Top stock ideas (Fri, Feb 23)

Author

Connor Van Ooyen
February 23, 2024

👋 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 101 new readers who joined yesterday!

Our AI read and summarized 161 stock ideas, 1633 news articles, and 297 insider trades and found:

  • $HGV’s valuation is at an all-time low despite historically leading the market in growth, margins, and profit (featured stock idea)

  • $LFCR has a potential buyout coming, an avocado grower (how fun is that) whose CEO came back, Duke Energy has a 4.5% upside (bonus stock ideas)

  • Reddit files for IPO (news)

  • An insider with 30% returns made their largest purchase (insider trade)

  • and much more…

Thanks for reading! Have a great day.

Connor

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FEATURED STOCK IDEA

VALUE INVESTORS CLUB

Hilton Grand Vacations Inc. - $HGV

Hilton Grand Vacations Inc., a timeshare company, develops, markets, sells, manages, and operates the resorts, plans and ancillary reservation services under the Hilton Grand Vacations brand. It operates through Real Estate Sales and Financing, and Resort Operations and Club Management segments.

Ticker: HGV | Price: $46.21 | Price Target: $80.36 (+74%)
Market Cap: $4.8B | Timeframe: 2026

🏖️ Resorts | 📈 Bullish Idea

Hilton Grand Vacations Inc. (ticker: HGV), the world's largest timeshare operator, presents a compelling investment opportunity with huge upside potential by 2026. Post its spin-off from Hilton and acquisitions of Diamond Resorts and Bluegreen Vacations, HGV's valuation at c. 6x forward EV/EBITDA is at an all-time low, despite historically leading the market in growth, margins, and profit. HGV's premium, deeded points model garners roughly $50k per sale per week and drives revenues through real estate, consumer financing, resort management, and rentals. Temporary challenges such as increased inventory spending, pandemic impacts, acquisition distortions, Hawaiian wildfires, a weak macro environment, and the Bluegreen acquisition have pressured the stock. Nevertheless, HGV has demonstrated resilience, maintaining profitability and cash flow even during the worst of the pandemic. With nearly 50% of EBITDA from recurring revenues, HGV is poised to normalize free cash flow and leverage post-acquisition, offering a broad range of products to cater to various consumer segments, leveraging the Hilton brand and customer loyalty programs. Assuming HGV re-rates to a conservative 7x EV/EBITDA multiple by 2026, excluding Bluegreen's impact, HGV is set for a significant revaluation. This intrinsic undervaluation, combined with synergies from its recent acquisitions and the potential for market perception correction, positions HGV for substantial upside.

Read the full article here. Read time: 12 min

+3 POINTS - WEEKLY TOURNAMENT

How do you rate the featured stock idea?

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Yesterday’s Featured Stock Idea

D.R. Horton, Inc. ($DHI)

🟩🟩🟩⬜️⬜️ - Buy (50%)
🟥🟥⬜️⬜️⬜️ - Pass (30%)
🟨⬜️⬜️⬜️⬜️ - Watchlist (20%)

  • ✅ loril**** - They are building like crazy in Arizona

  • ❌ deme**** - Housing growth will continue to be stymied by interest rates

There are 3 more stock ideas after “Today’s Sponsor”

TODAY’S SPONSOR

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BONUS STOCK IDEAS

FUND LETTER

Arquitos Capital Management Portfolio Holding - Lifecore

Lifecore Biomedical, Inc., together with its subsidiaries, operates as an integrated contract development and manufacturing organization in the United States and internationally. The company operates through Lifecore, Curation Foods, and Other segments.

Ticker: LFCR | Price: $7.81 | Price Target: N/A
Market Cap: | Timeframe: N/A

🧪 Drug Manufacturer | 🚨 Event Driven | 📈 Bullish Idea

Lifecore Biomedical, Inc. (ticker: LFCR) is in the process of selling itself but faces challenges due to its troubled past, including getting current on financials and past year audits. The company, a leading Contract Development and Manufacturing Organization (CDMO) in hyaluronic acid and pre-fill injectables, is in a robust market position with increased manufacturing capabilities and strong demand from a key customer who has provided crucial financing. Despite selling an unrelated food business subsidiary and still struggling with financial report restatements, Lifecore's CDMO unit is highly valuable. With the presence of an activist hedge fund that recently joined the board driving restructuring, and who may increase its stake after February 22, 2024, there is anticipation of a lucrative buyout, offering significant potential upside for investors, although the precise buyout price remains uncertain due to the complexity of the sale process.

Read the full article here. Read time: 2 min

VALUE INVESTORS CLUB

Calavo Growers, Inc. - $CVGW

Calavo Growers, Inc. markets and distributes avocados, prepared avocados, and other perishable foods to retail grocery and foodservice customers, club stores, mass merchandisers, food distributors, and wholesale customers worldwide. It operates through Grown and Prepared segments.

Ticker: CVGW | Price: $28.02 | Price Target: N/A
Market Cap: $515M | Timeframe: N/A

🥑 Avocado Grower/Distributer | 💰 1.4% Dividend | 📈 Bullish Idea

Calavo Growers, Inc. (CVGW) is anticipated to experience a substantial upside following a minor turnaround led by Lee Cole, the company's long-time CEO who returned after a series of ineffective leadership changes. Specializing in the acquisition, ripening, and distribution of avocados, Calavo has faced profitability challenges in its avocado segment from underpaying growers and operational hurdles in its prepared foods business. However, since Cole's return, the company has shown improvements with increased avocado gross profits, even amidst commodity volatility. The market may be undervaluing CVGW due to an information vacuum, as the company stopped hosting conference calls and experienced wild share price fluctuations. With the resolution of a longstanding Mexican tax issue that could result in a significant cash inflow, and a sensible capital allocation strategy which may include paying off debt, raising dividends, and share buybacks, there's potential for further share price appreciation. Additionally, there's speculation about a possible divestment of the non-core prepared foods division. The growth trajectory may solidify with more quarters of positive results, and Cole's track record of savvy stock trading—having recently bolstered his own stake by $5 million—signals confidence in the company's prospects. Catalysts for the stock include continued earnings beats under Cole's guidance, improved free cash flow, debt reduction, and dividend increases, alongside potential strategic corporate actions.

Read the full article here. Read time: 6 min

ANALYST REPORT

Duke Energy Corporation: Positive Rate Cases Driving 2024 Earnings

Duke Energy Corporation, together with its subsidiaries, operates as an energy company in the United States. It operates through two segments, Electric Utilities and Infrastructure (EU&I) and Gas Utilities and Infrastructure (GU&I).

Ticker: DUK | Price: $92.13 | Price Target: $115 (+25%)
Market Cap: $71B | Timeframe: N/A

🗼Utilities | 💰 4.5% Dividend | 📈 Bullish Idea

Duke Energy Corporation (NYSE: DUK) has received a BUY rating from Argus, with a target price of $115, given its positive earnings driven by favorable regulatory impacts, lower taxes, and lower O&M expenses, all reflected in a 36% increase in 4Q23 adjusted earnings to $1.51 per share. The company, now fully regulated after selling its commercial renewables business, foresees 2024 adjusted earnings between $5.85 and $6.10 per share, eyeing a 5%-7% adjusted EPS growth through 2028. The impressive annualized dividend of $4.10, yielding about 4.5%, is backed by 97 consecutive years of dividend payments. Strategic investments are aligned towards a $73 billion five-year plan focusing on renewables, fleet, and grid modernization, with positive rate case outcomes expected to drive forward earnings. Over the past three months, DUK shares have slightly outperformed their peers, with financial strength rated as Medium due to a solid balance sheet despite higher long-term debt. The company's strategic focus on regulated service territories and a pivot towards zero-carbon generation, including a future addition of 6,000 MW of solar and 2,700 MW of battery storage by 2031, cement its foothold in favorable demographics in the South-Eastern U.S. Risks encompass commodity price fluctuations, weather conditions, regulatory issues, and interest rate sensitivity. DUK's current valuation trends below peer averages, making it a secure investment in a volatile market.

Read the full article here. Read time: 7 min

+3 POINTS - WEEKLY TOURNAMENT

Which bonus stock idea was the most compelling to you?

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Yesterday’s Poll Results:

🟩🟩🟩⬜️⬜️ Babcock International Group ($BAB.L) [48%]

🟨🟨⬜️⬜️⬜️ Hasbro ($HAS) [28%]

🟥⬜️⬜️⬜️⬜️ Royalty Pharma ($RPRX) [24%]

Your comments:

  • 🧪 alpo*** ($RPRX): The royalty model is great for natural resources. I’m willing to bet it also works in pharma.

MARKET OVERVIEW

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

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Yesterday’s Poll Results: 73% bullish

And just like that everything was great in the markets again. The indexes were all WAY up, the Fear v Greed index jumped up to Extreme Greed levels, Yellowbrick Road readers are back above 70% bullish, and the news sentiment jumped WAY up to above 0.5 and well above the 7-day average.

STOCK MARKET NEWS

Cellular outage in US hits AT&T, T Mobile and Verizon users, Downdetector shows - Reuters 

Moderna posts surprise quarterly profit even as Covid vaccines sales plummet - CNBC 

Lucid forecasts annual vehicle production below estimates - Reuters 

Reddit makes US IPO filing public - Reuters 

Economic confidence among small business owners hits highest level since Biden took office - CNBC 

Weight-loss drugs could boost US GDP by 1% in coming years, Goldman says - Reuters 

Intuitive Machines to attempt first U.S. moon landing in over 50 years - CNBC 

Rivian to lay off 10% of salaried staff - Fox Business

FEATURED INSIDER TRADE

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Director at NorthWestern Energy Group, Inc. ($NWE)

The Director purchased 1,000 shares at $48.80/share ($48,800.00 total) which increased their vested holdings by 7.1%. The current price is $49.32 (+1.1%). Their median purchase size is $43,070.00 and this is their 1st largest purchase out of 3 all time. (trade link)

Historic Returns
1m returns: 9% weighted | 8% median | 100% win rate (2/2)
3m returns: 10% weighted | 9% median | 100% win rate (2/2)
6m returns: 21% weighted | 19% median | 100% win rate (2/2)
1y returns: 31% weighted | 31% median | 100% win rate (1/1)

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 key lesson was highlighted by the collapse of LTCM, as emphasized in 'When Genius Failed'?

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Yesterday’s Question: After the bailout in 1998, what happened to LTCM?

Answer: After the bailout, LTCM's positions were gradually unwound, and the fund was eventually dissolved. Its assets were liquidated to pay back the creditors and investors.

LINKS YOU’LL LOVE

+15 POINTS - WEEKLY TOURNAMENT

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+15 POINTS - WEEKLY TOURNAMENT

5 Takeaways from Nvidia’s Earnings Call (powered by Quartr)

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Quartr is the best tool for earnings calls, transcripts, slides, and reports. You can listen in real-time or look at any company’s historical earnings documents. Use the code “YB20” for 20% off!

Here are the 5 takeaways:

Jensen equaling NVIDIA's GPUs to the power generation plants of the industrial revolution

  • We are now at the beginning of a new industry where Al-dedicated data centers process massive raw data to refine it into digital intelligence. Like AC power generation plants of the last industrial revolution, VIDIA Al supercomputers are essentially Al generation factories of this industrial revolution. Every company and every industry is fundamentally built on their proprietary business intelligence, and in the future, their proprietary generative Al. Generative Al has kicked off a whole new investment cycle to build thenext trillion dollars of infrastructure of Al generation factories.

NVDA's conditions for continued growth next year are "excellent"

  • But fundamentally, the conditions are excellent for continued growth, calendar '24 to calendar '25 and beyond, and let me tell you why. We're at the beginning of 2 industry-wide transitions, and both of them are industry-wide. The first one is a transition from general to accelerated computing.

The $NVDA Hopper GPU has 35,000 parts and weighs 70 pounds

  • Overall, our supply chain is just doing an incredible job for us. Everything from, of course, the wafers, the packaging, the memories, all of the power regulators to transceivers and networking and cables, and you name it, the list of components that we ship. As you know, people think that NVIDIA

    GPUs is like a chip, but the NVIDIA Hopper GPU has 35,000 parts. It weighs 70 pounds. These things are really complicated things we've built. People call it an Al supercomputer for good reason. If you ever look at the back of the Data Center, the systems, the cabling system is mind-boggling. It is the most dense, complex cabling system for networking the world has ever seen.

$NVDA believes the world will double its data center infrastructure installed base over the next five years

  • We believe these two trends will drive a doubling of the world data center infrastructure installed base in the next 5 years and will represent an annual market opportunity in the hundreds of billions. This new Al infrastructure will open up a whole new world of applications not possible today. We started the Al journey with the hyperscale cloud providers and consumer Internet companies. And now every industry is on board, from automotive to health care to financial services to industrial to telecom, media and entertainment.

The key to $NVDA's success in AI is the fact that they own the only architecture that has been there since day one (AlexNet)

  • If you look at the reason why we're able to improve performance so much, it's because we have two characteristics about our platform. One is that it's accelerated, and two, it's programmable. It's not brittle. NVIDIA is the only architecture that has gone from the very, very beginning, literally at the very beginning when CNNs and Alex Krizhevsky and Ilya Sutskever and Geoff Hinton first revealed AlexNet, all the way through RNNs to LSTMs to every RLs to deep RLs to transformers to every single version and every species that have come along, vision transformers, multi-modality transformers that every single - - and now time sequence stuff. And every single variation, every single species of Al that has come along, we've been able to support it, optimize our stack for it and deploy it into our installed base. This is really the great amazing part.

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Secret Question: Any big weekend plans? My wife and I are heading to Park City to do some snowboarding!

WEEKLY TOURNAMENT

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🏆 This Week’s Leaderboard

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