Best stock ideas - September 21

Trading at 11-12x FCF, Mitek Systems, Inc., with a 20% growth trajectory, is a compelling investment proposition. Dominating Mobile Deposits, it serves 7,500 banks, reaping 90% margins. While USAA is a minor competitor, it poses a legal challenge with ongoing USAA litigation concerning patent infringements, a looming shadow on Mitek. Another hurdle was the threat of a Nasdaq delisting due to delayed SEC filings, although resolution is underway. However, its partnership with giants like Airbnb and Adobe in the ID Verification sector, along with potential in AI fraud prevention, showcases Mitek's promising future, affirming its status as a strong investment.

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The company has a market cap of $706 million, long-term debt of $6.3 billion, and revenue of $3.6 billion over the trailing twelve months. GTN recently surpassed estimates and finished the first phase of a significant investment, the Atlanta Assembly. They also have a long-term lease agreement with NBCUniversal for this project, which is expected to produce positive free cash flow in the near term. GTN has recently expanded by acquiring former Meredith stations for $2.875 billion, which previously generated over $400 million in free cash flow during the 2020 election cycle. The author emphasizes that GTN historically sees substantial cash inflows during political cycles, which are predictable. Addressing concerns about the company's sizable debt, the author notes that GTN has hedged its floating debt, ensuring about 95% of its debt is at fixed rates, and does not face maturities until 2026. This positioning allows the company to benefit from at least two political cycles (the 2024 presidential elections and the 2026 midterms) before any significant debt repayments. The author posits that entering another potential record election cycle, combined with the stock's current undervaluation, could offer a substantial return on investment. They anticipate the stock could reach around $31 per share, offering a 4x return and a 4% dividend, assuming certain financial scenarios unfold. The author personally holds 28,000 shares bought at an average price of $8.

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Despite currently operating at a net loss, Village Farms (VFF) has begun witnessing a stock price rally on the heels of the cannabis industry gains. With the potential rescheduling of cannabis by the US DEA and the possible passage of the Safe Banking Act, US cannabis companies have started regaining their footings. Even though these changes have less effect on Canadian cannabis firms unless federal legalization occurs, the overflow effect cannot be ignored. Interestingly, Village Farms has prepared its US assets for conversion to cannabis facilities as soon as legislation permits, indicating a possible upside. Their Q2-2023 performance showed an 82% YoY increase in gross profit while maintaining a top three position in the Canadian market, but worrying financial signs such as a lack of positive free cash flow still exist. The recent 51% 3-month price performance implies investor sentiments might be shifting towards bullish. However, this investment comes with a high-risk warning due to potential market volatility, but a $2 price target suggests possible 100%+ gains from the current share price.

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The author is bullish on Gorilla Technology Group (NASDAQ: GRRR) despite its unimpressive performance on paper, highlighting the rapid growth opportunities in the Edge AI market where Gorilla specializes. The company has secured several lucrative contracts including a $270 million agreement with the Egyptian Government and a strategic partnership with British Telecom among others, shaping a strong and diverse pipeline that secures its business for the next three years. While revenue growth and cash flow have been dismal, the analyst points to management's positive guidance that the company will be cash flow positive by 2024 with drastic revenue growth, a forecast supported by confirmed contracts. Projected revenue growth gives the author a conservative price target of $4.90 with 236% upside, aligned with Wall Street's even more bullish target of $5.90 with 304% upside. Acknowledging the company's cash flow challenges and the risks therein, the author still deems the value of GRRR shares as untapped and the risk tolerable, rating it a strong buy.

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Monnari, despite suffering losses in 2020 during Covid-19 due to the company's reliance on shopping mall sales, managed to rebound quite remarkably. Its revenue has been on a steady uptick from 131.8 million PLN in 2012 to 287.7 million PLN in 2022, growing at a CAGR of 8.1%. Notably, the company's management has been proactive with buybacks, having repurchased 15% of all shares between 2016 and 2020, while actively investing cash in real estate and short-term loans above inflation rates. Currently, the company's market cap is ~159 million PLN and it has grown by 20.3% year-to-date, and ~92.9% up from its 52-week low. The management's strategy of realising more value by establishing a new sales channel and increasing e-commerce sales presence could likely drive further growth. Currently, MON.WA trades at a 44% discount to its Net Current Asset Value (NCAV), which, considering the proactive cash allocation, could make it an attractive investment.

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The senior equity analyst David Swartz is bullish on Tapestry (TPR), primarily due to the successful restructuring of Coach, which now accounts for 74.5% of Tapestry’s fiscal 2023 revenue. The company has seen a rapid improvement in results as the Acceleration Program's cost-cutting and margin-improving strategies take hold, along with rising handbag prices. While Kate Spade and Stuart Weitzman are yet to prove their value, beneficial factors like Coach's online presence and growth in complementary categories such as footwear and fashion are seen as positives. The Chinese consumer market, predicted to account for 38-40% of worldwide luxury goods spending by 2030, is also being targeted as a key growth region. The author notes the acquisition of Capri for $57 per share ($8.5 billion total), expecting the combined company to generate about $13 billion in sales and $2.2 billion in operating income (17% margin) in fiscal 2025. However, the author acknowledges risks associated with this acquisition, such as a potential increase in debt and possible margin dilution. Despite these risks, the argument remains predominantly bullish, with a price target of $60 per share.

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