🤖📈 The best trade ideas for August 22

Duolingo (DUOL) operates a popular freemium language learning app. The author is bullish based on Duolingo's advantageous free business model contrasting competitors' subscription models, strong word-of-mouth user acquisition, and management's clearly defined strategy to improve teaching, monetization, and retention. The author forecasts strong user growth for 5 years followed by more moderate growth, with paid subscribers growing modestly. Operating expenses are forecasted based on historical trends and management commentary. A DCF model using conservative assumptions generates a $192 price target, suggesting Duolingo is undervalued. The author sees management's focus on leveraging AI as a key advantage and believes Duolingo's stress-free, low-maintenance app offers value versus competitors' subscription models.

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Stellantis (STLA) is a European automaker that recently reported strong 1H2023 results, beating expectations on deliveries, revenue, and earnings. The company also expressed confidence in 2H, with an order backlog covering over 4 months of production capacity. Despite this fundamental outperformance, shares remain discounted compared to auto peers at less than 2x EV/EBIT. The author believes concerns around Stellantis' ability to compete in the EV transition are overblown, given the company's scale advantages, existing EV models like the Fiat 500, and plans to reach 70% electrification by 2030. Near-term uncertainty does exist around UAW wage negotiations in the US, which could create a cost headwind. However, Stellantis' ample cash generation, nearing €30B, will likely allow further share buybacks. Given the strong results and outlook, the author increases EPS estimates through 2025 and raises his price target to $44.75, representing significant upside. While risks around electrification and labor do persist, the valuation disconnect makes Stellantis a compelling strong buy in the author's view

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The author has a bullish outlook on EverCommerce (EVCM) based on the company's strong Q2 results and growth drivers that should support continued EBITDA expansion. Revenue met expectations and adjusted EBITDA handily exceeded due to effective cost management. Looking ahead, management is focused on driving mid-teens EBITDA growth by expanding EVCM Payments adoption and getting customers to utilize more software solutions. This is evidenced by rising attachment rates, with 29% year-over-year growth in customers enabled for multiple solutions. Despite some slowing organic growth, management expects acceleration in the back half driven by payment mandates that should counter macro concerns. Additionally, EVCM Payments revenue grew 32% showcasing the success of cross-selling efforts and take rate increases. Healthy margins of 22.8% EBITDA margin, the highest in two years, showcase cost discipline. The author's $18 price target reflects 71% upside based on low-teens growth forecasts. The main risk would be growth slowing further if the economy deteriorates. But overall, the author sees EVCM’s growth trajectory as positive supported by several catalysts that should drive continued EBITDA expansion.

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Fifth Third Bancorp (FITB) is a regional bank focused primarily on the Midwest. The author maintains a bullish view and buy rating on FITB despite lowering his fair value estimate to $35 from $39. FITB boasts good deposit share and density in core Ohio and Michigan markets, as well as diverse fee income from payments, wealth management, and corporate banking. Strategic M&A and investments have expanded capabilities in specialty lending and healthcare software. FITB demonstrated resilience in Q2 with deposit growth, and new CEO Tim Spence brings valuable strategic experience. However, FITB lacks an economic moat with only borderline historical returns. The author has lowered NIM forecasts which will pressure profitability, with further declines expected through 2025. Weaker loan growth of just 1% is projected for 2023 as well. Macro uncertainty looms given potential recession risks. While FITB faces earnings pressures, the author believes the stock remains undervalued trading at 1.5x TBV. FITB's new CEO, reasonable valuation, and strategic growth initiatives still support a buy rating in his view. He expects FITB to generate adequate returns despite cutting projections, though regulatory and credit risks remain.

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The ASML shares are a core holding in our Institutional model portfolio. ASML provides advanced semiconductor capital-equipment solutions, including systems critical to the production of integrated circuits. We like the company's unmatched leadership in extreme ultraviolet (EUV) and deep ultraviolet (DUV) lithography. These technologies carve minute patterns onto silicon used in some of the world's most-advanced semiconductors. ASML is benefiting from accelerating demand for its advanced tools and is developing the most-advanced iteration of its EUV technology. Companies such as Intel and Taiwan Semiconductor have already ordered the machine, which should be available in 2024. ASML has blue-chip finances and a strong commitment to shareholders. Our 12-month target price is $850.

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Arthur J. Gallagher provides consulting, insurance brokerage, and third-party property/casualty claims settlement and administration services. The company's businesses include brokerage, risk management, and corporate. AJG has been in a consistent uptrend (excluding the pandemic) since early 2016, rising from $32 to a recent all-time high of $224. The stock has followed its 50-week simple and 10-month exponential averages the entire time. Relative strength versus the S&P 500 also has been consistent since early 2016. Even during the bear market in 2022, the shares chopped higher, supported by the 200-day several times. AJG did lose the 200-day in May and June, but never made a lower low. The stock had a strong run from mid-March to mid-May, pulled back to its 50-day in late May, and has been crawling higher ever since. Chart and moving-average support are at $207, and we would put a stop-loss just below there. We would take profits at $240, with the potential for greater long-term gains.

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Admiral Group (ADM) is a UK insurer. The author is bullish as UK Motor margins have improved from pricing exceeding claims inflation, volume should resume growing as Admiral's pricing is again competitive, and substantial reserve releases should continue. EPS growth is expected from higher underwriting margins, volume, and reserve releases. Despite cyclically weak H1 results, shares trade at 16.1x 2019 EPS and offer a 4.3% dividend yield. Continued earnings recovery, dividends, and multiple expansion support a 59% total return by 2026. The author reiterates a Buy rating.

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