Today's top stock ideas (Tue, Dec 12)

Author

Connor Van Ooyen
December 12, 2023

👋 Good Morning!

I’ve officially opened up the Discord where I post all of the good trade ideas I find that don’t make the email (over 30 ideas already in there). Learn more about it later in the email.

Our AI read and summarized 74 stock ideas, 1201 news articles, and 84 insider trades and found:

  • An attractive homebuilder stock if rates have peaked (featured stock idea)

  • Hasbro lays off 1,100 employees (news)

  • The CEO of $HCP sold $5M of the stock (insider trade)

  • and much more…

Thanks for reading! Have a great day.

Connor

* If you missed yesterday’s email, don’t forget to read it here

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FEATURED STOCK IDEA

TWITTER

$TOL - If rates have peaked, homebuilders are a steal

Toll Brothers is a luxury homebuilding company in the United States known for crafting high-quality, customized houses. It has been in operation since 1967 and has become one of the leading builders of luxury homes across multiple states.

Ticker: $TOL | Price: $93.40 | Price Target: N/A | Timeframe: N/A

🏠 Homebuilder | 🔄 Cyclical | 📈 Bullish Idea

Toll Brothers ($TOL) anticipates a book value per share (BVPS) of $78 by the end of 2024, with the current share price at $88, slightly over 1x book value (cheap). The company expects to generate $12-12.50 earnings per share (EPS), aiming for a return on equity (ROE) of about 18-19%. Despite a dramatic increase in 30-year mortgage rates from 3% to over 8% within two years, Toll Brothers has reported two consecutive years of record revenues and earnings, with ROEs above 20%, an adjusted gross margin increase by 370 basis points, and a reduction in SG&A margin by 170 basis points. These results defy the challenges posed by rising rates, indicating a fundamental change in the public builders' business model. Toll Brothers now trades at 7x earnings and 1.3x book value, well below the S&P 500's average PE ratio of 16x, suggesting the company's valuation merits reconsideration given its continued capital efficiency, cash flow strength, and substantial returns to investors.

Read the full article here. Read time: 2 min

POLL - FEATURED STOCK IDEA

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How do you rate the featured stock idea?

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Yesterday’s Rating (link):

SIBANYE STILLWATER ($SBSW)

🟩🟩⬜️⬜️⬜️ - Buy (34%)
🟥⬜️⬜️⬜️⬜️ - Pass (27%)
🟨🟨🟨⬜️⬜️ - Watchlist (39%)

This is the first featured stock idea where the “Watchlist” was the top choice. A handful of readers pointed out that it was outside their typical zone of competence, so that may be why.

Alpo*** and grove*** both pointed out the concerns with the company being in South Africa due to corruption and the importance of the ownership structure.

* There are more stock ideas later in the email!

MARKET OVERVIEW

Are you short-term bullish or bearish on the market?

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Yesterday’s Poll Result: 62%

We are right back up to peak bullishness. All of the indexes are up, the Fear v Greed index is the highest it’s been since we started tracking, the news sentiment is above the previous 7-days’ average, and Yellowbrick Road readers were above 60% for the first time since this quarter.

STOCK MARKET NEWS

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QUIZ

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Which company, originally known for its cameras, played a major role in the development of the digital camera technology that eventually led to its own decline?

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Yesterday’s Question (link): Which investor is famous for his "two rules of investing": Never lose money and never forget rule number one?

Answer: Warren Buffett.

TODAY’S TOP INSIDER TRADE

The insider trades are brought to you by CEO Watcher (another free, weekly email I write). It’s the only newsletter that tracks insider returns to find the best ones. Subscribe here

CEO & Chairman at HashiCorp, Inc. ($HCP)

The CEO & Chairman sold 200,000 shares at $25.01/share ($5.00M total) which decreased their holdings by 53.2%. The current price is $21.29 (-14.9%). (trade link)

Historic Returns
1m returns: -29% weighted | -1% median | 50% win rate (5/10)
3m returns: -31% weighted | -10% median | 22% win rate (2/9)
6m returns: -45% weighted | -27% median | 25% win rate (2/9)
1y returns: -53% weighted | -52% median | 0% win rate (0/6)

Note: Part of a 10b5-1 initiated in July.

PREMIUM DISCORD COMMUNITY

The Yellowbrick Road Discord community is officially open!

The goal of the Discord community is to be the highest-value community for stock investors on the internet (and the best place to find even more stock ideas).

The Discord includes:

  • All of the good stock ideas that can’t fit into this newsletter (over 30 ideas just from the last week are already in there)

  • A place for you to share your own stock ideas (or stock ideas you found)

  • A place to talk with other investors (and me!), ask questions, and more.

The normal price for the Discord will be $10/month or $60/year (50% off). But if you join before next Monday, it’s only $1 for an entire year! This is my thank you to all of you for reading this newsletter and being the first members in the Discord. *Note: it’s actually $1.20 because it doesn’t let me make it $1.

When you upgrade to Premium, you will receive an email a few minutes later with an invite to the Discord.

* If you don’t know what Discord is, it’s basically a chat platform like Slack or Microsoft Teams. It can be a little confusing, so just reply to this email if you need some help

LINKS YOU’LL LOVE

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Tech returns dominance in the S&P 500 nearing the peak from 2000

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SECRET QUESTION

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If you read this far, reply to this email with your answer to gain points for the weekly tournament. (Or if you’d rather not answer but still want the points, you can just reply and say hi!)

Secret Question: Where did you go to college?

BONUS STOCK IDEAS

BLOG POST

Veeva Stock: The Second Chance

Veeva Systems is a provider of industry-specific cloud solutions for the pharmaceutical and biotech sectors, offering products including Enterprise Content Management systems. It has a wide market presence with a strategy focusing on both software subscriptions and professional services.

Ticker: VEEV | Price: $174.48 | Price Target: $330 (+90%) | Timeframe: 5 years

💻 B2B SaaS | 💊 Pharma | 📈 Bullish Idea

Veeva Systems, a leading provider of cloud-based solutions for the pharmaceutical and biotech industries, currently trades nearly 50% below its 2021 peak of over $330, signaling an undervalued stock. Since its IPO in 2013, Veeva has excelled with an 80/20 revenue split between its software subscriptions and service offerings, capturing about 12% of the $20 billion life-science-specific software market. The company is diversifying through a multi-product strategy and despite the tech downturn, Veeva plans to grow its revenue to over $2.75 billion by FY25, with expectations of achieving operational profits exceeding $1 billion. Transitioning into a Public Benefit Corporation to prioritize stakeholder interests, Veeva boasts strong financials with high free cash flow margins. Predicting an annual value increase of at least 15%, the analysis envisions the stock rebounding to surpass its record highs within five years, offering a compelling long-term investment

Read the full article here (not in English). Read time: 5 min

TWITTER

Flywire Corp. on my 'best of best' list

Flywire Corp is a global payment and receivables solutions provider that offers clients a robust platform for domestic and cross-border transactions, typically within the education, healthcare, and travel industries. The company emphasizes dealing with complex processes such as international tuition payments and has expanded into other verticals.

Ticker: FLYW | Price: $21.94 | Price Target: N/A | Timeframe: N/A

🏦 Payments Provider | 💻 SaaS | 📈 Bullish Idea

Flywire Corp. (FLYW) is strongly recommended by BTIG, countering the short sell report by Edwin Dorsey which wrongly labeled Flywire's offerings as commoditized amidst intensifying competition. Flywire's substantial net revenue retention rate (124% over 5 years) demonstrates customer retention and expansion. Channel checks with 50 education segment clients, a primary revenue source compared to the 11% from healthcare in FY22, reveal high satisfaction and growing market share, evidenced by their expansion into domestic payments with 529 capabilities. Dorsey's claims about Flywire lacking differentiation and competitive edge were rebutted, highlighting its robust global payment network spanning 240 countries, integration partnerships with EHRs like Epic and Cerner, and its vertical-specific software solutions. BTIG's investment thesis underlines Flywire's adept adaptation of software to enhance payments, noting its gross profit growth is driven by international tuition payment solutions. Flywire's diversification into healthcare, travel, and B2B, along with four key growth areas—domestic payments, strategic payables, non-client receivables, and adjacent use cases—underpins its target of 30% organic adjusted gross profit growth long-term. Despite a superficially high valuation, Flywire's specialized, software-enabled payments platform and aggressive targeting of a $12 trillion TAM justify a premium compared to other fintechs.

Read the full article here. Read time: 4 min

BLOG POST

AZEK (AZEK) Fiscal Q4'23 Earnings Update

AZEK is a manufacturer of composite decking, siding, trim, and other outdoor living products, primarily serving the residential market. They specialize in engineered materials intended to replace traditional wood, offering a more sustainable and durable option for consumers.

Ticker: AZEK | Price: $34.90 | Price Target: $43 (+23%) | Timeframe: N/A

⛲️ Outdoor Living | 🏭 Manufacturing | 📈 Bullish Idea

AZEK, a manufacturer of composite decking and other outdoor living products, has been thriving as consumers shift away from wood to engineered materials. The company reported impressive fiscal Q4'23 results with a 27.6% year-over-year increase in revenue to $388.8M and adjusted EPS rising to 36 cents from 20 cents in FQ4'22, surpassing consensus estimates. A record high adjusted EBITDA margin of 27.4% was achieved due to material cost deflation and productivity initiatives. After divesting its Vycom business for $140M (10.8X LTM EBITDA), management offered 2024 guidance that subtly beat consensus estimates, projecting organic growth at a 5% rate resulting in $1,365M in revenue and anticipating a continued margin expansion towards a long-term goal of 27.5% by 2027. Despite macroeconomic pressures and a potential decline in the repair and remodel market for 2024, CEO Jesse Singh is optimistic about outperforming the market, leveraging material conversions, and product innovations. The robust sell-through rate and normalized channel inventories suggest AZEK is on track for recovery with the stock currently undervalued—an August analysis suggested a fair value of ~$43.00, presenting a potential 25% upside.

Read the full article here. Read time: 4 min

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Which bonus stock idea was the most compelling to you?

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Yesterday’s Poll Results (link):

🟩🟩🟩⬜️⬜️ Remy Cointreau ($REMYY) [42%]

🟨🟨⬜️⬜️⬜️ SenseTime Group (0020.HK) [30%]

🟥⬜️⬜️⬜️⬜️ Zynex ($ZYXI) [28%]

WEEKLY TOURNAMENT

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🏆 This Week’s Leaderboard

  1. jakek**** (49 points)

  2. plear*** (49 points)

  3. joe_**** (49 points)

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MY OTHER FREE NEWSLETTERS

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