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Top stock ideas (Fri, Feb 2)
Connor Van Ooyen
February 02, 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 104 new readers who joined yesterday!
Our AI read and summarized 136 stock ideas, 1314 news articles, and 135 insider trades and found:
Greenlight Capital started a new position in $VTRS with 83% upside (featured stock idea)
307% upside for $GTX, $GD is a strong buy, and an oil company with a 7.4% dividend (bonus stock ideas)
Amazon and Meta crush earnings (news)
The 3 largest insider purchases (insider trade)
and much more…
Thanks for reading! Have a great day.
Connor
* If you missed yesterday’s email, don’t forget to read it here
FEATURED STOCK IDEA
FUND LETTER
Greenlight Capital new position: Viatris ($VTRS)
Viatris Inc. (ticker: VTRS) is a global healthcare company that provides access to medicines, sustainable operations, and community health programs. The company was formed through the combination of Mylan N.V. and Upjohn, a legacy division of Pfizer, and it offers a wide range of products including branded and generic drugs, as well as over-the-counter offerings.
Ticker: VTRS | Price: $11.87 | Price Target: $21.66 (+83%)
Market Cap: 14B | Timeframe: N/A
🩺 Healthcare | 💰 4% Dividend | 📈 Bullish Idea
Viatris (ticker: VTRS) is a manufacturer of generic and off-patent branded drugs. The company was created in 2020 after a merger between Mylan and a division of Pfizer. We previously invested in Mylan, but sold five years ago due to concerns around management’s ability to deliver on promises, as well as deterioration in the generic industry. Those concerns were well-founded, as the shares proceeded to decline by more than 60% after we exited. After a recent management change, we decided to take another look and found that after years of sharp declines, generic drug pricing has stabilized and competition has been diminished. The company’s revenue and cash flow are now growing, and we expect this improvement to accelerate. VTRS’ new management team has simplified its drug portfolio via various divestitures and has committed to returning 50% of free cash flow to shareholders through “aggressive” share buybacks, implying a double-digit capital return based on our estimates. We acquired our shares at an average price of $10.63, or just 4.0x 2024 consensus earnings. VTRS shares ended the quarter at $10.83.
Read the full article here. Read time: 1 min
+3 POINTS - WEEKLY TOURNAMENT
How do you rate the featured stock idea? |
Yesterday’s Featured Stock Idea
Goodheart-Willcox ($GWOX)
🟩🟩🟩⬜️⬜️ - Buy (45%)
🟥🟥⬜️⬜️⬜️ - Pass (35%)
🟨⬜️⬜️⬜️⬜️ - Watchlist (20%)
✅ alpo**** - Has long-term licenses and the financials look good.”
❌ mgbpl**** -Too thinly traded
There are 3 more stock ideas after “Today’s Sponsor”
TODAY’S SPONSOR
+15 POINTS FOR CLICKING SPONSORED LINK - WEEKLY TOURNAMENT
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BONUS STOCK IDEAS
FUND LETTER
McIntyre Partnerships holding - Garrett Motion ($GTX)
Garrett Motion Inc. specializes in the manufacture of turbocharger and electric-boosting technologies for light and commercial vehicle OEMs and the aftermarket. The company's technologies are engineered to improve vehicle performance and efficiency.
Ticker: GTX | Price: $8.84 | Price Target: $36 (+307%)
Market Cap: $2B | Timeframe: N/A
🚗 Auto Parts | 📈 Bullish Idea
Garrett Motion (GTX), predominately involved in internal combustion engines (ICE) and hybrid powertrains representing about 60% of its EBITDA, is positioned to benefit from the slowdown in battery electric vehicle (BEV) growth that I previously predicted. With BEVs not accelerating as expected, the value of ICE and hybrid technologies, which use GTX's advanced turbos, is increasing. Currently trading around 5 times my projected 2024 free cash flow (FCF), I anticipate GTX to redistribute at least 50% of its FCF to shareholders through buybacks. Updating our risk/reward outlook for the next three years: on the downside, with BEV growth steady, GTX could have flat EBITDA by 2027 but would generate $1.2 billion in FCF, half of which could go to share repurchases and debt reduction, potentially maintaining the stock price. On the upside, if BEV sales keep falling, GTX's 2027 EBITDA might grow by 25% and EPS may hit $3. Given the potential for hybrids in reducing CO2 emissions, which nearly match the reductions from BEVs, a 12x earnings valuation (reflecting the pre-2020 auto supplier multiple) would propose a $36 share price target, a significant rise from the current $9. While aware of variables that could increase BEV demand, the outlook for GTX suggests limited downside with substantial upside potential.
Read the full article here. Read time: 2 min
BLOG POST
General Dynamics Q4: G700 Certification Is Delayed, But On The Way; Initiate With 'Strong Buy'
General Dynamics Corporation (ticker: GD) is an American aerospace and defense corporation that offers a wide range of products and services in business aviation, combat vehicles, weapons systems, and naval and information technologies. It is well-known for producing the Gulfstream series of private jets, as well as military vehicles, submarines, and communications and information technology systems.
Ticker: GD | Price: $266.87 | Price Target: $305 (+14%)
Market Cap: $73B | Timeframe: N/A
🛩️ Aerospace / Defense | 💰 2% Dividend | 📈 Bullish Idea
General Dynamics Corporation (NYSE:GD), an aerospace and defense company with over 70% of revenue from the U.S. government, stands to benefit amid increasing global geopolitical tensions, as seen with a demand uptick for combat vehicles due to the Russia-Ukraine conflict. The U.S. Department of Defense budget, growing at a 2.7% CAGR from FY21 to FY27, combined with a solid backlog, sets the stage for consistent revenue advancement. GD's financial health is demonstrated by a stable 10% margin, a net debt leverage of 1.4x, sound capital allocation via dividends and buybacks, and a robust FY23 free cash flow of $3.8 billion. The recent Q4 FY23 results exceeded expectations, showing 7.5% revenue and 5% operating profit growth, although a delay in the much-anticipated Gulfstream G700 certification pushed 15 aircraft deliveries to FY24, which, alongside the G800, promises significant revenue growth. Their IT solutions business, bolstered by the $9.7 billion CSRA acquisition in 2018, is set to capitalize on government IT spending, particularly in cybersecurity and data analytics. With a forecasted 9.5% revenue growth for FY24 and anticipating increased Gulfstream deliveries, the projected fair value is $305 per share, suggesting the stock is undervalued at 18 times free cash flow. GD's prospects for FY24 are further supported by the expected resolution of aerospace supply chain issues and strong leadership continuity, prompting a 'Strong Buy' recommendation for investors seeking stable earnings and low volatility.
Read the full article here. Read time: 5 min
BLOG POST
Enterprise Products Partners: More Debt Means Larger Distributions
Enterprise Products Partners L.P., ticker EPD, is an American midstream natural gas and crude oil pipeline company that mostly provides a range of services to producers and consumers of natural resources, including processing, storage, and transportation of oil and gas.
Ticker: EPD | Price: $26.80 | Price Target: N/A
Market Cap: $58.5B | Timeframe: N/A
🛢️ Oil/Gas | 💰 7.4% Dividend | 📈 Bullish Idea
Enterprise Products Partners L.P. (NYSE: EPD) has integrated midstream energy services, providing fee-based NGL, crude oil, natural gas, petrochemical, and refined products transportation through its 20 deepwater docks and numerous processing plants. Despite some shareholder concerns, their strategic move to take on more debt for growth opportunities after self-funding since 2021 is seen as beneficial. The company boasts an average 12% return on invested capital over the past decade, the only A-level credit rating in the midstream sector, and its payout ratio to cashflow from operations (ACfO) decreasing below 60% since 2018. Recently, EPD has chosen to leverage growth through debt, deviating from a self-funding model that capped growth potential but shored up their credit rating. By reverting to using debt responsibly, they are planning to finance 15 additional major projects with an incremental cost of $1.5B, potentially increasing the growth of ACfO to about 7%—signalizing stronger future shareholder returns and optimism for sustained capital expenditure at around $4B annually due to their history of solid ROIC and project execution.
Read the full article here. Read time: 7 min
+3 POINTS - WEEKLY TOURNAMENT
Which bonus stock idea was the most compelling to you? |
Yesterday’s Poll Results:
🟩🟩🟩⬜️⬜️ AT&T ($T) [66%]
🟨🟨⬜️⬜️⬜️ Payfare ($PAY.TO) [24%]
🟥⬜️⬜️⬜️⬜️ Xpel Inc ($XPEL) [10%]
Your comments:
💸 emoj*** ($PAY.TO): A huge success model especially with gig jobs and still has loads of growth potential.
📞 drgait*** ($T): The company has done business for a long, long time. It always comes back.
MARKET OVERVIEW
Are you short-term bullish or bearish on the market? |
Yesterday’s Poll Results: 73% bullish
Yellowbrick Road readers re-entered 70%+ bullish territory while all of the indexes flipped from red to green and the Fear v Greed index gained 4 points. However, the news sentiment fell to its lowest point in the last week, though it finished the day strong after Meta and Amazon earnings came in strong.
STOCK MARKET NEWS
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Meta shares jump on better-than-expected results and first-ever dividend payment - CNBC
Amazon reports quarterly revenue above estimates - Reuters
Peloton posts mixed holiday results, dismal quarterly guidance - CNBC
Apple revenue grows for the first time in a year, but China shows weakness - CNBC
Oil giant Shell posts full-year profit beat, announces $3.5 billion share buyback - CNBC
Automaker Volvo Cars to stop funding Polestar, quarterly earnings above estimates - Reuters
Activist Elliott builds roughly 13% stake in Etsy, secures board seat - CNBC
Royal Caribbean Surges On Q4 Earnings With Record Bookings, Guides 40% Adjusted EPS Spike In 2024 - Investors Business Daily
January hiring was the lowest for the month on record as layoffs surged - CNBC
BIGGEST INSIDER PURCHASES
The insider trade is brought to you by CEO Watcher (another free, weekly email I write). It’s the only newsletter that tracks insider returns to find the best ones. Subscribe here
10% Owner at Arcus Biosciences, Inc. ($RCUS) purchased 15,238,100 shares at $21.00/share ($320.00M total) which increased their holdings by 102.8%. Their median purchase size is $119.90M and this is their 1st largest purchase out of 4 all time (link)
10% Owner at ArriVent Biopharma, Inc. ($AVBP) purchased 444,444 shares at $18.00/share ($8.00M total) which increased their holdings by 54.1%. Their median purchase size is $4.50M and this is their 7th largest purchase out of 27 all time (link)
10% Owner at CG Oncology, Inc. ($CGON) purchased 400,000 shares at $19.00/share ($7.60M total) which increased their holdings by 0.0%. Their median purchase size is $7.60M and this is their 1st largest purchase out of 1 all time (link)
QUIZ
+3 POINTS - WEEKLY TOURNAMENT
If you like this quiz section, then you are probably like me and love to learn! One way I learn is by using Shortform. They are a website/app that creates summaries/guides for 1000s of nonfiction books and connects ideas between books. Whenever I have a free 10 minutes, I just open their app and learn something new from a book about finance, business, history, etc.
I’ve been lucky enough to partner with them and offer you a free trial and a 20% discount if you use my link: https://shortform.com/yellowbrickroad
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 (20% off using my link!).
At Salomon Brothers, John Meriwether led which department that was remarkably profitable, contributing up to 100% of Salomon's profits in some years? |
Yesterday’s Question: Before founding Long-Term Capital Management, John Meriwether worked at which prestigious investment bank, known for being the leading underwriter of corporate bonds and the largest dealer of Treasury Securities in the United States?
Answer: Salomon Brothers
LINKS YOU’LL LOVE
+15 POINTS - WEEKLY TOURNAMENT
SECRET QUESTION
+10 POINTS - WEEKLY TOURNAMENT
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Secret Question: Any big plans this weekend? I need to get some flights scheduled.
WEEKLY TOURNAMENT
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🏆 This Week’s Leaderboard
dv.kim**** (156 points)
j_merz*** (156 points)
bulldo**** (156 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
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