Top stock ideas (Mon, Feb 19)

Author

Connor Van Ooyen
February 19, 2024

👋 Good Morning!

It is President’s Day in the US, so there won’t be a CEO Watcher Premium email today (if you aren’t already subscribed to my CEO Watcher newsletter, you should be) and tomorrow’s YBR email will be a tad shorter (no News or Market Overview section).

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 171 new readers who joined over the weekend!

Our AI read and summarized 152 stock ideas, 841 news articles, and 177 insider trades and found:

  • A supply chain SaaS company with 70% upside in 3 years (featured stock idea)

  • Drug detection company with 375% upside, $VOD has a 12% dividend and 81% upside, and $AREN is an investor’s favorite idea (bonus stock ideas)

  • Super Micro Computer shares hit record, then reverses course (news)

  • CEO at $AGEN buys $324k in 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

FEATURED STOCK IDEA

BLOG POST

E2open Parent Holdings, Inc. Embracing Transformation for Growth

E2open Parent Holdings, Inc. provides cloud-based and end-to-end supply chain management and orchestration SaaS platform in the Americas, Europe, and the Asia Pacific. Its software solutions orchestrate supply chains and realize value and return on investment for its blue-chip customers.

Ticker: ETWO | Price: $4.02 | Price Target: $6.80 (+69%)
Market Cap: $1.2B | Timeframe: 3 years

💻 Enterprise SaaS | ⛓️ Supply Chain Management | 📈 Bullish Idea

E2open Parent Holdings, Inc. (ticker: ETWO) is misunderstood as a stagnating, over-leveraged company that grew through acquisitions, but is undergoing a transformation to focus on organic growth and integration of its acquired assets. With strong product offerings, improving market conditions, and technological tailwinds, ETWO shows promise for growth. Currently trading at under 12x its FY 2025 EBITDA with a mid-30s percentage margin and a capital-light, recurring revenue model, the company suggests a minimal downside risk. Despite a troubled transition due to high turnover and salesforce issues, new leadership, including CEO Andrew Appel and CCO Greg Randolph, is driving a strategic pivot towards increasing SaaS revenues and resolving salesforce challenges. Growth assumptions below management's earlier 12% target still indicate substantial upside potential, with a conservative mid-single to high-single digit growth trajectory leading to a share price target of $6.80+, which implies a 20%+ three-year IRR. Shareholders like Elliott Management holding significant stakes add pressure for success, and the potential for a buyout provides additional downside protection. However, the pivot relies on internal changes and improved sales, with limited KPI visibility for shareholders, posing a risk. Upside risk includes a potential take-private scenario that could limit gains from the recovery.

Read the full article here. Read time: 6 min

+3 POINTS - WEEKLY TOURNAMENT

How do you rate the featured stock idea?

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Yesterday’s Featured Stock Idea

ALEXANDRIA R E EQUITIES INC - $ARE

🟩🟩🟩⬜️⬜️ - Buy (46%)
🟥🟥⬜️⬜️⬜️ - Pass (36%)
🟨⬜️⬜️⬜️⬜️ - Watchlist (18%)

  • ✅ alpot**** - Biotech RE accommodating major R&D institutions likely to be safe from CRE disaster. Financials and dividend are attractive

  • 🔎 cuffu**** - It's missed earnings the last couple of quarters and has a huge PE ratio

  • 🔎 palme**** - There are two gaps to fill. Earnings came out not too long ago and I think it will trend downwards. Let's wait and see. ”

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

TODAY’S SPONSOR

+15 POINTS - WEEKLY TOURNAMENT

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BONUS STOCK IDEAS

VALUE INVESTORS CLUB

PSYCHEMEDICS CORP - $PMD

Psychemedics Corporation provides testing services for the detection of drugs of abuse through the analysis of hair samples in the United States and internationally.

Ticker: PMD | Price: $2.95 | Price Target: $14 (+374%)
Market Cap: $17M | Timeframe: N/A

🧪 Drug Testing | 💼 Acquisition Target | 💰 9.4% Dividend | 📈 Bullish Idea

Psychemedics Corporation (PMD) is an established leader in hair drug testing with a strong reputation for scientific excellence in a market expected to outpace GDP growth owing to the test's effectiveness in identifying drug users—a factor important for companies seeking drug-free environments. Current industry headwinds, such as a tight labor market that discourages stricter drug testing, are anticipated to normalize, benefiting PMD. Previous CEO Ray K. adopted a conservative approach focused on dividend maintenance rather than innovation, but the new CEO, Brian Hullinger, has a proven track record in value creation, and his appointment, likely influenced by board member and acclaimed investor Peter Kamin, signals a strategic shift poised for growth and improved industry relations. The anticipation of hair testing potentially receiving Department regulatory approval could further boost PMD's business. PMD's financial prospects look to return to an EBITDA of $6.5M, akin to pre-Brazil 2013 levels, with longer-term prospects of reaching $9-12M EBITDA, considering potential regulatory advantages. This performance could result in an acquisition at an 8-9x EBITDA multiple, offering a price target of $14. The company boasts a net cash balance sheet, executive alignment through RSUs, and is an attractive prospect for strategic acquisition by larger players like Labcorp and Quest. While there are concerns over Kamin's history of delisting, there are significant reasons to believe PMD is a sell candidate within 2-3 years without delisting, driven by new management initiatives. The stock appears to be undervalued due to tax selling and investor biases, with significant value creation potential ahead. The author discloses a personal investment in PMD and advises others with holdings in the company.

Read the full article here. Read time: 5 min

ANALYST REPORT

Vodafone Group Public Limited Company: Remains Active in Its Mergers and Acquisitions Strategy

Vodafone Group Public Limited Company provides telecommunication services in Europe and internationally.

Ticker: VOD | Price: $8.29 | Price Target: $15 (+81%)
Market Cap: $22B | Timeframe: N/A

📞 Telecommunications | 💰 12% Dividend | 📈 Bullish Idea

Vodafone Group PLC (Ticker: VOD) is strategically navigating mergers and acquisitions, with a fair value estimate of GBX 125 (~$15 USD). Despite growth challenges in Germany and Italy, it's progressing with significant decisions like merging its UK unit with CK Hutchison and divesting from Spain. However, the rejection of Iliad's merger offer in Italy and competitive pressures in Spain and Italy are causing revenue declines, contrasting with its strong performance in Africa and the Middle East. The company's diversified investments and presence in key markets underpin its strategy, although it faces competitive and operational challenges, particularly in Italy and Spain. Analysts suggest potential for share price appreciation with proactive divestment and emphasize the importance of focusing on debt reduction and strategic divestment over dividend growth. Vodafone's future outlook is influenced by revenue trends across its key markets, capital investments, and the impact of joint ventures and market uncertainties, especially in Italy and Spain.

Read the full article here. Read time: 13 min

TWITTER

My favorite idea: Arena Group Holdings ($AREN)

The Arena Group Holdings, Inc., together with its subsidiaries, operates digital media platform the United States and internationally. The company offers the Platform, a proprietary online publishing platform comprising publishing tools, video platforms, social distribution channels, newsletter technology, machine learning content recommendations, notifications, and other technology.

Ticker: AREN | Price: $1.80 | Price Target: N/A
Market Cap: $45M | Timeframe: N/A

📰 Online Media Publishing | 📈 Bullish Idea

My current favorite investment idea is AREN, a company that experienced a significant drop in stock price after announcing its intention to terminate an unprofitable deal with Sports Illustrated (SI). This termination led AREN to default on debt owed to its largest shareholder, Bhargava, and put the company at risk of bankruptcy due to a potential $45 million termination fee payable to ABG, the rights holder of SI. This prospect alarmed many investors. However, Bhargava, the billionaire founder of the 5-hour energy drink company, is not just any shareholder. He plans to acquire a majority of AREN’s shares, merge it with some of his assets, and create a media empire. Despite concerns over AREN's possible bankruptcy and current unprofitability, Bhargava recently announced his purchase of $12 million worth of primary shares at $2.16 each, a notable premium over the current stock price. His investment, especially given his intimate knowledge of the company's situation, suggests confidence in AREN’s future. I am also optimistic that the SI issue will be resolved without AREN having to pay the hefty termination fee. Once resolved, a complex but significant merger, detailed in the recently filed S-4, will proceed, involving Bhargava purchasing more AREN shares at higher prices. This brief summary aims to inform about this complex situation ahead of Bhargava's 13D/Form 4 filing, revealing his substantial premium stock purchase.

Read the full article here. Read time: 2 min

+3 POINTS - WEEKLY TOURNAMENT

Which bonus stock idea was the most compelling to you?

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Yesterday’s Poll Results:

🟩🟩🟩⬜️⬜️ Blend Labs ($BLND) [47%]

🟨🟨⬜️⬜️⬜️ Philip Morris ($PM) [31%]

🟥⬜️⬜️⬜️⬜️ Spotify ($SPOT) [22%]

MARKET OVERVIEW

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

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Yesterday’s Poll Results: 65% bullish

Surprisingly, the news sentiment and Fear v Greed index held up okay even though all of the indexes were red on Friday. The Fear v Greed index actually gained a point and the news sentiment is just above the 7-day average. Yellowbrick Road readers had their first dip in sentiment, dropping from mid-70% bullish to mid-60%.

STOCK MARKET NEWS

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High-flyer Super Micro Computer shares hit record, then reverse course - Reuters 

Nike to lay off 2% of employees, cutting more than 1,500 jobs during broad restructuring - CNBC 

DoorDash projects upbeat 2024 core profit on robust delivery demand - Reuters 

Apple plans AI-based code completion tool -report - Reuters 

Microsoft will bring four Xbox games to other companies' consoles - CNBC 

Jeff Bezos sells another $2B in Amazon stock, brings weekly cashout total to $6B - New York Post 

January wholesale prices rise 0.3%, more than expected - CNBC 

OpenAI valued at $80 billion after deal, NYT reports - Reuters 

SoftBank's Son is seeking about $100 Bln for AI chip venture - Bloomberg News - Reuters 

FEATURED INSIDER TRADE

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

Chairman and CEO at AGENUS INC ($AGEN)

The See Remarks purchased 500,000 shares at $0.65/share ($324K total) which increased their holdings by 25.8%. The current price is $0.65 (+0.9%). Their median purchase size is $324K and this is their 4th largest purchase out of 7 all time. (trade link)

Historic Returns
1m returns: 14% weighted | 13% median | 80% win rate (4/5)
3m returns: 25% weighted | 30% median | 80% win rate (4/5)
6m returns: 25% weighted | 26% median | 80% win rate (4/5)
1y returns: 19% weighted | 28% median | 75% win rate (3/4)

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

Following the Asian Financial Crisis in 1997, which event in 1998 further exacerbated LTCM's troubles, leading to near-collapse?

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Yesterday’s Question: What was the first major financial crisis that significantly impacted Long-Term Capital Management (LTCM), leading to its first substantial losses in 1997?

Answer: The Asian Financial Crisis of 1997, which started in Thailand and quickly spread to other parts of Asia, caused significant market upheaval. This crisis severely impacted LTCM's highly leveraged trading strategies, leading to substantial losses in the same year.

LINKS YOU’LL LOVE

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Microsoft and Apple are both worth more than the combined value of the 10 biggest companies in the EU

Pretty surprising, but Toyota stock has crushed Tesla over the last few years

* Sponsored link

SECRET QUESTION

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WEEKLY TOURNAMENT

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🏆 Last Week’s Winners

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