🤖📈 The best trade ideas for August 23

Debbie Wang, a Senior Equity Analyst, discusses Medtronic (MDT), the largest pure-play medical device maker, and remains bullish on the stock with a $112 price target, implying upside from current levels. Wang believes MDT's wide moat stems from its dominant market positions across multiple medical device segments and its continued innovation, highlighted by new products like the Micra leadless pacemakers and the Aurora defibrillator. Bullish drivers include MDT's pipeline of emerging treatments and ability to apply existing technologies to new uses. Bears point to potential new competitors in insulin pumps, reimbursement pressures, and prior product recalls. Wang sees revenue growing 4-5% annually driven by new products, margin expansion from shedding legacy businesses and launching higher-margin devices. Risks include uncertainty around securing reimbursement for new products, higher regulatory costs, and periodic recalls. Wang thinks MDT will focus on smaller acquisitions going forward rather than large deals and sees its capital allocation as sound overall.

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The analyst has a bullish view on Sea Limited (SE), an e-commerce and digital entertainment company, with a $88 price target implying 144% upside. SE stock dropped 29% after disappointing Q2 results, mainly due to declines in its gaming unit Garena and plans to boost growth in its Shopee e-commerce business that could pressure profits. However, the analyst believes Garena is stabilizing, Sea overall is still profitable and cash flow positive, and Shopee holds substantial market share in Southeast Asia. The pivot to reaccelerate Shopee growth is to defend against competitive threats like TikTok, but Sea can quickly cut back on shipping subsidies to restore profitability. With underpenetrated e-commerce markets, ongoing logistics expansion, and the stock trading at lower valuations, the analyst sees an attractive risk-reward and buying opportunity.

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The analyst has a buy rating on Healthcare Realty Trust (HR), a medical office REIT, with a $20 price target implying 21% upside over the next 12 months. The analyst believes HR is significantly undervalued, trading at a 5-year low 7.2% implied cap rate compared to a historical 5.8% average and a 40% discount to estimated replacement cost of its assets. This discounted valuation is despite secular tailwinds for medical office space and stable, predictable cash flows that should support higher leverage. The analyst sees multiple catalysts for HR to rerate higher, including realizing benefits from its transformative acquisition of Healthcare Trust of America which should drive 4-6% NOI growth and 5-7% FFO growth starting in 2024 as integration completes over the next few years. Additional upside could come from higher leverage, accretive dispositions of non-core assets, and a lower cost of capital improving acquisition spreads. Risks include higher interest costs, though only 15% of debt is variable, and integration risks from the sizable HTA deal. But overall, given the low-risk nature of medical office assets, the analyst sees an attractive risk-reward for HR stock with 21% total return potential over the next year.

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Dan Baker, a Senior Equity Analyst, discusses GDS Holdings (GDS), a China-based developer and operator of high-performance data centers, and remains bullish on the stock with a $29 price target, implying significant upside from current levels. Baker believes GDS will continue expanding its data center footprint in top-tier Chinese cities, catering to demand from cloud providers, and sees its first-mover advantage in China as an ongoing positive. Bullish factors include strong industry growth trends, GDS's relationships with hyperscale customers like Alibaba, and its expertise in data center development. Bears point to GDS's customer concentration, potential competition if demand slows, and exposure to a China property downturn. While forecasting 11% annual revenue growth, Baker thinks GDS has limited moat currently but sees its moat strengthening over time as more capacity shifts to top-tier city centers. Execution risks include funding its growth in tougher capital markets. Overall Baker views GDS as undervalued trading at 0.6x P/B despite hidden value growth in its assets.

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The analyst has a bullish view on Brookfield Asset Management (BAM), a leading global alternative asset manager with $850 billion AUM, with a 5-year price target of $78.46 implying 18.5% compound annual growth rate upside. BAM recently separated from Brookfield Corporation, highlighting its robust fee-based revenue model with the bulk of its $440 billion in fee-bearing capital invested long-term in perpetual private funds spanning over a decade. This ensures a steady recurring revenue stream. BAM is strategically positioned with diversified investments in high-growth sectors like renewables and infrastructure to capitalize on major global trends, like decarbonization and urbanization. Under the leadership of CEO Bruce Flatt since 2002, BAM has strategically expanded across sectors while setting a target to deliver 15%+ annual returns to shareholders. Supported by a conservative 5-year EPS growth forecast to $7.05, the analyst sees BAM meeting its objectives. Risks include BAM's heavy exposure to real estate, infrastructure, renewable energy and other alternative assets vulnerable to economic cycles, regulatory shifts, and rising interest rates. But with its experienced management team, growth opportunities, and investments aligned with global mega-trends, the analyst sees BAM as an attractive long-term investment able to generate 18.5% annual returns.

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The analyst has a bullish view on Crocs (CROX), the casual footwear company known for its iconic clog. He believes Crocs and recent acquisition Hey Dude are distinctive, affordable, and extensible brands in a $160B+ global footwear market, together commanding less than 5% share. Since the management overhaul in 2014, CEO Andrew Rees and President Michelle Poole have orchestrated an impressive turnaround underpinned by product innovation like new colors, collaborations, and tweaks to core silhouettes, complemented by an integrated digital marketing strategy focused on comfort and personalization. This strategy is repeatable and fuels substantial growth opportunities in Asia, sandals, and international expansion of Hey Dude. Bears point to fashion risks and the challenge of sustaining the recent 20%+ growth. But Crocs has proven brand durability, expertise in marketing and product innovation, and an asset-light model that enables 25%+ operating margins. With Crocs trading at ~9x earnings and a 9% free cash flow yield despite double-digit growth guidance, the analyst sees significant upside for the stock as the market comes to appreciate Crocs' fundamentals and growth story.

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The analyst has a bullish view on Baidu (BIDU), the Chinese technology company, with a price target of $183, implying significant upside from current levels. Baidu reported resilient 15% advertising growth in Q2 but its cloud business saw slower 5% growth, leading to operating margin dilution, though the analyst believes Baidu maintains a wide moat in search ads given its 82% market share and strong monetization power with higher ad rates than competitors. He also sees Baidu having a first-mover advantage in AI especially with recent initiatives like its Ernie generative AI, though monetization remains uncertain. Bullish factors include Baidu's integration of AI like Ernie with its core search and cloud businesses which should complement them long-term, as well as dominance in search advertising where its user data and network effect create durable advantages. Bears point to intense advertising competition from Tencent and Bytedance limiting search growth, uncertainty whether emerging AI businesses can successfully monetize at scale, and AI leadership turnover potentially slowing commercialization timelines. But the analyst believes Baidu's durable search and early AI lead plus upside if it can profitably scale emerging platforms like cloud and autonomous driving make the risk-reward attractive at current valuations.

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