🟨This $1 Tech Stock is The Top "Buy and Hold" Pick

The author is optimistic about ASML as a long-term investment, given its strong position in the cyclical semiconductor industry. With the semiconductor market expected to grow to around $1 trillion by 2030, ASML's near-monopoly in lithography positions them well for future growth. Since 2013, the company's revenue has increased by around 300%, with a projected growth rate of 25% in 2023.

ASML boasts a gross margin of around 50%, invests heavily in R&D, and has minimized SG&A expenses. The management's long-term projections indicate continued growth in gross margin and sales. The company's backlog grew significantly last year, and they plan to build out capacity to meet demand.

While Q1 earnings may lead to lower sales and margin dilution, the stock has historically risen after earnings reports. ASML has strong brand equity and customer trust due to its continuous improvements and refurbishment cycles. Although the CHIPs act may pose future risks, ASML's commitment to R&D and product improvement is a strong buffer.

One key supplier risk to note is ASML's reliance on Carl Zeiss for optics. However, the company's balance sheet is healthy, with long-term debt below yearly free cash flows and a significant cash reserve. The board recently authorized a €12 billion buyback, indicating a willingness to return cash to shareholders.

Earnings have consistently grown over time, and ASML has typically commanded a premium compared to market multiples. Based on analyst estimates and valuations, an investment in ASML today could yield an annualized return of around 10-16%. With a strong market position and the expanding semiconductor industry, ASML is poised for continued growth, making it an attractive long-term investment.

In conclusion, the author believes that ASML's robust market position and the growing semiconductor industry will provide significant tailwinds for the business. ASML's technological advancements and role in chip fabrication put it in a prime position to continue compounding growth. While there are always risks, the author believes the rewards outweigh them and recommends ASML as a strong buy for those with a long-term investment horizon.

Enel has introduced new management changes, and Leonardo's stock price increased following the Italian Ministry of Economy and Finance's filing for the company's renewal of the CEO and directors board. The MEF proposed Roberto Cingolani as the new CEO and Stefano Pontecorvo as the new company President. Cingolani's nomination is positively viewed due to his background within the group, and it is believed that his predecessor's strategy will be confirmed, focusing on internationalization, efficiencies, and improving free cash flow. Investors are concentrating on the new CEO's confirmation of a €3 billion FCF cumulative target over 2021-2025 and the group's order intake of €90 billion in 2022-2026.

Leonardo expects orders of around €17 billion, revenues in the €15-€15.6 billion range, and a cash flow of 600 million for the current year, with forecasted net group debt of around €2.6 billion. The outlook for Leonardo remains positive due to increasing military spending globally, with strategic development expected in cyber and infrastructure protection. Leonardo and Cisco Systems announced a memorandum of understanding to strengthen commercial relations and collaborate in cybersecurity, secure networking, IoT, digital workplace, and cloud edge computing.

The Spanish government may buy another batch of 25 Eurofighter "Typhoon" fighters, potentially worth €2.5 billion and €500 million-€1 billion for Leonardo. The Bulgarian government signed a contract for six Leonardo first aid helicopters worth approximately €58 million. The new Italian government may allocate a larger budget for new armaments, including 41 additional F-35s worth €8.3 billion and 25 Typhoons for €3.6 billion. The demand for the EFA "Typhoon" could represent a significant medium-term catalyst for Leonardo. Boeing orders are picking up, with Riyadh Air and Saudi Arabian Airlines expected to purchase 39 aircraft, potentially accelerating 787 productions and benefiting Leonardo's activities in the aerostructures division. Currently, Leonardo is trading in the bottom Price Earnings quartile, offering an FCF of 12.5% by 2025. The author suggests increasing Leonardo's shares as its equity value is only at 0.6 times, which is an unjustified discount.

The author is bullish on EDAP TMS S.A. due to the potential crossover of its HIFU procedure into treating endometriosis, which is the highest margin segment for the firm across its operations. EDAP has beaten consensus at the top-line for the past three consecutive quarters, and the author believes EDAP can grow its top-line by 20% this year, generating $70 million in revenues on a 43% gross margin, resulting in ~$5 million in NOPAT (adjusted for R&D).

EDAP operates across three divisions: HIFU, ESWL, and Distribution. Despite the push for HIFU sales, the distribution segment contributed the most income for the company in FY'22, growing ~21% YoY and accounting for over 50% of the firm's top-line revenues. EDAP's HIFU has the potential to treat endometriosis, liver and pancreatic cancers, and certain localized thyroid, breast, bladder, kidney, and brain tumors. HIFU is beneficial because it destroys targeted cancer cells only, without causing adverse outcomes such as incontinence and erectile dysfunction. The robotic nature of HIFU makes it safer for patients, less operator-dependent, and suitable for patients who aren't candidates for surgery.

The author believes that EDAP can hit multiple growth levers in the coming periods, particularly in its HIFU segment, through new placements and building out income from ancillary products/services. The author predicts that EDAP can achieve 20% YoY top-line growth and grow annual turnover to $70 million this year. Factors contributing to this growth include an increase in procedure volume, higher reimbursement for hospitals and physicians, favorable mix to HIFU revenue dominance, and tail of asset returns from ancillary products/services with each HIFU procedure and placement. The author estimates that EDAP can generate a gross margin of 43% on top of OpEx of ~$32 million, or 45% of estimated sales, which could generate ~$4.8–$5 million in adjusted NOPAT and pull down to adjusted earnings of $2.5 million or $0.07 per share.

The author predicts that EDAP is set to become quite profitable, with a return on incremental capital of 70–73% in FY'23 and 11–13% into FY'25, generating a 26% return on incremental capital over this time and sporting a 35% growth rate in adjusted NOPAT. The author sees a fair value of $15 or 7x sales at present and looks forward to seeing upside on this as the year progresses. In conclusion, the author reiterates EDAP as a buy with a $15 price target.

Dye & Durham Limited is a Canadian consolidator providing cloud-based software solutions to legal firms, banks, financial service institutions, and government organizations in North America, Europe, and Australia. The company aggressively pursues an M&A strategy, positioning itself as a market leader in the regions it serves. Its transaction-based revenue model is highly profitable, scalable, and offers significant pricing power. With over 60,000 customers, including many blue-chip customers, Dye & Durham enjoys a highly recurring revenue business model.

The company has a highly levered balance sheet for a software company and faces short-term headwinds related to the real estate sector. It generates more than half of its revenue from Canada, 30% from Europe, and 15% from Australia, holding dominant market positions in these regions. Dye & Durham has experienced explosive growth in new markets, particularly in Europe and Australia, through acquisitions of platform companies in the real estate, data insights, legal, and payments infrastructure space.In its most recent quarter, Dye & Durham generated revenues of $129.7 million, up 54% from the same period last year, and adjusted EBITDA increased 53%. The company has spent $1.7 billion in capital in the last two years, with an average purchase price of 16.2x EBITDA, which has been quickly compressed to 6.7x EBITDA with realized synergies. Dye & Durham withdrew their guidance for F2023 and anticipates a 10% cost-cutting across the company to maintain current operating margins of 50-60%. The company has $224 million in cash and $880 million in long-term debt, implying 3x LTM EBITDA leverage excluding 3.75% convertible debentures, which is high for a software company.

Dye & Durham has shifted its acquisition strategy to focus on smaller tuck-in acquisitions rather than larger deals due to the current economic environment. The company's diversification, stability, and predictability of sales and free cash flow generation, as well as its sticky business model, ensure stable and predictable revenues over time. Despite strong financial performance, Dye & Durham's share price has not reflected its accomplishments, potentially presenting an undervaluation opportunity for investors.

The author is bullish on Revolve, an online fashion and cosmetics retailer worth around $1.9 billion, targeting Millennial and Generation Z consumers. Revolve differentiates itself from competitors by utilizing mass social media marketing and a data/technology-driven approach. Its proprietary technology leverages data from a vast net of styles, attributes, and customer interactions, creating a strategic asset of hundreds of millions of data points. This facilitates "constant newness," with over 1,500 new styles launched per week on average in 2022.

One issue affecting Revolve's profits is shipping costs. However, the author predicts a 15% annual revenue growth rate, driven by new customers, increased orders, and a higher average order value. Revolve has a large and growing addressable market with abundant international growth prospects and opportunities to expand into new product categories and luxury business.

Revolve's management team has demonstrated superior capital allocation abilities and uses customer data to assess progress and make decisions. The company has a strong balance sheet with no debt and is conservatively financed. Sales fell only 3.4% during Covid, but net income grew 59.2% as the net profit margin nearly doubled. Revolve has a high gross margin of 54% but a low net profit margin of 5% due to increasing "Selling and Distribution" expenses, primarily because of elevated return rates and fuel surcharges.

Revolve's management is addressing the issue by utilizing a new East Coast warehouse facility and exploring opportunities to decrease international shipping volume. The author values Revolve at around $1.9 billion or about $26 per share and sets a reasonable target price of $5.1 billion or roughly $70.00 per share in five years, based on management's expectations and several assumptions. The author considers Revolve a strong buy at its current price due to its powerful economic machine and ample growth opportunities.

Ceragon Networks (CRNT) is a small tech stock with similarities to other bullish tech stocks, potentially poised for significant gains. CRNT makes equipment for the telecom sector and boasts a low price-to-sales ratio, a strong balance sheet, an experienced management team, and a substantial total addressable market. The chip industry's growth potential and increasing demand for telecom, especially with 5G and future connectivity buildout needs, could fuel CRNT's growth.

Western countries and companies are increasingly seeking non-Chinese suppliers, which could benefit CRNT. The stock experienced a surge in early 2021, bottomed out in May and June, and is now trading around the same level as the bottom, possibly indicating a bullish double bottom forming on the chart. Analysts at Needham set a recent price target of $5.25 per share in February 2023, suggesting that the stock is deeply undervalued.

In March 2023, Ceragon Networks received a $29 million order from India, expected to boost revenues this year. The company rejected a buyout offer, believing their stock could be valued higher in the future. Ceragon Networks projects improved margins and revenues reaching $325-$345 million in 2023 and $500 million annually in the next few years. A new chipset launch in 2024 is expected to drive revenues even higher.

The downside risk from the current stock price of around $1.70 is limited. The most significant potential risk is management execution and opportunity cost if earnings estimates are not met. The stock could trade around the $7 level it held in 2021, and possibly go beyond that level if management delivers. With a strong balance sheet and multiple growth tailwinds, including 5G and national security concerns leading to a ban on Chinese competitors, the company is well-positioned. The price-to-sales ratio, price-to-earnings ratio, 5G/connectivity growth potential, and the $3.08 per share buyout offer all suggest that the stock is a bargain at current levels with major upside potential.

Digital Turbine, Inc. is currently undervalued due to challenges in the advertising markets and decisions made by the Federal Reserve. Although the stock was previously overvalued, it is now too low considering its potential in a normalized economy. With positive free cash flow (FCF) and a strong balance sheet, Digital Turbine provides a safety net for investors, making it an interesting opportunity for contrarian long-term investors.

The company has experienced a decline in sales due to industry-wide problems in the advertising sector, but the author believes this is temporary and that ad spending will increase again in the future. Digital Turbine's management team maintains a long-term view, using positive FCF to pay down debt and seek growth opportunities through mergers and acquisitions (M&A).

Currently undervalued based on EV/EBIT, Digital Turbine has only priced in 14% EPS growth over the next decade, which the author believes is easily achievable. The company's competitive advantage stems from its software being pre-installed on phones at the factory and single-tab installations. However, these advantages are not the most robust and can be challenged.

Digital Turbine is targeting the App Install Market with their Single Tap solution, which could lead to significant growth opportunities. They are also attempting to compete with Google and Apple's app stores through their stake in Aptoide, but this is a challenging task. While the EU's Digital Markets Act could potentially benefit Digital Turbine, Google and Apple have strong lobbying power.

The company is interested in pursuing more M&A in the future, but executing simultaneous acquisitions during the Covid crisis was challenging. Digital Turbine has a net debt of around $353.8 million, but improving market conditions and FCF could help ameliorate this situation. The author recommends this company as a long-term holding for existing shareholders and those looking to build a position.

AUTO1 Group is an undercovered stock with only 80 followers and one article written since its IPO in February 2021. The stock has decreased significantly, down 74% since the publication of the article in November 2021 and 87.5% since the IPO. Despite risks, the author believes that AUTO1 might be one of the rare cases where an investment can multiply within just one or two years if it can reach profitability (on an adjusted EBITDA basis) in Q4 2023, as the company is predicting.

AUTO1 has a similar business model to Carvana and has a good chance to reach its profitability goal this year. The company has a solid balance sheet, enabled by the IPO, and no corporate debt. AUTO1 has not engaged in any acquisitions and has been building up the business from the ground up. The company has forecasted EBITDA profitability in Q4 2023 at the time of the IPO and has been upholding this prediction since then. The key risk is the condition of the used car market over the year.

AUTO1 increased its market share to 2.5%, making it the leader in this fragmented market. The company has two business segments: Merchant and Retail. In the Merchant segment, used cars are sold to commercial car dealers through the AUTO1.com brand, with over 60,000 partners in over 30 European countries using the platform. In the Retail business, there has been strong and continuous growth in 2022, including Q4, with cost reductions through in-housing of the used car production being a major driver.

AUTO1 expects to be profitable on an adjusted EBITDA basis in Q4, in line with the IPO forecast. Assuming an average gross profit per unit of 1,250 euros across the Retail and Merchant business, the profit margin is estimated to be 15%. The author believes that the risk/reward ratio for AUTO1 is good at the current beaten down price. The author recommends buying ATOGF shares instead of ADRs for U.S. based investors.

BP, a super major oil and gas company valued at around $120 billion, had strong results in 2022 with nearly $61 billion in revenue, $40.9 billion in operating cash flow, and $21.4 billion in net debt. The company implemented an $11.25 billion share buyback and offers a 4% growing dividend. BP's underlying results show significant improvement YoY, with operating cash flow doubling and net debt dropping dramatically.

The company has ambitious 2030 targets, including growing its transitional growth engine EBITDA from $1 billion in 2025 to $2 billion in 2030 and investing more in its oil and gas system to add nearly $4 billion in incremental EBITDA by 2030. BP is also heavily investing in renewables, expecting EBITDA from this segment to reach $11 billion in 2030, representing 20% of the company's total EBITDA.

BP is committed to delivering strong shareholder returns through growth and investment while maintaining its nearly 4% dividend yield. The company plans to invest $17 billion in 2023, with long-term capital expenditures of around $16 billion. BP aims to allocate 60% of surplus cash flow for share buybacks, potentially leading to double-digit shareholder returns. The main risk to this thesis is crude oil prices, which could impact adjusted EBITDA. Nonetheless, BP's unique portfolio, strong dividend, and debt reduction make it an attractive investment.

Altria Group, Inc., a large tobacco company with an $80 billion market capitalization, has seen its market cap drop by over 20% in the past year, but its share price has risen by over 30% from its COVID-19 lows. Altria recently announced a $2.75 billion acquisition of NJOY Holdings to expand its E-Vapor market share, after an ill-timed $13 billion investment in Juul, which it has since completely exited.

Despite a decline in adult smokers, Altria's core business has continued to grow, with revenue increasing from $8.5 billion to $10.7 billion and margins growing from 51% to 59%. The company has managed to grow its earnings at nearly 5% annually and spends around $1.8 billion per year on share repurchases, pushing shareholder returns to double digits when combined with dividends.

Altria has a well-distributed debt portfolio, but rolling over debt could increase interest rates, and the 2.1x debt-to-EBITDA ratio can't expand substantially without risking pressure if EBITDA drops. The largest risk to the thesis is the decline in cigarette consumption and the company's inability to diversify effectively. Stumbles like the Juul investment, which destroyed over $10 billion in shareholder value, could hurt long-term returns. Despite these risks, the core business continues to perform well, supporting an 8% dividend and double-digit shareholder returns. The author views Altria as a strong opportunity at its current low price.

The article discusses the replacement of Bank of Japan Governor Haruhiko Kuroda by Kazuo Ueda and the challenge of normalizing monetary policy without causing market disruptions. Kuroda failed to end negative rates and the BoJ continues extreme monetization, owning 52% of JGBs outstanding. The article also discusses the potential for Japanese financial institutions to reallocate their investments from yen fixed income to Japanese equities, given the belief that inflation has returned. The Government Pension Investment Fund raised its Japanese equity asset allocation target in 2014, but the rest of institutional Japan did not follow. The article quantifies the size of overseas capital waiting to come home, with the stock of Japanese overseas investments totaling US$10tn as of the end of 4Q22.

The article discusses the views of various institutional fund managers on investing in banks. Troy Asset Management and The London Company avoid investing in banks due to their highly leveraged nature and dependence on unpredictable interest rates. Bronte Capital and Warren Buffett have invested in banks, with Bronte Capital initiating positions in UBS and First Citizens Bank while shorting Credit Suisse, Silicon Valley Bank, and Signature Bank. Harris Associates regrets their investment in Credit Suisse, while Lindsell Train avoids banks but invests in stocks tied to banks, such as credit information businesses like Experian and FICO. Bank of America has a strong deposit base, and shares remain at 1.4x Tangible Book. David Herro of Harris Associates admits to making a mistake with Credit Suisse, emphasizing the lesson for "value" investors who emphasize Price/Book ratios as a valuation metric