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Top stock ideas (Fri, Feb 16)
Connor Van Ooyen
February 16, 2024
YBR Portfolio // About // Sponsor YBR // YBR Premium
👋 Good Morning!
This is the Yellowbrick Road where I share the best stock ideas from billion-dollar hedge funds, professional analysts, millionaire investors, and more!
Welcome to the 107 new readers who joined yesterday!
Our AI read and summarized 168 stock ideas, 1214 news articles, and 217 insider trades and found:
A life science real estate company with 40% upside and a 4.3% dividend (featured stock idea)
$PM has a 5.8% dividend, $SPOT is improving operating leverage and cash flow, and a SaaS company with 180% upside (bonus stock ideas)
Shake Shack stock surges 20% (news)
The three biggest insider purchases (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
FEATURED STOCK IDEA
VALUE INVESTORS CLUB
ALEXANDRIA R E EQUITIES INC - $ARE
Alexandria Real Estate Equities, Inc. (NYSE: ARE), an S&P 500 company, is a best-in-class, mission-driven life science REIT making a positive and lasting impact on the world.
Ticker: ARE | Price: $120 | Price Target: $165.13 (+38%)
Market Cap: $20B | Timeframe: 1 year
🏡 Real Estate | 🧪 Life Sciences | 💰 4.3% Dividend | 📈 Bullish Idea
Alexandria Real Estate Equities, Inc. (ticker: ARE) is recommended as a strong buy with an estimated 40% upside within a year, as the company has a solid foundation in the life sciences real estate sector, boasting 419 properties amounting to 41.5 million square feet and concentrating in key U.S. life science hubs such as Boston (36% of rent), the Bay Area (22%), and San Diego (16%). ARE benefits from a diversified and high-quality tenant base, including companies like Bristol, Moderna, and LLY, and institutions such as Harvard, underpinning the resilience of its revenues. Following the post-COVID biotech boom, the company has experienced increased supply and vacancies, but maintains strong operating metrics, such as 18% market-to-market re-leasing spreads, 3% average annual rent escalators, and 92-93% triple net leases. ARE offers a promising total return combining multiple expansion potential (from 14x P/FFO to 18x), higher earnings growth, and a 4% dividend yield. The company's balance sheet is robust, with 99% debt fixed at an average term of 13 years and a 3.7% rate, while their recent 2024 guidance presents a stable financial outlook. Despite Jonathan Litt's short thesis arguing life science real estate's similarities to the struggling office space sector, ARE's performance indicates otherwise with stable occupancy and growth. The life science industry underpinning ARE's portfolio shows signs of resurgence, with emerging pharmaceutical innovations sure to bolster space demand. ARE's current stock valuation, poised at the low end of its historical range and significantly down from its highs, combined with the anticipated easing of supply post-2025, make it an appealing long-term investment opportunity, particularly as interest rates are expected to be cut, favoring REITs.
Read the full article here. Read time: 5 min
+3 POINTS - WEEKLY TOURNAMENT
How do you rate the featured stock idea? |
Yesterday’s Featured Stock Idea
British American Tobacco ($BTI)
🟩🟩🟩⬜️⬜️ - Buy (44%)
🟥🟥⬜️⬜️⬜️ - Pass (42%)
🟨⬜️⬜️⬜️⬜️ - Watchlist (32%)
❌ alpo***, fgsm***, jdbo*** - I don’t invest in tobacco companies
✅ mani**** - BAT is a good dividend stock. Anyone looking for passive income would benefit from having some BAT in the portfolio.
There are 3 more stock ideas after “Today’s Sponsor”
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BONUS STOCK IDEAS
BLOG POST
Philip Morris International: More More More?
Philip Morris International Inc. operates as a tobacco company working to delivers a smoke-free future and evolving portfolio for the long-term to include products outside of the tobacco and nicotine sector.
Ticker: PM | Price: $88.98 | Price Target: N/A
Market Cap: $139B | Timeframe: N/A
🚬 Tobacco | 💰 5.8% Dividend | 📈 Bullish Idea
Philip Morris International Inc. (PM) leads the tobacco industry with its Marlboro combustibles and is advancing in next-gen products, notably post its Swedish Match acquisition and the development of IQOS. Despite facing foreign exchange pressures like the devaluation of the Argentine Peso and the high costs associated with launching new products, PMI increased their IQOS user base by 3.7 million in a year, with a 14.74% rise in IQOS shipment volumes in 2023, overtaking their leading brand Marlboro in net revenue. PMI's cigarette volumes slightly declined, but overall product volumes grew, marking consecutive three-year gains. Challenges lie in the operating margin compression due to the transition to a greater mix of smokeless products and increased costs, which saw spending rise by $3.5 billion in 2023. PMI's global patent settlement with British American Tobacco will reduce litigation costs, freeing resources to better navigate regulations. In the US, ZYN nicotine pouches saw a staggering 61.8% volume increase year-over-year despite the ongoing regulatory discussions and competitive landscape, and the success of the Swedish Match acquisition continues to positively contribute to PMI's portfolio. Despite some investor concerns regarding PMI's wellness segment, foreign exchange impacts, and increased financing costs from higher rates, PMI aims to improve its leverage ratio in the coming year. Management anticipates share repurchases to resume in 2025, as they work towards a target leverage of 2x. Overall, Philip Morris remains a dominant player in the tobacco space, with a clear growth trajectory from its next-gen product lines and a strategic approach to dealing with market challenges.
Read the full article here. Read time: 8 min
BLOG POST
Spotify: Entering a New Chapter
Spotify Technology S.A., together with its subsidiaries, provides audio streaming subscription services worldwide. It operates through two segments, Premium and Ad-Supported. The Premium segment offers unlimited online and offline streaming access to its catalog of music and podcasts without commercial breaks to its subscribers.
Ticker: SPOT | Price: $245.51 | Price Target: N/A
Market Cap: $46B | Timeframe: N/A
🎵 Music/Podcasts | 📈 Bullish Idea
Spotify Technology S.A. (ticker: SPOT) is transitioning from primarily music streaming to a broader audio network with podcasts and audiobooks, resulting in operating leverage gains and a stronger cash flow. Their user base grew despite competition from TikTok, adding 28 million Monthly Active Users (MAU) for a total of 602 million and increasing subscribers to 236 million. Free cash flow was a positive EUR 396 million in Q4 2023 indicating improved financials. With podcasts near break-even and audiobooks requiring minimal capital, these verticals are expected to boost user engagement and revenue per hour streamed. Spotify's gross margins and premium ARPU are rising, contributing to operating leverage. Management's efficiency measures, organizational restructuring, and strategic focus on audio consumers/creators are fundamental to its growth and future profitability. Spotify is currently the leading podcast app and the second-largest provider of audiobooks, with aspirations to become a super app, contingent on regulatory developments. Advertising revenue remains steady at 14% of total revenue, with potential growth as market conditions improve. The company's balance sheet is strong, indicating a favorable outlook for 2024 with increasing operating leverage and profitability.
Read the full article here. Read time: 7 min
VALUE INVESTORS CLUB
BLEND LABS INC - $BLND
Blend Labs, Inc. engages in the provision of cloud-based software platform solutions for financial services firms in the United States. It operates in two segments, Blend Platform and Title365.
Ticker: BLND | Price: $2.86 | Price Target: $8 (+180%)
Market Cap: $709M | Timeframe: N/A
💻 Enterprise SaaS | 🏦 Banking | 📈 Bullish Idea
Blend Labs, Inc. (ticker: BLND), a specialist in SaaS for the banking sector, stands undervalued with its stock priced at $2.65 despite a recent 100% rally, trading at only 4x 2024 sales. With an estimated 70%+ gross margin and a top-line growth surpassing 30% due to new product rollouts, BLND could reach significant profitability by mid-2024, earlier than the consensus projection for 2025. Despite the possibility of a recession, the company, which commands a 20% share of U.S. mortgage originations, is expected to achieve greater than expected EBITDA even in a downturn due to its capacity to cut additional costs. The mortgage industry has likely bottomed out, and with BLND's outperformance in mortgage volume and revenue during the industry's downturn, the future looks promising. The company has smartly streamlined operations, suggesting further cost-saving potential. A key growth driver will be Blend Builder, a low-code development platform for banking clients, which has been instrumental in expanding their non-mortgage product footprint, now constituting 15% of total revenue. The firm has also de-risked its capital structure by reducing and extending debt maturity. The market's recovery, combined with Blend's revamping, positions it for a potential price target of $8 by 2025, translating to a 200% upside. Risks include inflation or a policy shift causing rate hikes and a possible recession, but these may be mitigated since the mortgage market seems to have already undergone a major contraction. While Blend has a formidable position, intensified competitive landscapes as it diversifies will demand strategic focus. Catalysts like federal rate cuts, mortgage industry growth return, divestiture of Title365, further cost reductions, and achieving EBITDA break-even by 2024 should propel BLND forward.
Read the full article here. Read time: 10 min
+3 POINTS - WEEKLY TOURNAMENT
Which bonus stock idea was the most compelling to you? |
Yesterday’s Poll Results:
🟩🟩🟩⬜️⬜️ Estee Lauder ($EL) [48%]
🟨🟨⬜️⬜️⬜️ Enterprise Partner Products ($EPD) [40%]
🟥⬜️⬜️⬜️⬜️ IWG ($IWG.L) [12%]
Your comments:
🛢️ jfche*** ($EPD): A good income stock and I like their management
🛢️ alpo*** ($EPD): Midstream petrol companies are attractive, high dividends, and little or no competition
MARKET OVERVIEW
Are you short-term bullish or bearish on the market? |
Yesterday’s Poll Results: 73% bullish
Another green day for the indexes with a big green day for the Russell (pushing it back into the green for the year). The Fear v Greed index also jumped back up to Extreme Greed levels, but Yellowbrick Road reader sentiment fell a few points and the news sentiment is very close to falling into bearish territory.
STOCK MARKET NEWS
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Retail sales tumbled 0.8% in January, much more than expected - CNBC
Shake Shack stock surges 20% on fourth-quarter profit, strong 2024 outlook - CNBC
Deere beats expectations in Q1 but disappoints on outlook - Invezz
DWAC shares soar as merger with Trump social media company appears closer - CNBC
Coinbase Stock Surges On Upgrade, Earnings Due As Bitcoin Scales Two-Year Highs - Investors Business Daily
AppLovin Stock Surges on Upbeat Forecast, Expanded Stock Buyback—Key Level to Watch - Investopedia
Renault shares up 7% as carmaker plans dividend hike - CNBC
Warren Buffett's Berkshire Hathaway dumps millions of Paramount shares - Fox Business
Ford CEO tells Wall Street to forget Tesla, says 'Pro' business is the future of the auto industry - CNBC
Moon company Intuitive Machines begins first mission after SpaceX launch - CNBC
Cisco falls on tepid networking gear demand amid AI focus - Reuters
BIGGEST INSIDER TRADES
The insider trade is 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
10% Owner at Childrens Place, Inc. ($PLCE) purchased 1,566,480 shares at $15.80/share ($24.75M total) which increased their holdings by 50.4%. Their median purchase size is $539K and this is their 2nd largest purchase out of 46 all time (link)
10% Owner at Tenaya Therapeutics, Inc. ($TNYA) purchased 2,222,220 shares at $4.50/share ($10.00M total) which increased their holdings by 10.7%. Their median purchase size is $2.18M and this is their 2nd largest purchase out of 6 all time (link)
10% Owner at Kyverna Therapeutics, Inc. ($KYTX) purchased 450,000 shares at $22.00/share ($9.90M total) which increased their holdings by 16.6%. Their median purchase size is $3.85M and this is their 2nd largest purchase out of 10 all time (link)
QUIZ
+3 POINTS - WEEKLY TOURNAMENT
This month’s quiz questions focus on the legendary rise and fall of Long-Term Capital Management which Roger Lowenstein chronicles in his awesome book: When Genius Failed.
An in-depth guide/summary of this book is available on Shortform (a free trial and 20% off using my link!). Shortform has summaries/guides for 1000s of nonfiction books and even connects ideas between books. It’s one of my favorite tools for learning
What was the first major financial crisis that significantly impacted Long-Term Capital Management (LTCM), leading to its first substantial losses in 1997? |
Yesterday’s Question: By 1997, LTCM began to diversify into what type of trades, which were riskier and more speculative than its traditional arbitrage strategies?
Answer: In 1997, LTCM began to diversify into riskier trades, notably in equity derivatives, as part of its strategy to maintain high returns despite changing market conditions.
LINKS YOU’LL LOVE
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$LYFT v $UBER stock returns since they went public. A massive divergence started in 2022
SECRET QUESTION
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WEEKLY TOURNAMENT
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🏆 This Week’s Leaderboard
willi**** (141 points)
au.stri*** (141 points)
jense**** (141 points)
Scoring
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+15 points for clicking on an ad/sponsored link
+50 points for referring a friend
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MY OTHER FREE NEWSLETTERS
CEO Watcher (link): I built a tool that tracks all insider trades AND calculates their historical returns so that we know which insider trades are worth copying. The top insider trades are sent every Friday.
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