Top new stock pitches (Mon, Jan 13)

Algonquin Power & Utilities Corp. (AQN) is transitioning to a pure-play regulated utility with a $7.15bn rate base across 16 jurisdictions, following the sale of its renewable assets. Activist investor Starboard Capital is driving a turnaround, including asset sales, dividend cuts, and debt reduction. AQN's diversified portfolio comprises 58% electric, 22% gas, and 20% water assets, with potential for 5% earnings growth and a 5.43% yield. The company trades at 12.7x P/E compared to peers at 17.5x, offering upside through rate cases, acquisitions, and water exposure. Key catalysts include the completion of the renewable asset sale, debt paydown, and upcoming rate case reviews. Risks involve regulatory lag and potential misallocation of capital. The investment thesis rests on AQN's ability to fully earn its rate base, drive stable earnings growth, and benefit from its diverse asset mix, particularly in water utilities. Management, guided by Starboard, is focused on debt reduction and shareholder alignment, with a conservative growth outlook and attractive dividend yield.

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Tiptree Inc. ($TIPT) is preparing to initiate a sale process for its majority-owned insurance subsidiary, The Fortegra Group, in February 2025, potentially valuing Tiptree at $35-40 per share (80-100% upside). Management is incentivized to sell by June 2026, when Warburg Pincus can force an IPO process. The valuation of $34.63 (84% upside) is based on a 13.5x PE multiple for Fortegra's estimated $200M 2024 adjusted net income. Tiptree management holds significant inside ownership (~34%) and PRSUs tied to share price targets, aligning their interests with shareholders. The valuation could potentially be higher, as Fortegra's competitors trade at 14-27x forward PE. Risks include potential issues at Fortegra, market's cold reception to Fortegra's valuation, and failure to achieve a monetization event by June 2026. The author holds a material investment in Tiptree's securities.

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Charles & Colvard (CTHR), a moissanite jewelry company, is trading at 0.15x tangible book value and 0.40x net current asset value following an 84% stock price drop due to a lawsuit with Wolfspeed (WOLF). With the lawsuit resolved for a fraction of the initially perceived liability, the stock could potentially return to pre-lawsuit valuations of 1.5x NCAV and 0.60x TBV. The estimated price target is $4.60-4.85 per share, representing a 217-234% upside from the current $1.45 price. The company faces a net negative hit of $1.44 million to its balance sheet from the lawsuit resolution. CTHR is now freed from its exclusive supply agreement with WOLF, potentially enhancing cost flexibility. Insiders own 25% of shares and made purchases at $4.80 post-lawsuit drop. Risks include delayed financial filings and customer concentration. Despite these concerns, moissanite demand remains strong, with the r/moissanite subreddit ranking in the top 2% by member count.

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