The best trade ideas for August 31

Guardant Health (GH) is predicted to be a leading player in liquid biopsy testing, particularly in early-stage cancer screening. Its partial focus on single-cancer screening could prove advantageous as market competition is expected to be lower. The company's Lunar2 test, used for colorectal cancer screening, is under review by the FDA and upon approval, it could spur rapid growth due to its first-mover status. Despite a relatively uncertain path to consistent profitability and an influx of market competitors, Guardant's internal research efforts combined with its strategic initiatives could secure a lasting advantage in the liquid biopsy market. However, the company's narrow focus on single-cancer screening could result in risks if multi-cancer tests demonstrate similar sensitivity in the long run. Given the firm's heavy strategies in liquid biopsy, both in early cancer screening and detection of residual disease, GH is seen as a game-changer even though a significant amount of investment will be needed to propel these initiatives to fruition."

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Despite facing challenges in the pet care industry, including slow new pet household formation, price sensitivity, and increased promotional activity, Chewy remains promising with its sizable autoship user base and burgeoning initiatives. The company's $2.78 billion revenue, up by 14.3% annually, narrowly surpassed the $2.75 billion projection by analyst Sean Dunlop. Though the guided outlook suggests a gradual softening, the surging gross customer additions figures imply possible growth in the medium term once macroeconomic pressures ease. The company's net spending per active customer metric rose to $530 (up 14.7%), and as customer acquisition slows, it is expected to continue increasing. Chewy's strength in e-commerce penetration could see it retaining the majority of its customer base added during the pandemic. The company’s emphasis on service-intensive aspects of its business model since its inception has helped it amass a loyal customer base with robust subscription penetration. Despite the risks including failed international expansions by other companies and branded loyalty for pet food, it is anticipated the firm will retain its growth especially in e-commerce for the pet care category. However, the company could struggle if vets show reluctance to fill scripts via its marketplace. Dunlop maintains the fair value estimate of $42.

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Spotlight is on Acushnet Holdings Corp. (GOLF), a significant entity in golf with its 'Titleist' brand. The company reported 20% year-on-year increase in Q2 GAAP EPS of $1.09, and a revenue increase of 5%. There's been a trend in firming margins, with gross margin at 53.5% up from 52.2% boosting their adjusted EBITDA by 24% y/y. Strength in sales of Titleist golf balls was noted, up 19.8% globally. However, their 'FootJoy' golf wear brand saw a 9.5% decline in sales. Their guidance was revised higher for both revenue and earnings, with an adjusted EBITDA target midpoint of $365 million, marking an increase of 8% y/y. Number of golf rounds played increased by 5.5% year-to-date in June, representing a strong tailwind for GOLF with an expanding market. GOLF is expected to reach EPS of $3.01 this year, up 10% from 2022. Jefferies Financial Group analysts upgraded the stock, sighting upward trends and an increased market share. We rate GOLF as a BUY, with a price target for the year ahead at $74. Despite the bullish view, it's important to note that Acushnet remains exposed to global macro conditions and a potential deterioration of global growth and slowdown in consumer spending.

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Author and Senior Equity Analyst David Swartz from Morningstar gives a bullish view on PVH Corp. Despite challenges of weak North American wholesale demand, unfavourable currency movement, volatile consumer spending due to inflation, shipping woes, and the war in Ukraine, PVH has managed to perform better than expected in Q2 2023. PVH's efforts towards product enhancements, stronger digital sales, efficient inventory management, and cost-cutting are positively contributing to its performance. Under its PVH+ strategy, PVH aims to achieve $12.5 billion in revenue and 15% operating margin by 2025. While there are concerns over the dependence on two key brands and exposure to declining department stores in North America, the analyst remains bullish due to the global strength of the Calvin Klein and Tommy Hilfiger brands, potential for greater sales in international markets, and PVH's efforts to improve profitability. However, it is important to note the author acknowledges the risks of the bearish argument that include slowing consumer demand due to inflation, PVH's exposure to the declining department stores in North America, changes in fashion trends, political and economic turmoil like the ongoing war.

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Lincoln National (LNC) is an insurance company that has faced some challenges recently due to needing to re-evaluate assumptions on some of its insurance policies. This led to a drop in the stock price. However, the author believes Lincoln National will fully recover from this issue based on an analysis of the business. Second quarter results showed progress, with the impacted segments performing better than expected. Additionally, as an insurer, Lincoln National stands to benefit from rising interest rates. Valuation looks very attractive at just 4-5x earnings, far below the historical 9-10x multiple. Even conservative scenarios point to over 100% upside potential over the next few years. The dividend also remains well covered with a low payout ratio. Given the low valuation, improving business performance, interest rate benefits, and the author's expectation that Lincoln will recover to historical valuation multiples, he sees it as significantly undervalued with substantial upside potential reflected in his $55 price target. The author has a successful history investing in insurance companies and views Lincoln National as an attractive opportunity trading well below intrinsic value that can generate high returns for investors.

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Shoei Co., a leading manufacturer of quality motorcycle helmets, has a dominant position in the global market with over a 60% share in the premium helmet market. The company has witnessed robust growth over the past decade, having a 10-year CAGR's of 10% and 17.7% for revenue and EBITDA, respectively. The company's high cash flow generation capabilities are underscored by an operating profit margin of 20-25% and a five-year average return on invested capital (ROIC) of around 39%. Shoei has a significant reservoir of expertise and innovation, spanning from their humble beginnings in 1954 to their current position as a global leader. Despite global currency concerns and the sensitivity to European economies due to 40% of its revenue being generated there, the company has managed to maintain its strong position. The firm is now targeting expansion in the China/Asia markets, while concerns about strong Japanese Yen posing potential risks, given the brand's significant revenue generation outside of Japan, remain a challenge. However, the overall outlook is positive with Shoie continuing to lead the sector in quality and market share.

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