Best stock ideas (Friday, October 13)

The author is bullish on Prosperity Bancshares, Inc. (PB), believing the bank offers an opportunity for significant upside in the next two to three years as the industry adapts to higher rates. Despite softened key trends and metrics in the current climate, the author asserts that PB stock is a good buy in the $50 range. The bank continues to demonstrate growth in loans even amidst a tough macro situation, with Q2 loans increasing 18% from the prior year. The company is also consistently raising dividends and has been partaking in strategic mergers providing further liquidity and enlarging their loan and customer base. Although the bank had to provide for credit losses, and deposits were down from a year ago, the author believes that a lot of bad news has already been priced into PB shares. Furthermore, the bank's management is also bullish, noting a future improvement in net margin and ongoing share buyback initiatives. Despite any short-term volatility, the author concludes that PB presents a buy opportunity with a target exit price of $62.

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The author presents a bullish outlook on Cutera (CUTR), a medical aesthetics company that experienced a dramatic 90% stock price plunge last year. Despite its financial troubles, the author believes that the company's advanced product, AviClear, a laser-based acne treatment technology, holds significant potential for growth. If AviClear can capture 10% of the derm-seeking acne market of 600k patients, it could drive over $20 of EPS for CUTR. This could result in a stock price of $365, implying astronomical returns from the current price point. The author further mentions the company's recent management shakeup, its strong cash position, and its abundant long-term debt buffer against high-interest rates as additional bullish arguments. Notably, the author highlights that even if AviClear does not meet its full potential, any successful efforts by the new CEO to reduce expenses and enhance revenues could justify the current stock price.

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Maintaining BUY. We expect demand for Airbnb rentals to remain strong in the U.S., driven by longer stays and growth in urban markets. The company should also benefit from the easing of COVID-19 restrictions in China and expansion in Latin America. Based on the company's efforts to grow internationally, we are raising our 2023 EPS estimate to $3.90 from $3.65 and our 2024 estimate to $4.25 from $4.00. Our target price of $168 implies a potential return of 29% from current levels.

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The author maintains a bullish stance on Intermediate Capital Group, a UK based global alternative asset management company. The company has transformed its business model to a capital-light asset management model, and this is favorably viewed by the author. ICP's consolidation of GP relationships and focus on mid-market lending is seen as strategically advantageous. ICP's expansion in third-party AUMs is noted as a catalyst for growth, and the author considers ICP’s valuation to be fair, indicating potential for future returns from underlying growth. Despite the challenging fundraising environment, the author maintains that ICP should be able to continue raising funds given its position and reputation. Notably, ICP's exposure to Europe and excellent reputation in the region are viewed as strategically beneficial. The author also points out that the company could be an interesting acquisition target, particularly for an insurance company looking to add good long-term strategies to its product offering.

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Private Equity Holding (PEHN) has been experiencing a consistent increase in the value of its portfolio but a decreasing discount to the NAV. The latest NAV was reported at 148.9 CHF, putting the current discount at approximately 56%. The company's distributions have remained somewhat volatile, with distributions of 2 CHF in 2018 and 2019, 1CHF in 2020, 2CHF in 2021 and 2022, and predicted to be 1CHF in 2023. These distributions are partly tax-free for investors residing in Switzerland. The company seems to be on a strategic path of buying back its shares with about 1.32% of outstanding shares bought in the last two full years and more since the last report. The author sees potential value in PEHN, having bought at different times for his portfolio, despite acknowledging the investment's inherent volatility because of the nature of its direct investments and commitments to various funds.

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KKR had a strong move from 2016 until 11/2021, rising from $10 to $82. The stock was supported by its 21-week exponential and 50-week simple averages (excluding late 2018 and during the pandemic) the entire time. After a 2021 peak, the shares fell to $41 in October, during the 2022 bear market. During most of 2022 and into the middle of 2023, KKR traced out a complex inverse head-and-shoulders (H&S), breaking out and completing the pattern in July. Recently, the stock has seen strong volume during up days. Based on the size of the inverse H&S, we could see a measured move to the $73 to $80 region. We would put a stop-loss just below chart and moving-average support at $58. We would take profits at $70, with larger long-term gains possible.

Read the full article here (paywall). Read time: 8 min