🤖📈 The best trade ideas for August 21

Uber Technologies (UBER) operates the Uber ride-hailing and food delivery platforms. The author makes a bullish case for the stock based on Uber's position as the dominant global leader in ride-sharing with high barriers to entry, robust secular tailwinds in digital ads and cloud driving continued double digit revenue growth, significant margin expansion opportunities in the core businesses from operating leverage, and an attractive valuation at just 16x forward earnings that leaves room for multiple expansion. Key highlights include the strength of network effects in ride-sharing leading to duopoly markets, new membership plans and advertising revenue driving engagement, Optimism for the Uber Freight business as the freight cycle normalizes, and confidence that autonomous driving competition remains farther off than predicted. The author sees substantial upside from earnings growth and multiple expansion.

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Estee Lauder (EL) is a leading premium beauty products company. The analyst has a bullish thesis based on Estee's wide economic moat stemming from strong brand equity in prestige skin care and makeup and cost advantages from procurement, manufacturing, and marketing scale. Brand strength supports steady sales growth above premium beauty category trends, pricing power with minimal promotional activity, and consumer loyalty. Investments in digital capabilities, travel retail, and Asia innovation positions Estee to benefit from premiumization trends and emerging markets. Margin expansion is expected from better fixed cost leverage in manufacturing and more productive retail partnerships, though macro risks remain. Bullish drivers include secular premiumization tailwinds, pricing power from efficacy-driven differentiation, omnichannel strength cementing consumer relationships, and growth opportunities in Asia. However, the analyst sees risks from economic sensitivity, stagnant makeup brands missing key innovations, and questionable payouts to the controlling Lauder family. The $256 fair value estimate based on long-term growth prospects makes shares look deeply undervalued.

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Gravity Co. (GRVY) develops online and mobile games, most notably the popular Ragnarok series. The author is highly bullish based on strong financial performance, growth opportunities, and an underappreciated valuation. In 2023, revenue has jumped 147% and operating profit 139% driven by new Ragnarok mobile game launches. Ragnarok Online retains over 1 million subscribers, demonstrating enduring brand strength in Asia, while new mobile titles have quickly ranked highly in SE Asia, Gravity's largest market. The company is expanding the Ragnarok IP into NFT games and adding non-Ragnarok titles to mitigate concentration risk. Gravity has a rock-solid balance sheet with ample cash and no debt. A DCF model suggests a fair value of $238, representing massive 250%+ upside and low P/E multiples. However, competition in mobile gaming remains intense. Overall, the author sees GRVY as significantly undervalued with ample growth drivers and rates it a convincing strong buy.

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Alphabet Inc. (GOOGL), the parent company of Google, is a compelling long-term investment. Despite strong fundamentals, including dominant market share in search, YouTube's massive reach, and secular tailwinds driving growth in digital advertising and cloud computing, the stock has been pressured by concerns over the impact of AI. However, we are bullish on Alphabet's prospects. With its vast distribution channel and high-quality training data from search queries, Google is uniquely positioned to incorporate generative AI into its products, likely boosting engagement and ad conversions. Though margins have stagnated recently, we see operating leverage in Search and improving profitability in Cloud. At just 16x forward earnings, a historical discount, GOOG offers a quality business with robust growth at a reasonable price. With shares up 40% since our initial purchase, we still see significant upside from earnings growth and multiple expansion.

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ResMed (RMD) manufactures medical devices for the treatment of sleep apnea. The analyst remains bullish based on ResMed’s narrow economic moat stemming from high patient adherence and strong brand equity. ResMed holds a duopoly in the global sleep apnea device market with an over 80% share split with Philips, offering a long runway for growth as prevalence is 5x diagnosed rates. Cloud-connected devices increase patient compliance, supporting both higher reimbursement rates and recurring mask/accessory revenue. ResMed should benefit from recovering diagnosis rates, new product launches, and share gains from Philips’ massive device recall. Risks include limited recall benefits if customers wait for replacements, pricing/reimbursement pressures, and unproven software investments. While Q4 margins missed expectations due to FX and sales mix, the analyst’s $258 fair value estimate is based on sales mix normalization and manufacturing scale driving margin expansion. With strong growth prospects, shares are seen as materially undervalued despite cutting near-term profit forecasts.

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PayPal (PYPL) operates a digital payments platform and has emerged as a leader in digital finance. The author is highly bullish on the stock based on PayPal's dominant market position, strategic growth initiatives, and deep value opportunity after an 80% share price decline from highs. Key highlights include:

- Strong 17% CAGR growth in organic web traffic over 10 years cementing market leadership and brand recognition.

- A 40% market share in online payment processing that has stabilized after initial pandemic-driven gains, still representing a commanding position.

- The launch of a stablecoin, PayPal USD, that could boost mainstream crypto adoption and enhance PayPal's role in digital payments and remittances.

- Margin expansion efforts underway, including cost cutting, to improve adjusted operating margins by over 100 basis points in 2023.

- Consistent share buybacks over $4.9 billion in the past year that enhance shareholder value.

- New CEO Alex Chriss brings experience driving 20%+ growth at Intuit's small business unit.

Technical analysis also hints at a potential price reversal and markup phase. Given PayPal's growth outlook and progress, the author sees significant long-term upside potential and rates PYPL a strong buy.

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