Best stock ideas for September 28

ACIC dominates its unique sector, capturing 40% of TAM and consistently delivering a robust 23% ROE, with a history marked by profitability. Its fortified position stems from an unparalleled relationship with AmRisc, America’s leading catastrophe-focused MGA, bestowing ACIC with substantial pricing power, elevated customer retention, superior margins, and substantial customer switching costs. Currently, its valuation is exceptionally low; Sohra Peak’s projections show ACIC trading at a P/E of 2.9x for FY24E and 1.9x for FY25E while achieving an ROE of 53%. Starting FY25, the company is poised to return all incremental net profits to shareholders, implying a lucrative 50% dividend yield relative to the current price, with potential to reach 3-4x its value in the coming years according to Sohra Peak. This opportunity surfaced in April following a structural reorganization by The Florida Department of Financial Services, separating ACIC’s parent company, United Insurance Holdings Co (UIHC), and positioning shareholders with “GoodCo” ACIC, after the main subsidiary, UPC, entered receivership. The commitment to ACIC's prospects is substantiated by Founder and CEO Dan Peed’s significant ownership, retaining 48% of outstanding shares.

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Analyst Marie Ferguson praises Eversource Energy (ES) for strong 2Q23 earnings, beating the consensus estimate and leading to her reaffirmation of an 'in the upper half' of 5%-7% long term growth expectation. The company is on path of reducing long-term debt while maintaining dividends and carrying out a $21.5 billion capital investment plan through 2027. ES's commitment to environmental sustainability by undertaking projects to become carbon-neutral by 2030 is also seen as positive. Despite facing slow economic growth in New England and costs related to power outages from Tropical Storm Isaias in 2020, Eversource Energy still sees a BUY rating with a target price of $85. Yet, a sluggish population growth below the national average and a three-month share performance declining by 11% showed its limitations. The company's strong financial position and focus on infrastructure, coupled with increased spending, are key factors contributing to the Medium financial strength rating.

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The author initiates coverage of Philip Morris with an 'outperform' rating for the next 12 months, expressing a bullish stance on the tobacco giant's future. The company's revenue continues to grow, outpacing Wall Street's estimates consistently, indicating underestimated growth prospects. Despite a slow recovery of the Chinese economy and rising US household debt, demand for Philip Morris products remains stable. The company's share price has gained about 2.8% in the last six months, surpassing competitors like Altria Group and British American Tobacco. The acquisition of Swedish Match in 2022 added diversity to the company's business model and sources of revenue, helping to alleviate financial dependence on cigarette sales. The company's transformation to smoke-free products has been fruitful, contributing to revenue growth. Despite higher debt to finance the acquisition of Swedish Match, the author believes the disciplined capital allocation policy led by Jacek Olczak and the successful launch of IQOS in new markets will help manage repayments. The author also notes the company's consistent policy of increasing dividend payments, currently yielding over 5%, appealing to conservative investors.

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The author argues that Humble, through strategic acquisitions, has positioned itself as the market-leading company in Europe for healthier staple products. The company boasts a strong portfolio of brands, a comprehensive service range, from R&D to manufacturing and distribution, and a highly driven management team. Alta Fox Capital contends that Humble's stock offers an attractive risk/reward, given its leading market share in a rapidly growing consumer staples category and its relatively low valuation compared to its peers. Despite a ~75% drop in Humble’s stock price from its 2021 peak due to market concerns, the company's fundamentals, such as EBITDA estimates, have remained strong or improved. Alta Fox believes that Humble will maintain long-term double-digit growth, particularly in regions where it's well-positioned, and expects margins to rebound significantly by FY24. They also see over 150% potential upside in the stock by FY25, supported by a valuation they deem extremely cheap relative to its growth prospects and further validated by insider actions, especially during the company’s equity refinancing. Key risks highlighted by the author include execution challenges, currency fluctuations, especially with the SEK against the EUR/USD, and commodity inflation. The author anticipates that if Humble remains undervalued, a formal sales process might ensue, likely fetching bids much higher than current prices. In sum, Alta Fox Capital views Humble as an undervalued leader in the consumer staples sector, with vast growth potential, backed by a strong alignment of interests between insiders and minority shareholders.

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The author provides an in-depth look into the strengths and strategies of Howdens Joinery (HWDN.L), which he believes positions the company for solid growth. Howdens' history, involving a series of financial and operational challenges resulting in a lean and effective business model, is seen as a key aspect of the company's strength. The author highly appreciates Howdens' depot bonus scheme that aligns with Bruce Greenwald's concept of local moats, implying that if each depot is managed correctly, it will be difficult to compete with at the local level, potentially leading to an aggregated company-wide economic moat. The author is also positive about the company's strategic and well-planned transition from its founder, Matthew Ingle, to the current CEO, Andrew Livingston, which has led to a continued solid business performance with a 65% rise in the stock price since the transition. Howdens' international expansion, with a focus on France and Belgium, is viewed as having potential despite some initial struggles, but the author advises investors to monitor the progress closely. The author's overall bullish stance on Howdens is conditional on the company's key strategies and financial conservatism, even though he acknowledges the risks associated with international expansion hurdles.

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The author argues for the investment potential of Novo Nordisk (NVO), a Danish pharmaceutical company that has witnessed rapid growth over the past few years. The company is predicted to have an intrinsic value of at least two times its current value. Key drivers of the stock's rally might include the powerful performance of Wegovy, Novo Nordisk's weight loss drug, and its robust financial fundamentals, notably an ROE above 70%. Despite a deteriorating current ratio, the company's debt to equity ratio remains sustainable. The company is generous in returning capital to shareholders through dividends and a share repurchase programme. The author's DCF model suggests an intrinsic stock value of $382, signalling significant undervaluation and over 200% upside potential. However, risks include heavy dependence on the diabetes market, competitive pressures, regulatory changes, and patent expirations. Overall, Novo Nordisk represents a long-term investment opportunity primarily due to its strong fundamentals, successful product offerings, and promising pipeline.

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