🤖📈 The best trade ideas for August 17

Brookfield Corporation (BN) is a global alternative asset manager and investor. The author believes BN trades at a 50% discount to adjusted net asset value and presents a framework for valuing BN on an ongoing basis. While BN trades at a 55% headline discount, the author adjusts down BN's own NAV assumptions, including lower expected returns on funds, less carried interest, and other haircuts. This results in a 48% NAV discount. Combining expected 10% annual NAV returns, 1% accretion from buybacks, and multiple expansion, the author sees 18% annual returns potential even with conservative assumptions. Risks include leverage and related party transactions, but the large discount provides a margin of safety. Given the significant undervaluation, the author sees substantial upside for patient BN investors.

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HubSpot (HUBS) is a cloud-based CRM software provider focused on small and midsize businesses. The analyst maintains a Buy rating and raises their price target to $604 from $550 after strong Q2 results. HubSpot beat on both revenue and EPS, grew revenue 25%, raised full-year guidance significantly, and doubled operating margins through cost cuts. The analyst sees a long runway for growth by expanding hubs and moving upmarket, though macro uncertainty has elongated sales cycles. Risks include competition from larger players like Salesforce and the need to effectively manage growth. But with revenue set to grow 22% in 2023, the analyst believes HubSpot can achieve its long-term margin targets. Continued growth in customers and average revenue per customer provides confidence. Valuation is stretched but justified by growth prospects. Despite its run-up, the analyst sees further upside potential for HubSpot shares.

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Huya (HUYA) is a Chinese live streaming platform focused on video games. The author maintains a bullish rating on Huya with a $7.70 price target, representing significant upside from current levels. While Q2 results were mixed with revenue declining amid industry headwinds, the analyst is encouraged by Huya's first-ever share buyback program, authorized at $100 million or 16% of market cap. This signals a shift in capital allocation policy that should benefit shareholders given Huya's large net cash position of $6.3 per share. While competition weighs on growth in users and exclusivity of content licenses, the analyst believes share repurchases can drive substantial upside if executed properly. Huya trades at just 0.4x P/Cash, presenting an opportunity for long-term investors. Though livestreaming revenue faces near-term pressure, the analyst expects Huya will reach profitability by 2028. Upside risks include greater traction in non-gaming content while the downside scenario is acquisition by majority owner Tencent at a low valuation. Overall, the analyst sees material upside potential through share repurchases and valuations disconnect despite growth concerns.

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Crocs (CROX), the maker of the iconic foam clog, is presented as an undervalued long-term investment opportunity by the author. They highlight Crocs' skilled management team that engineered an impressive turnaround since 2014 by optimizing stores, products, marketing, and distribution to reinvigorate the Crocs brand and boost profitability. The author sees strong growth prospects for both Crocs and newly acquired Hey Dude given their distinctive, loyal customer bases and expansion opportunities in Asia, sandals, and international for Hey Dude. Structural advantages in manufacturing molded footwear also give Crocs industry-leading gross margins above 65% and operating margins above 25% with high conversion of earnings into free cash flow. However, Crocs trades at just ~9x earnings and a 9% free cash flow yield despite expectations for double-digit revenue and profit growth over the next 3 years. The author believes this disconnect between Crocs' fundamentals and valuation presents significant upside for long-term investors. In particular, they argue the current stock price implies minimal growth when Crocs actually has durable brands in a huge market and clear drivers to sustain double-digit growth. Given Crocs' operational excellence and growth outlook not fully reflected in the stock price, the author lays out a highly detailed and compelling bull case for Crocs as an undervalued investment opportunity.

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Wayfair (W) is an online retailer of home goods. The analyst has a $99 fair value estimate for Wayfair, slightly higher than the previous $96 estimate. Wayfair operates in a highly fragmented market with limited branding power and no switching costs, leading the analyst to assign a no-moat rating. However, Wayfair's wide product selection, logistics network enabling faster delivery, and inventory-light model provide some differentiation. Growth has been robust but is expected to moderate going forward. Despite improving profitability recently, margins remain below peers and Wayfair must spend heavily on advertising and customer acquisition due to its lack of brand strength. Gross margins are forecast to reach 30%+ long-term on greater private label and operating expenses should leverage to 15-19% of sales, but not until after 2032. Volatility in ROIC is expected given Wayfair's negative working capital. While growth prospects are significant, the path to targeted margins is viewed as uncertain. Risks include competition from Amazon and other retailers entering home goods, customer acquisition costs, and housing market exposure. But the analyst sees potential for Wayfair to hit long-term goals, supporting a $99 fair value estimate.

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GE Healthcare (GEHC) is a global leader in imaging and ultrasound team, spun off from General Electric (GE) in 2022. The author initiated a position in GEHC, now their 3rd largest holding, based on an underappreciated margin expansion opportunity as an independent company. GEHC should benefit from a renewed focus on market share, cost structure optimization, and aligned management incentives after being run as part of conglomerate GE. GEHC generates recurring revenue from servicing and consumables, providing resilience, and operates in a consolidated industry dominated by GEHC, Siemens, and Philips. Key points are GEHC's margins significantly trail Siemens' with no structural reason, representing an opportunity to close the gap through cost cuts and new product launches. Digital penetration also provides a tailwind. The author sees GEHC growing earnings high-teens over the next few years through margin expansion. A pesar de stronger growth than peers, GEHC trades at a discount and offers a 6%+ free cash flow yield on normalized earnings. Some skepticism exists around execution as a new standalone company, but the author expects GEHC will deliver on the margin upside. Given the compelling valuation and earnings growth potential, the author sees GEHC as an attractive investment opportunity.

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Li Auto (LI) is a Chinese electric vehicle manufacturer. The author believes Li is a strong buy due to its record Q2 deliveries of 86,533 vehicles and $4 billion revenue, making it the 3rd largest Chinese EV maker behind BYD and Aion. Li achieved a 3rd straight profitable quarter with gross margins improving to 21.7%. July deliveries of 34,134 vehicles put Li on pace to meet its Q3 guidance of 100,000. Compared to competitors Nio and XPeng, the author sees Li as better positioned with higher deliveries, margins, and cash balance of $8 billion. Risks include investments by competitors, but the author expects Li to beat Q3 estimates and continue rapid growth. With advantages in scale and execution, Li is viewed as the leading Chinese EV startup.

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