those still fretting over a “bad quarter” and puking in the hole, may we offer you the world’s smallest violin.

For the rest of us, the single most important takeaway from the quarter can be summed up in a few sentences from CEO Jeff Edwards:

Volumes are recovering. Leading indicators remain strong. Hybrid and EV demand is through the roof. New business wins continue to build. Leverage targets are intact.

What more do you need to know?

This all circles back to what we have been pounding the table on since day one and what we went into detail on in our interview with Jeff Edwards (if you haven’t yet listened, see below):

Record high average age of U.S. passenger cars on the road at 14.5 years, driving higher replacement demand

Highest level of growth in U.S. licensed drivers going back more than 40 years

Rising new vehicle incentives (7.4% today compared to a 9.8% average over the past two decades, plenty of room to move higher)

A growing U.S. population led by 70+ million millennials entering prime vehicle-ownership and family-formation years

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Not to mention, this would mark the first SAAR cycle peak going back to the 1970s that did not exceed 18M+ units (when the population was ~40% smaller)

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Domestic inventories still depleted and well below historical averages

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Q3 Earnings Breakdown

10 Key Points

1) Cooper Standard secured $96.4M in net new business awards during the quarter, representing anticipated future annualized sales and bringing year-to-date net new business to $228.5M. Most importantly, 83% of these new awards are tied to battery electric or hybrid programs, which come with ~80% and ~20% CPV lift, respectively. As these programs ramp (typical lag 1–3 years), they will replace older, lower-margin platforms and drive profitable growth, giving management high confidence in achieving longer-term margin targets.

2) Free cash flow during the quarter totaled $27.4M, up $10.5M year over year. While year-to-date free cash flow remains an outflow of ~$28.3M, management continues to expect positive free cash flow for the full year, implying fourth-quarter FCF north of $30M. At quarter-end, total cash and cash equivalents stood at $147.6M, with total liquidity of $313.5M.

3) Management continues to monitor credit markets and remains optimistic that as results improve, the company will be able to favorably refinance its first-lien ($613M at 13.5%) and third-lien ($389M at 10.625%) notes over the next several months. A global refi would have major implications for interest expense (FY2025 guidance: $105M–$115M). For example, if management refis both loans at 9%, it would save ~$34M per year in interest expense, or ~$1.90 per share pre-tax. Applying a trough multiple to those savings alone gets you most of today’s share price.

4) Gross profit margins came in at 12.5% during the quarter, up 140 bps year over year, marking the third consecutive year of 100+ bps expansion despite reduced or flat production volumes in the two largest operating regions. Management expects further margin expansion in 2026, guiding for 13%+ gross margins driven by new business launches at higher margins, continued footprint optimization, and fixed cost discipline.

5) Adjusted EBITDA came in at $53.3M, up 15.6% year over year, with margins of 7.7%, up more than 100 bps YoY. Management remains confident that its long-term financial objectives of double-digit EBITDA margins and double-digit returns on invested capital are on track to be achieved by full-year 2026.

6) The Novelis aluminum plant fire (which halted Ford F-150 production, CPS’s top vehicle platform and accounting for an estimated ~10% of total sales) remains the primary driver behind the ~$25M expected profit loss in Q4. Absent the disruption, management estimated full-year adjusted EBITDA would have met expectations at $230M. However, based on Ford’s public comments about plans to make up for lost production in the first half of 2026, CPS management now expects first-half 2026 results to come in ahead of original expectations.

7) Capex during the quarter totaled $11.2M (1.6% of sales), bringing year-to-date capex to $36.5M (1.8% of sales). Management narrowed its full-year capex target to $45–$50M, implying 1.8% of sales for the year — just a fraction of the bloated heyday averages of 5–6%. Management has made it clear they have no intention of returning to those levels, remaining firmly focused on disciplined investment and getting back to double-digit returns on invested capital.

8) CPS remains on track to reach its net leverage target of 2x or lower by the end of 2027, less than half of the current 4.2x. Keep in mind, this forecast is still being made using what management called a “mortician’s forecast for volume” and does not yet contemplate a global refi.

9) During the quarter, management delivered $18M in manufacturing and purchasing lean savings, along with $5M realized through restructuring initiatives, bringing the cumulative sustainable cost savings impact to adjusted EBITDA to $710M since 2019.

10) Management reduced full-year guidance ranges for sales and adjusted EBITDA to reflect the temporary disruptions, now expecting ~$2.7B in sales (the low end of the prior $2.7–$2.8B range) and adjusted EBITDA of ~$205M versus the prior $220–$250M range. Management remains confident that lost production will be made up for, with 2026 shaping up to be a strong year for production driven by increased volumes in key regions and new business wins on models heavily weighted toward hybrids and EVs.

Earnings Call Highlights

Baxter BAX Update

As the saying goes, sunlight is the best disinfectant, and Baxter’s new CEO Andrew Hider clearly subscribes to that mantra. This was a textbook example of what we call a “kitchen sink quarter.” Take all your medicine at once, release every piece of bad news, and reset the bar so that everything moving forward is GOOD NEWS.

Sales of $2.84B (+2%) came in below guidance that had already been revised down to 3–4%. Adjusted EPS of $0.69 beat guidance by $0.09, but the upside was driven entirely by a favorable tax benefit, and without that, results would have landed at the low end. Full-year guidance was cut for a second straight quarter. A surprise dividend cut to just $0.01 was announced. The Novum IQ pump shipment and installation hold is now expected to extend into 2026 with no clear restart timeline. The IV solutions recovery remains slower than expected, with some fluid conservation measures dragging into next year.

Other than that, how was the play, Mrs. Lincoln?

So with all that “bad news,” why are we smiling so wide we could eat a banana sideways? While the results and outlook were certainly disappointing, they’ve created a full-on capitulation among impatient investors, the exact kind of dislocation our entire framework is built upon. Despondent selling tied to Baxter-specific issues, combined with the washed-out sentiment across the entire healthcare sector (Washington fears, R&D pullbacks, tariffs, you name it), has left the stock priced as if it’s about to be carried out on a stretcher. In reality, Baxter’s challenges are both TEMPORARY and FIXABLE — not the kind of permanent impairment the PRICE ACTION of Mr. Market might suggest.

Getting to that conclusion requires what we like to call BURDENING OURSELVES WITH THE FACTS. Let’s dig in.

The two overhangs weighing on Baxter are the Novum IQ recall and the lingering softness in the IV solutions business.

The Novum IQ pump was Baxter’s first new pump in nearly 30 years and a product the company had made a massive bet on. It was off to a strong start, driving 50% growth in the infusion business during 2024 and converting several large and important accounts (driving +200 bps annual market share gain), with expectations for another strong year in 2025. Those plans were derailed when the pump was recalled over the summer, prompting management to pause shipments and installations. The restart, once expected by year-end, now looks unlikely until 2026.

Meanwhile, the IV solutions recovery has taken longer than expected. After Hurricane Helene knocked out Baxter’s North Cove manufacturing plant (responsible for ~60% of IV supply), hospitals began rationing fluids and practicing conservation. Production is now fully restored, but hospitals have been slow to return to normal buying patterns, and some level of fluid conservation will likely persist through next year.

Together, these overhangs have created a twofer of headwinds for Baxter’s highest-margin and largest segment, Medical Products & Therapies, which made up nearly half of total sales in 2024.

However, when you look past the PRICE (which suggests Baxter is on life support) and focus on the FUNDAMENTALS, you see a completely different picture. Margins remain intact and expanding. Revenues are still growing, albeit at a slower pace. Solvency risk is off the table.

So yes, both issues need to be fixed — but this is by no means a permanently impaired business. It’s simply a case of investors running out of patience.

What this really comes down to is a self-help story, and there’s nobody better suited to lead it than newly appointed CEO Andrew Hider.

He cut his teeth at Danaher, spending over a decade in leadership roles and mastering the “Danaher Way,” the best-in-class management system built on continuous improvement and operational excellence that has made Danaher one of the most respected companies out there.

He then took that playbook to ATS, an industry-leading automation solutions provider (Baxter was a customer), delivering a 5x bagger at its peak within six years on the job.

Now his next project is Baxter, a company long overdue for some operational excellence. Just two months into the job and before he even finished finding the coffee machine, Hider has already rolled out the Baxter Growth and Performance System, aimed at driving a culture of continuous improvement and enterprise-wide efficiency. Sound familiar?

So while Andrew Hider keeps his foot on the gas and works to whip Baxter into Danaher-like shape, the rest of management will keep working day and night to clean up the two temporary overhangs. The next major catalyst will be the investor day slated for 2026, where management will outline the blueprint for getting Baxter back to where it belongs: growing mid-single digits, expanding margins into the high teens, and spitting off more cash than it knows what to do with.

Until then, we’re happy to stand pat and keep picking up cheap shares from the nervous nellies who mistake temporary noise for permanent impairment.

Q3 Earnings Breakdown

10 Key Points

1) Revenue of $2.84B (+2% YoY) missed both prior guidance of 3–4% growth and street estimates by ~$42M. Adjusted EPS of $0.69 (+41% YoY) beat by $0.09, though the upside was almost entirely tax-driven.

2) Despite concerns about a potential slowdown in U.S. hospital capital spending, management has not observed any signs of weakness. In fact, total U.S. capital orders for the Care and Connectivity Solutions segment increased 30% year over year, supported by a very strong pipeline — one of the key drivers behind CCS’s 4% growth in the U.S. during the quarter.

3) Baxter generated $126M of free cash flow during the quarter, bringing year-to-date FCF to an outflow of $18M. Management expects continued free cash flow generation in Q4, which is typically the strongest quarter seasonally, and further progress in 2026 as the company works toward its goal of 80% cash conversion. In addition, the recently announced dividend reduction is expected to free up more than $300M in annual cash flow.

4) Operating margins for the quarter came in at 14.9%, up 40 bps year over year, bringing year-to-date margins to 15%, an increase of 160 bps. The improvement was driven primarily by a 240 bps reduction in SG&A expenses, which totaled $629M (22.2% of sales) during the quarter. For the full year, management now expects adjusted operating margins of 14.5–15%, down from the initial 16.5% guidance, but still an improvement from last year’s 13.9% despite ongoing headwinds.

5) The Novum IQ shipment and installation hold is now expected to remain in place beyond year-end as management continues to evaluate and test potential corrections. In the meantime, Baxter is offering its legacy Spectrum IQ pump as an alternative and continues to see strong customer interest, ramping up production to meet demand. However, management expects the Infusion Therapy & Technologies (ITT) segment to remain under pressure, as the timing and nature of the resolution of the Novum IQ hold have led some customers to explore alternative solutions.

6) While management remains confident in the medium- to long-term strength of the IV solutions business, the recovery has been slower than originally expected, with some level of fluid conservation likely to extend into 2026. Management noted this has also contributed to softness in certain premix products, comparing the current environment to the aftermath of Hurricane Maria in 2017, which took nearly two years for hospitals to return to normalized buying patterns. Baxter continues to work closely with hospitals to improve utilization rates and emphasize the clinical benefits of its products to support recovery.

7) Management lowered full-year guidance for the second consecutive quarter, now expecting operational sales growth of 1–2% compared to the original 4–5% range, and adjusted EPS of $2.35–$2.40 versus prior guidance of $2.45–$2.55. The revision is primarily driven by an expected ~2% sales decline in Q4, which has historically been Baxter’s strongest quarter. Management reiterated that they continue to expect growth next year, with an investor day scheduled in 2026 to review the long-term strategy and financial outlook.

8) Management reduced the quarterly dividend to $0.01 per share, beginning with the January 2026 payment, to free up cash flow for accelerated deleveraging. Management now expects to reach its 3x net leverage goal by year-end 2026.

9) Management continues to expect an estimated tariff impact of ~$40M for full-year 2025, down from the prior estimate of $60–$70M.

10) Baxter launched Connex 360, its next-generation patient monitoring device and the latest innovation in its connected monitoring portfolio. The company is already seeing strong customer excitement around the new product, which is expected to be a key growth driver for the Care and Connectivity Solutions segment going forward.

Earnings Call Highlights

Earnings Previews + Key Points

Over the next few weeks, we’ll publish full detailed analysis on the names we cover that have reported earnings so far. In the meantime, here are three key points from each company’s latest report.

VF Corp VFC

1) More brands within the VF portfolio are returning to growth. Last quarter, 60% of the business was growing revenue, up from just 10% a year ago. This quarter, excluding Dickies, that figure rose to nearly 70%. Timberland delivered 4% growth, marking its fourth consecutive quarter of gains across both DTC and wholesale. The North Face posted 4% growth, with all three regions up YoY and footwear up double digits across every region. Vans revenue declined 11%, but results improved sequentially and beat expectations, with channel rationalization accounting for over 20% of the decline. Altra grew 35% YoY, its third consecutive quarter of double-digit growth, and remains on track to exceed $250M in annual revenue despite less than 10% brand awareness in the U.S.

2) Adjusted operating income of $330M came in well ahead of guidance of $260–$290M, with margins of 11.8% (+40 bps YoY), keeping the company well on track to reach its FY2028 target of at least 10% adjusted operating margins.

3) Management continues to clean up the balance sheet, with net debt down $1.5B (21%) YoY to $5.7B. Excluding lease liabilities, net debt stands at $4.2B (down 27% YoY). Proceeds from the $600M Dickies sale, which remains on track to close in Q3 FY2026, will be used for further deleveraging, bringing the company closer to its goal of achieving net leverage of 2.5x or lower by FY2028.

ETSY

1) Depop posted another standout quarter with GMS of $292.1M, up 39.4% YoY and accelerating by ~400 bps sequentially. Growth was led by the U.S., where GMS rose 59% YoY, driven by the brand’s largest-ever U.S. marketing campaign. The added investment will put near-term pressure on margins, with total company adjusted EBITDA margins declining to 25.4% from 27.7% last year.

2) Etsy Marketplace GMS of $2.4B (–2.4% YoY) came in ahead of expectations and accelerated by ~300 bps sequentially, with further improvement expected in Q4. The Etsy app continues to be a major growth driver, with app-based GMS up 5% YoY and now accounting for 46% of total GMS. App users represent a significant opportunity, engaging 5x more often, viewing 3x more pages per visit, and converting 1.5x higher than non-app users.

3) Management repurchased 2.1M shares during the quarter for ~$120M, bringing year-to-date buybacks to $644M (~10.8% of the company’s $5.95B market cap). Since December 2023, total share count is down ~17%, with $356.5M remaining under the current authorization and a cash balance of $1.6B providing plenty of dry powder to continue.

Estee Lauder EL

1) Organic sales growth accelerated to +3%, a sharp turnaround from last quarter’s 13% decline. The rebound was led by a return to growth in mainland China, which posted 9% organic sales growth, marking five of the last six quarters that Estée Lauder has gained share in the prestige beauty market. Seven brands delivered double-digit growth during the quarter.

2) The Profit Recovery and Growth Plan (PRGP) remains on track to be substantially completed in FY2027, expected to yield annual gross benefits of $0.8–$1.0B. To date, Estée Lauder has approved initiatives for over 70% of the expected gross benefits and more than 50% of the associated charges. Early results are already visible, with adjusted gross margins expanding ~60 bps to 73.3% and adjusted operating margins up ~300 bps to 7.3%.

3) Management reiterated full-year guidance for positive organic sales growth in the range of 0–3% and adjusted operating margins of 9.4–9.9%, which would mark the first return to both growth and margin expansion in four years.

Boeing BA

1) Boeing generated free cash flow of $238M, its first positive quarter since Q4 2023, crushing street estimates that called for an $884M outflow. Management updated full-year expectations to a usage of ~$2.5B, an improvement from prior guidance of (~$3B).

2) Boeing delivered 160 commercial airplanes during the quarter, up 38% YoY, marking its highest quarterly total since 2018. This brings total deliveries to 440 through the first nine months of the year, up 51% YoY. Most importantly, the FAA raised the 737 production cap to 42 per month in October, up from 38 previously.

3) Total company backlog grew to $636B, up 20% since year-end, and now includes over 5,900 commercial aircraft, with both the 737 and 787 sold firmly into the next decade — as the world’s greatest salesman stays hard at work.

Generac GNRC

1) Global C&I product sales rose 9% during the quarter, driven by a doubling of the global backlog of large megawatt generators to more than $300M over the past 90 days. Current capacity stands at ~$500M, and management plans a major capacity expansion that will effectively double capacity to ~$1B in annual sales, supporting what could be a potential doubling of C&I product sales over the next 3–5 years.

2) Residential net sales declined 13% YoY, with home standby shipments (the company’s bread and butter segment with ~75% market share) down by a mid-teens rate due to a significantly lower power outage environment, marking the lowest Q3 total outage hours since 2015. As a result, management lowered full-year sales growth guidance to flat, down from the prior 2–5% range.

3) Ecobee delivered another profitable quarter, driven by stronger-than-expected sales and significant gross margin improvement. The Ecobee installed base grew to ~4.75 million homes, and the segment remains on track to deliver its first-ever positive contribution to EBITDA for the full year.

Advance Auto Parts AAP

1) Comp store sales rose 3% YoY, with both Pro and DIY channels delivering growth. Pro comps increased more than 4%, marking the fifth consecutive quarter of positive performance, while DIY comps grew in the low single digits and improved sequentially on a two-year basis. This strength led management to narrow full-year comp sales guidance to 0.7–1.3%, from the prior range of 0.5–1.5%.

2) Adjusted operating margins, the most important metric in the AAP turnaround, came in at 4.4%, up 370 bps YoY — the strongest quarterly margin performance in over two years. Management narrowed full-year margin guidance to 2.4–2.6%, from the prior 2–3%, implying ~200 bps of margin expansion in the first year of the turnaround.

3) Management continues to expect 30 new store openings for the full year but raised its target for market hub openings to 14, up from prior guidance of 10. That would bring the total to 33 market hubs by the end of 2025, keeping AAP on track to reach its goal of 60 by mid-2027. These hubs carry between 75–85K SKUs and expand same-day parts availability across a service area of 60–90 stores, on average driving a ~100 bps lift to supported locations.

GXO Logistics GXO

1) GXO delivered record quarterly revenue of $3.4B, up 8% YoY, with organic growth of 4% and strength across every region. Management reiterated full-year guidance calling for 3.5–6.5% organic growth, with year-to-date organic growth now at 4.1%.

2) New business wins totaled $280M for the quarter, up 24% YoY, bringing year-to-date wins to over $800M and providing a clear line of sight to exceed $1B in 2025. Nearly $700M of incremental revenue is already secured for 2026 — up ~50% from this time last year — giving management confidence in both continued growth and margin expansion next year.

3) The Wincanton integration officially began in October, with the teams already realizing their first win as a combined organization. Most importantly, the $60M in expected cost synergies remain on track to be achieved by the end of 2026, providing another tailwind for margin expansion as synergies ramp. The integration also brings meaningful exposure to the industrial and aerospace and defense sectors, where GXO’s $2.3B pipeline saw aerospace and defense opportunities rise 30% sequentially.

Stanley Black & Decker SWK

1) Adjusted gross margins for the quarter came in at 31.6%, up 110 bps YoY, as management continues to make progress toward the long-term target of 35%+. Management expects to reach 33% adjusted gross margins in Q4 and remains confident in achieving 35% by the end of 2026, even if macro conditions do not materially improve.

2) The Global Cost Reduction Program remains on track to deliver $2B in pre-tax run-rate savings by year-end, with $120M achieved during the quarter, bringing total program-to-date savings to $1.9B.

3) SWK generated $155M in free cash flow during the quarter and reiterated full-year guidance of $600M.

General Market

The CNN “Fear and Greed Index” ticked down to 27 this week from 38 last week. You can learn how this indicator is calculated and how it works here: (Video Explanation)

The NAAIM (National Association of Active Investment Managers Index) (Video Explanation) ticked up to 100.83% this week from 90.35% equity exposure last week.

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