The best trade ideas for August 30

The author is very bullish on Alibaba (BABA) despite concerning economic data from China and Alibaba's recent stock drop. This bullish sentiment is based on the author's belief in the company's improving business fundamentals, cheap valuation, and shareholder-friendly capital allocation policies. The discussed Alibaba's latest earnings report, with the company achieving a 14% year on year growth, driven by robust growth across multiple business segments. The report also notes that Alibaba's management is working to unlock shareholder value through measures such as aggressive stock repurchases, cost optimizations, and business reorganization into several independent units. The author believes the company is a natural beneficiary of China's economic re-opening and any fresh stimulus from the government. Alibaba is seen as 'fundamentally sound', with sales growth expected to be in the high-single-digit for FY2025 and FY2026. With the stock trading at ~$90 per, the author sees it as undervalued by more than ~50%, predicting a rise to ~$188 per share over the next 5 years. Overall, the author rates Alibaba a 'Strong Buy'.

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In this article, the author presents a bullish perspective on Nvidia Corporation (NVDA), praising its impressive recent earnings report which far exceeded analysts' expectations. The company reported a stunning 429% year-on-year increase in earnings, along with a 101% increase in sales compared to the same quarter in the previous year. Nvidia also expects third-quarter sales to surpass analysts' predictions and has approved $25B in share buybacks. Despite a momentary dip following Fed Chairman Powell's hawkish remarks, the author maintains confidence in NVDA, which has seen an over 214% increase in value year-to-date. Although acknowledging the existence of potential risks - such as competition from other tech giants like AMD, rising interest rates, and the potential for an economic downturn - the author believes NVDA has approximately 80% upside potential over the next 3-5 years. Thus, the author firmly gives Nvidia a BUY rating.

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The author believes the stock has significant upside potential and reiterates a Buy rating. Diageo recently reported solid FY23 results showing good growth despite some margin pressure from inflation. In the key U.S. market, demand remains healthy though growth is moderating at the high end. Exposure to China risk is limited with that region representing less than 5% of sales currently. A slight loss in U.S. market share seems temporary and related to supply issues and growth in low-end categories Diageo does not compete in. Medium-term guidance calling for 5-7% sales growth and 6-9% earnings growth was reiterated. Valuation looks undemanding at 20x P/E and 2.4% dividend yield, with buybacks also continuing. The balance sheet is healthy. Based on conservative forecasts, the author sees strong upside over the next few years and believes Diageo remains a highly attractive investment trading below intrinsic value.

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The author believes SE is significantly undervalued after a 40% share price plunge. SE returned to profitability in Q2 after major cost cutting. Its e-commerce and financial services segments continue to show strong growth. The company has $9.5B in liquidity to fund growth. Attractive valuations are supported by normalized earnings estimates of $2-4B. SE has a dominant market position in the high-growth Southeast Asian e-commerce industry. Risks are that increased spending could re-impact profitability. However, the author believes the stock is mispriced given the fundamentals and growth prospects of the business. Overall, the author sees substantial upside, though no specific price target is given.

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The author maintains a strong bearish stance on 3M (MMM), amid news of a potential $5.5 billion settlement over a class action litigation related to ear plug liability. The author argues that this annual payout of $1.1 billion for five years would significantly strain the company's EBITDA and free cash flow, threatening its ability to organically cover its dividend. The author further raises concerns over the company's far larger and yet unquantified PFAS liability, which could lead to potential bankruptcy risks. Pending lawsuits from state attorney generals and potential designation of PFAS as a hazardous material by the EPA are cited as looming threats. Despite the expectation that a settlement at the lower end of analyst estimates might lead to a temporary stock bounce, the author advises selling on that spike due to the negative impact of the settlements on the company's credit metrics, cash flows and dividend servicing ability.

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Despite a decade of consistent growth in tangible book value and net income, Keihin's stock has remained relatively stagnant. This contrasts with its strong balance sheet, bolstered by valuable land holdings and undervalued real estate assets. Recently, the company increased its dividend to a yield of 3.76%, further highlighting its financial stability. Management has recognized the stock's price-to-book discount and aims to address it as a strategic goal, leaving room for potential shareholder activism given the low ownership concentration. Trading at a low P/TBV ratio of 0.5x and a forward P/E of 4.56, the stock appears undervalued. Keihin has two core divisions—Domestic and International Logistics—that equally contribute to its profits. Both divisions have been focal points for capital allocation, particularly in the construction and renovation of distribution centers and warehouses. Although the company forecasts lower numbers for FY2024, it has a history of outperforming its own projections. By consistently reinvesting its substantial free cash flow back into the business, Keihin demonstrates a blend of growth, value, and consistency. With limited downside risk, the author considers the stock a worthy addition to a value-oriented Japanese portfolio.

Read the full article here. Read time: 7 min