🟨 Block's 4 Internal Startups that Will Drive Growth

Long-term investors in Block Inc. should consider the company's emerging business units, as Cash App has already surpassed the original Square business in quarterly gross profit. These emerging businesses have the potential to create substantial shareholder value in the long run. Block Inc. has four start-ups within its ecosystem, each at varying maturity levels. The author expects that a couple of these start-ups will follow a similar trajectory as Cash App in the long term.

One of these start-ups, TBD, is working on decentralized identity technology for the web. The decentralized identity market is projected to grow at an 87.3% CAGR through 2032, driven by identity theft and security breaches. Bitkey is a hardware wallet product designed for secure and non-custodial storage of Bitcoin. C= is a Bitcoin-related start-up that offers Bitcoin liquidity for users sending Bitcoin over the lightning network. Meanwhile, MDK is a project focused on developing its own Bitcoin mining semiconductor chips as the foundation for a full suite of Bitcoin mining products.

Block Inc. recognizes the value of Bitcoin due to its rapid adoption and the lack of trust in established banking and payment systems. By investing in new technologies, Block Inc. aims to expand its total addressable market (TAM) from $1,422-1,792 million today to $77,100-399,300 million in ten years. Emerging Bitcoin start-ups, such as Bitkey and MDK, can enable closed-loop ecosystems and potentially integrate with Cash App and Square, leading to potential margin benefits for Block Inc. If all transactions were in a closed loop, the company's gross profit on transactions could more than double, resulting in increased gross profit margins and potentially outsized returns for investors. Consequently, the author believes Block Inc. is a strong buy.

The article reviews Bank of America's Q1 2023 results and dispels fears around the bank. Deposits have remained stable, the bond portfolio has low risks, and the Efficiency Ratio has improved. The bank's ROTCE was 17.4%, higher than the prior-year quarter, and the bank is expected to continue delivering a mid-teens average ROTCE. The article recommends buying BAC stock, with a forecasted total return of 93% (29% p.a.) by the end of 2025. Bank of America's Q1 2023 results show that deposit trends have remained stable in size, with total deposits finishing at $1,910bn, down just 1% from Q4 2022. Non-interest-bearing deposits fell by 4%, partly offset by interest-bearing deposits growing by 0.5%. Bank of America's Held-to-Maturity Debt Securities portfolio, which was previously believed to have high risks, was shown to have low risks by management. Bank of America's net interest income (NII) peaked in Q1 2023 but is expected to be much higher year-on-year for 2023. Bank of America (BAC) reported a ROTCE of 17.4% in Q1 2023, higher than the prior year and in line with mid-teens assumptions. The article discusses the valuation and forecasts for Bank of America (BAC) stock, with a total return of 93% (29.0% annualized) by the end of 2025.

Webster Financial Corporation experienced mixed results due to inflation last year, but its overall performance remained stable and viable. With inflation easing, market prospects are more enticing for WBS to diversify its loan and investment portfolio and manage expenses better. WBS's fundamentals are in good shape with high liquidity levels and adequate capacity to sustain operations in a high-interest environment while covering capital returns. However, WBS needs to watch out for its borrowings due to sudden increases. Most will mature within the year, and it may have to restructure them or maintain high cash inflows. Dividend payments continue to increase and remain well-covered with high yields, consistent with the stock price, which is offered at a discount and appears undervalued relative to the intrinsic value of the company.

The financial sector, especially banks, is sensitive to macroeconomic fluctuations and inflation. Webster Financial Corporation saw mixed results in its performance. Its operating revenue or interest income increased significantly year-over-year and was higher than pre-pandemic levels. Quarterly revenue was consistently increasing but sequential growth decreased. Interest rate hikes stimulated loan yield growth and loan volume remained high. M&A raised its operating capacity and loan volume. Organic loan growth reached 5.25% and loan quality remained solid. The company maintained a conservative approach to loan management and loan diversification. Investment security yields increased significantly and the company maintained a prudent loan and investment security portfolio diversification. Most of its investments were debt securities, but they were inflation-linked and government-backed or government-sponsored enterprise securities.

The impact of inflation and interest rate hikes affected borrowings and deposits. Interest expenses increased by sixteen times. Revenue growth partially offset the impact of higher interest rates and M&A. Non-interest expenses rose substantially due to higher prices and M&A. Operating margin dropped to 35% versus 56% in 2021 and was also low in 4Q 2022 at 42%. Despite this, the company was still viable and returns were enough to sustain its operating capacity. Near-term headwinds are expected to persist, but improvements are on the horizon as inflation relaxes.

Webster Financial Corporation has been impacted by inflation and interest rate hikes, but its operating income has remained enough to cover its operations. The company may have an optimistic outlook for this year due to improvements in macroeconomic indicators, such as a drop in inflation and potential easing of monetary policy by the Fed. While the real estate market may experience a potential crash, Webster Financial Corporation's loan portfolio is more diverse than many other banks, with CRE loans only comprising 49% of total loans. The company has a decent financial positioning with higher loans and deposits, a loan-to-deposit ratio of 91%, and enough reserves to cover potential loan defaults and delinquencies. Cash and investments comprise 22% of total assets, and while there is a substantial increase in borrowings, liquid assets are almost twice as much as borrowings, allowing the company to cover its operating capacity and capital returns.

The stock price of Webster Financial Corporation is currently in a downtrend and has not rebounded from its sharp plunge, but this presents an opportunity for potential investors to buy shares at a low price. The PB Ratio confirms that the stock is undervalued, with a target price of $58.98. Webster Financial Corporation is an attractive dividend stock with consistent payments and yields of 4.12%, which is higher than the S&P 500 average of 1.65%. The DCF Model shows that the derived value of the stock is $44.92, indicating undervaluation and a potential 19% upside in the next 12-18 months. By capitalizing on this opportunity, investors can potentially benefit from both capital appreciation and attractive dividend income, making Webster Financial Corporation a compelling investment option in the current market scenario.

Teladoc has faced growth deceleration due to reduced demand for telehealth services in the post-pandemic world. However, integration issues related to the Livongo acquisition have somewhat mitigated the problem. While Teladoc's stock is still around 90% off its all-time highs, it has rebounded by around 20% YTD in 2023. The company's market cap is approximately $4.5B, and near-term revenue growth is projected to be in the high single digits.

Telehealth is not a fad, and Teladoc is well-positioned to capitalize on its massive market opportunity, as it is still growing revenues healthily. The company has a unique whole-person care platform and around $918M of cash on its balance sheet. Teladoc recently announced the expansion of "Provider-Based Care" for weight management and prediabetes programs, which could unlock a $200 million or more revenue opportunity. This expansion, combined with the acquisition of Livongo Health and partnership with CVS Health, is expected to increase revenue and expand their customer base.

Despite projected revenue growth, Teladoc is unlikely to turn profitable in the next couple of years. The author has lowered their 5-yr CAGR growth assumptions for Teladoc from 15% to 10% due to ongoing macroeconomic uncertainties. Based on the author's valuation model, Teladoc's stock is worth around $66.33 per share, 142% more than its current price. The author rates Teladoc a "Strong Buy" due to its expected 5-yr CAGR return exceeding their investment hurdle rate of 15%.

However, Teladoc's technical chart shows that the stock is stuck in a Stage-1 base formation and is likely to remain rangebound unless it breaks out from the $20-$40 range. The company's quant factor grades are unsupportive, with an overall score of 2.61/5 and deteriorating grades in valuation, growth, and profitability. Despite these challenges, the author believes Teladoc is a compelling long-term buy and recommends staggered accumulation in TDOC in the $20s and $30s.

Liberty Latin America (LILA) is a telecommunications company offering high-speed internet, data services, video, and mobile services across Latin America and the Caribbean. Despite its huge market opportunity and strong competitive edge, LILA is currently undervalued by the market. The company holds a dominant position in key markets, benefits from large scale, and has earned customer trust. With impressive growth opportunities, such as upgrading and expanding network coverage, launching new products and bundles, and pursuing strategic acquisitions and partnerships, LILA is well-positioned for success.

The company's management, including media investor John Malone, has a proven track record of creating value through operational excellence and capital allocation. Several drivers are set to unlock value for Liberty Latin America in the near future, including finalizing the purchase of Telefonica's wireless business in Costa Rica, recovering from the impact of Hurricane Maria on its Puerto Rico operations, pursuing more deals and partnerships in the highly fragmented Latin American and Caribbean markets, rolling out new digital services powered by Plume, and forming a new company called VTR Claro with Claro in Chile.

LILA is undervalued compared to its peers and the industry, based on its EV/Revenue, EV/EBITDA, and P/B multiples. The company's debt is mostly long-term and fixed-rate, with an average maturity of 7 years and an average interest rate of 6.5%. This debt is mostly siloed and non-recourse, reducing the risk of refinancing or interest rate hikes, and giving LILA more flexibility to manage its capital structure. LILA's debt will decrease by about $2 billion once it closes the joint venture with Claro in Chile by the end of 2023, saving the company about $300 million per year in capital expenditures and freeing up more cash flow for debt repayment or growth investments.

Liberty Latin America's undervaluation is partly due to its complex corporate structure, which includes three types of shares with different voting rights and currencies used in different markets. The author assigns a buy rating to LILA with a price target of $14.29 per share, implying an upside of 45.42% from its current level based on their EV/EBITDA model.

The author is bullish on investing in Utah Medical Products, Inc. (UTMD) for long-term wealth creation. UTMD has demonstrated a strong trend line of support, boasting a 1,540% total return since 2000 and a 12-13% CAGR over that period. As a vertically integrated medical manufacturing company with a broad product offering in multiple locations, UTMD has consistently provided stable, predictable long-term cash flow and earnings that continue to grow without discrepancy.

The average employment tenure at UTMD is 13 years, indicating stability in operations. The company remained unaffected by the dot.com bubble and the '08/09 financial crises, offering defensive characteristics to equity positioning. UTMD operates a capital-light, highly profitable business model that recycles capital exceptionally well and generates 30-40% return on capital investments. The company's gross and net margins are superb at 62% and 31%, respectively.

UTMD pays a respectable dividend each year and repurchased $2.5 billion worth of stock in FY'22. The author believes that the company can capture a 13-14% return on equity this year and generate $16.5 million in NOPAT, providing around $14 million to shareholders this year, including dividends. Management plans to utilize surplus capital to invest in ways that will enhance future profitability, make additional investments in new technology and/or processes, or acquire a product line or company that will augment revenue and EPS growth and better utilize UTMD's existing infrastructure.

If there are no better strategic uses for UTMD's cash, the company will continue to return cash to stockholders in the form of dividends and share repurchases when the stock appears undervalued. The author believes that UTMD can unlock tremendous shareholder growth over the long-term horizon, as its capital-light business economics allow it to deliver economic profits to shareholders. The author predicts that UTMD will generate $16.5 million in NOPAT this year on $29 million in core EBITDA, and this could increase at a fairly linear rate if the company continues on its current run rate. Ultimately, the author believes that UTMD is undervalued and supports a buy thesis.

Evolus, Inc. is a rapidly growing, pure-play aesthetics company that offers its neurotoxin product, Jeuveau, which has gained popularity among younger consumers due to its modern and youthful branding strategy. The increasing trend of younger consumers seeking aesthetic treatments is likely driven by social media and is expected to have a long-lasting impact on the industry's growth. The global market for non-invasive aesthetic treatments is set to expand significantly, driven by aging populations worldwide, rising disposable incomes, and growing awareness and acceptance of aesthetic treatments among younger demographics.

Non-surgical procedures, such as injectables, are becoming more popular due to their simplicity and affordability. EOLS prices Jeuveau at a discount to Botox, providing cost-savings and improved economics to physicians and practices, ultimately benefiting consumers. Jeuveau's sales growth has been bolstered by the strong recovery and growth of the aesthetic market after the pandemic, particularly for non-invasive treatments like neurotoxins and facial fillers.

EOLS's strategy of targeting younger consumers, specifically Millennials and Gen-Z, has contributed to this growth and is expected to be sustainable as more young patients seek cosmetic treatments. The author prefers using the EV/sales methodology to value the stock, with an end-of-year price target of $13 based on a forward EV/Sales assumption of 3x applied to the estimated consensus estimate of $248 million for 2024.

EOLS faces intense competition in the aesthetics market, which is currently dominated by Botox, and a few new product entrants are expected in 2023. Jeuveau's success and potential for growth are due to its unique marketing strategy that targets a younger demographic through digital platforms and partnerships with dermatologists and plastic surgeons. The author remains optimistic about Evolus' prospects in the rapidly growing U.S. neurotoxin market, particularly among younger, aesthetically-oriented consumers. However, they note market/economic, commercialization, and development/regulatory risks to EOLS and Jeuveau's success.

Foreign investors can participate in Ecopetrol through its minority listing of shares that trade freely, including on the NYSE. Ecopetrol owns the majority of Colombia's upstream oil production, all of its refining capacity, and sizable holdings in midstream, electric grid, renewable power, and toll roads, among other assets. Historically, the company has paid large dividends primarily to the government, but stock owners also benefit from this.

Ecopetrol earned more than $3 per share last year, trading at a trailing P/E ratio of less than 4, entitling its owners to a large dividend in 2023. This amounts to a 23% dividend yield. The company has a new CEO, Ricardo Roa Barragán, who has over 30 years of energy industry experience. The Colombian government has not been as negative towards extractive industries as expected, allowing private operating partners such as Gran Tierra to extend their concessions and continue exploring for more oil. This government policy is a better case than anticipated.

The government has also been talking about developing more copper mining as a way to power the green revolution, which is a favorable change in tone. This pragmatic approach has led to a rally in the Colombian Peso and a rebound in Colombian equities. Ecopetrol announced its dividend plans for 2023, with the annual dividend to be paid in three equal parts in May, October, and December. The first portion of the dividend payment is set to occur on April 25th, with the ex-dividend date on that day and the dividend to be paid on May 4th. Each Ecopetrol ADR will pay 11,860 Colombian Pesos in dividends this year, which amounts to roughly 89 cents per share. The appreciation of the Colombian Peso has increased the value of the dividend for foreign owners.

The author is bullish on Ecopetrol, citing the appreciation of the Peso and the increase in oil prices as factors that should drive the stock price up.

JD.com has experienced significant growth in China's retail industry by offering authentic products at competitive prices and fast delivery services. The long-term margin expansion story for JD is driven by the increasing scale of both its direct sales and marketplace businesses, partially offset by the push into JD logistics in the medium term. However, investments in community group purchasing and JD logistics, along with a higher mix of the lower-margin supermarket category, may constrain margin gains to some extent in the medium term.

JD's commitment to offering competitive prices, efficient delivery services, and an expanding market share make it an attractive long-term investment, but regulatory concerns and economic challenges in China prevent a definitive position. The company is in a year of business transition, focusing on enhancing its supply chain capabilities, increasing engagement from third-party merchants, and diversifying product offerings to expand its consumer and merchant base.

JD may face additional headwinds to revenue growth in 2023 due to the greater than previously expected impact from business adjustments and the organizational structure adjustment, but it is on the right track for long-term healthy business development. JD's revenue is expected to recover in 2023, growing 9.4% to $164.3 billion, driven by China's strong reopening. Its earnings per share are projected to grow 12% in 2023, accelerating to 23% in 2024, reaching $3.50.

Currently, JD is trading at 12.2 times forward 12-month consensus EPS, the lowest in five years, reflecting the increasing regulatory and macro challenges in China and the rising tension between China and the United States. While the article finds JD's valuation attractive, it acknowledges the difficulty in assessing the numerous risks associated with the company, such as China's dynamic regulatory environment and economic policies.

The S&P 500's Q1 2023 earnings season is expected to see a negative earnings growth of -6.5%, with 80 companies issuing negative EPS guidance, particularly in the Information Technology and Industrials sectors. JinkoSolar Holding Co. (JKS), a renewable energy company, is set to report its Q1 2023 earnings on April 27, 2023, with a consensus EPS forecast of $0.37. Despite underperformance in renewables and the iShares Global Clean Energy ETF (ICLN) trading 40% below its January 2021 peak, JKS has a lower PE ratio and forward PE compared to many stocks in the sector.

ROTH Capital has upgraded JKS to Buy from Neutral with a $70 price target, citing an improving U.S. policy situation and potential for margin expansion after the crash in polysilicon prices in late 2022. With several major polysilicon plants expected to come online soon, prices may remain subdued for the rest of the year. JKS is likely to experience margin expansion due to lower-than-average poly prices, even with currently unimpressive margins compared to the sector median. The release of solar panels seized under the Uyghur Forced Labor Prevention Act (UFLPA) removes a significant policy risk for JKS and benefits the U.S. utility-scale solar sector. Investors interested in long-term positions should await the company's upcoming quarterly release to verify the validity of this thesis.

Investors who lost $4.5bn in Credit Suisse convertible bonds are suing Switzerland's banking regulator, Finma, for acting unconstitutionally and challenging the country's reputation as a stable financial centre. The lawsuit is the first to be brought by holders of $17bn of Credit Suisse convertible bonds, which were rendered worthless by the bank's government-orchestrated rescue by rival UBS last month. The case is likely to be a multiyear process in the Swiss courts. The article also discusses potential legal strategies for bondholders, including demanding documentation and testimony from the government and Finma, forming a commission of inquiry by Swiss parliamentarians, and seeking redress through arbitration mechanisms.

TSMC, the leading semiconductor foundry, experienced an 18% decrease in Q1 revenue due to a weakening macro environment. However, the company expects to return to growth in Q3 and Q4 with the ramping up of their new 3nm production lines. Gross margins decreased, but the company still generates high EBIT margins. TSMC is expanding beyond Taiwan and plans to diversify their manufacturing base with fabs in the US, Japan, and possibly Europe. The company is guiding revenues to decline with low to mid single digits for this year, but the sell side expects solid double-digit revenue growth for the two years thereafter. The main risk factor is the short term macro environment.

The article lists 15 quality stocks that have outperformed the market since 2017, with a compounded growth rate of over 30%. The companies operate in various sectors, and key metrics for each company are provided, including profit margin, ROIC, earnings yield, expected yearly EPS growth, CEO tenure, and CAGR since IPO. The author suggests that a portfolio with these stocks would have outperformed the S&P500.