Top stock ideas (Mon, Dec 18)

Author

Connor Van Ooyen
December 18, 2023

👋 Good Morning!

Welcome to the 167 new readers who joined over the weekend!

Our AI read and summarized 71 stock ideas, 1214 news articles, and 131 insider trades and found:

  • An analyst gives $CRSP a 90% upside (featured stock idea)

  • The fed isn’t promising that they are done raising rates (news)

  • A Director at $CMG bought $2M of his own stock (insider trade)

  • An oil and gas stock with a 15% dividend (bonus stock idea)

  • and much more…

Thanks for reading! Have a great day.

Connor

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Premium members can see all of the exclusive stock ideas on Discord (and the Yellowbrick Road Premium Portfolio) by clicking the button below.

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FEATURED STOCK IDEA

ANALYST REPORT

CRISPR Therapeutics: FDA Approves Gene Editing Drug for Sickle Cell Disease; Positive Long-Term Outlook

CRISPR Therapeutics is a clinical-stage gene editing company focused on the development of CRISPR/Cas9-based therapeutics. Its proprietary platform addresses rare diseases or disorders caused by genetic mutations, with a notable collaboration with Vertex Pharmaceuticals for its lead candidate exa-cel.

Ticker: CRSP | Price: $62.08 | Price Target: $119 (+92%) | Timeframe: N/A

🧬 Gene Editing | 📈 Bullish Idea

Crispr Therapeutics in collaboration with Vertex Pharmaceuticals obtained FDA approval for their sickle cell disease gene-editing drug, Casgevy (Exa-cel), setting its U.S. wholesale cost at $2.2 million, near our $1.5 million estimation. We foresee high uptake over Bluebird Bio's more expensive and risk-warned Lyfgenia, reinforcing a robust long-term perspective. Crispr, specializing in CRISPR/Cas9 technology for genetic diseases, lacks approved drugs and boasts a largely early-stage pipeline, ascribing the company no economic moat and emphasizing its high uncertainty. However, if Exa-cel, geared to treat sickle cell disease and beta-thalassemia, garners approval, a reevaluation towards a narrow moat could be considered. Our fair value estimate for Crispr holds at $119 per share, indicating a significant undervaluation, with partnership benefits, the potential for pricing power, and pipeline advancements countering competitive pressures and regulatory uncertainties. Crispr's capital allocation is rated as Standard, reflecting a stable balance sheet, sensible investments, and suitable shareholder distributions, with leadership under Dr. Samarth Kulkarni, who brought valuable biotech knowledge from his tenure at McKinsey.

Read the full article here (paid). Read time: 11 min

POLL - FEATURED STOCK IDEA

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How do you rate the featured stock idea?

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Yesterday’s Rating (link):

Microsoft Corp ($MSFT)

🟩🟩🟩⬜️⬜️ - Buy (51%)
🟥⬜️⬜️⬜️⬜️ - Pass (22%)
🟨🟨⬜️⬜️⬜️ - Watchlist (27%)

This stock pitch had the highest buy rating we’ve ever seen by a large margin (and is one of my personal holdings and in the Yellowbrick Road portfolio).

The readers that voted to “pass” or “watchlist” (like danda***, dougl***, and more) mostly pointed out how expensive the stock is and that the price action to close out the day on Thursday pointed to a rally that may be coming to an end (though it did jump another 1.5% on Friday). The “readers” voting buy (like aldent***, emoj***, joelm***, and more) pointed out its importance in AI and dominant execution as a company over the last few years.

* There are more stock ideas later in the email!

MARKET OVERVIEW

Today’s market overview is brought to you by BehindTheMarkets. Get their free report on a small, publicly traded biotech that is working on the discovery of a lifetime: using a "drug smuggler" to fight Alzheimer's, Parkinson's, and Dementia.

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Yesterday’s Poll Results: 54%

The market cooled a little bit to end last week with the S&P 500 and Russell indexes down slightly, the Fear v Greed index falling 4 points to 67, the news sentiment fell back to just barely above the previous week’s average, and Yellowbrick Road readers fell one point to 54% bullish.

STOCK MARKET NEWS

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QUIZ

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What was the first video game developed by Nintendo in the 1970s?

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Yesterday’s Question (link): Before becoming a global leader in electric vehicles, what was Tesla Motors' first electric car model?

Answer: The Roadster! It was launched all the way back in 2006 (on a lotus chassis as pointed out by shawz***).

TOP INSIDER TRADE

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Director at CHIPOTLE MEXICAN GRILL INC ($CMG)

The Director purchased 877 shares at $2284.81/share ($2.00M total) which increased their holdings by 118.7%. The current price is $2271.47 (-0.6%). (trade link)

Historic Returns
1m returns: 4% weighted | 7% median | 50% win rate (1/2)
3m returns: 25% weighted | 20% median | 100% win rate (2/2)
6m returns: 21% weighted | 21% median | 100% win rate (2/2)
1y returns: 49% weighted | 42% median | 100% win rate (2/2)

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BONUS STOCK IDEAS

BLOG POST

M&A Arb Update: Tapestry Acquiring Capri

Capri Holdings Limited is a multinational fashion holding company, incorporated in the British Virgin Islands, with executive offices in London and operational offices in New York. It was founded in 1981 by American designer Michael Kors.

Ticker: CPRI | Price: $49.28 | Price Target: $57 (+16%) | Timeframe: 2024

👜 Luxury Fashion | 🤝 Acquisition | 📈 Bullish Idea

Tapestry (TPR), known for its brands Coach, Kate Spade, and Stuart Weitzman, has proposed to acquire Capri Holdings (CPRI), which owns Michael Kors, Jimmy Choo, and Versace, for $57/share, an $8.5 billion valuation with expectations to close in 2024. The market, however, shows skepticism, pricing in only a 62% probability as of December 5th. Concerns include FTC anti-trust scrutiny, which seem unfounded in the retail sector with precedents such as LVMH’s acquisition history; European Commission investigations, which have nonetheless cleared similar mergers; and the SAMR approval in China, which historically has a high approval rate for mergers. TPR's financing capability is not a major obstacle given the expected $12 billion in annual sales, nearly $2 billion adjusted operating profit, and ~$200 million in synergies with a strategy to reduce the leverage from the acquisition. The deal is mainly driven by strategic motives as both companies seek to combat slowing growth and aim for international market penetration. Overall, Paul Cerro from Cedar Grove Capital maintains that contrary to market fears, the deal is unlikely to face insurmountable obstacles from regulation, financing, or operational integration.

Read the full article here. Read time: 6 min

BLOG POST

ServiceNow: Should this AI winner be the Magnificent 8th?

ServiceNow is a cloud-based platform that provides solutions to manage digital workflows for enterprise operations. Serving 85% of the Fortune 500, it's considered essential for many corporate and government IT departments, acting as the 'central nervous system' for IT assets and offering strong capabilities in data analytics and AI, particularly through its Now Platform.

Ticker: NOW | Price: $698.24 | Price Target: N/A | Timeframe: N/A

🤖 AI | 💻 IT Enterprise SaaS | 📈 Bullish Idea

ServiceNow is a potential AI giant overlooked alongside the 'Magnificent 7', despite being integral to 85% of the Fortune 500 companies' IT operations. Seen as the 'central nervous system' for corporate IT departments, ServiceNow's immense data repository offers hidden competitive advantages, a fact not fully reflected in investor valuations. Its Now Platform streamlines operations and collects valuable data, pivotal for AI, and the company’s AI capabilities have soared since acquiring Element AI and onboarding AI luminary Yoshua Bengio. With only 4% of its total addressable market tapped, ServiceNow has substantial growth potential, as it delivers significant productivity gains—up to 60-80%—which represents a monumental monetization opportunity since its software incurs just 1-5% of a company's IT spend. ServiceNow's AI-driven services could enable customers to save considerably even if they triple payments to the company, demonstrating ServiceNow's immense pricing power. Investors should recognize ServiceNow’s potential for capturing major wins from AI advancements, being a long-term winner in the enterprise software space, driven by its value-creation and mission-critical standing in corporations and governments.

Read the full article here. Read time: 4 min

BLOG POST

Quick Value #197 - Unit Corp ($UNTC)

Unit Corporation is an energy company that operates oil & gas wells in Texas/Oklahoma and provides contract drilling services for other energy companies. It sold its midstream segment in April 2023 and has been liquidating assets since bankruptcy emergence in 2020.

Ticker: UNTC | Price: $65.60 | Price Target: $85 (+31%) | Timeframe: N/A

🛢️ Oil/Gas | 🔄 Turnaround | 💰 15% Dividend | 📈 Bullish Idea

Unit Corporation (UNTC), an energy company post-bankruptcy, with operations in oil & gas wells and contract drilling, has announced a staggering series of dividends equating to $22.50 per share on a stock trading around $56—yielding over a 40% immediate return and an ongoing 18% yield from a $2.50 quarterly dividend. The company has been in a state of semi-liquidation since 2020, selling off assets which amassed to $180m, and has a shareholder-friendly management in place, backed by a clean balance sheet with about $37m net cash post-dividend distribution. The contract drilling segment could be valued around $330m based on a 4x TTM EBIT or $490m on rig replacement cost. The production segment has recent asset sales, including a $55m sale potentially adding $5/share, and is estimated to be worth around $270m based on 4.5x EBITDA. With the combined asset values, anticipated dividends, and robust earnings from remaining operations, the company showcases a potential underlying worth of $85/share against its $56 share price. The value proposition remains favorable but hinges on the post-dividend stock price, hinting that the 'stub' security might be an attractive buy once the initial excitement surrounding the dividend distribution settles. The author discloses intent to potentially buy shares based on market prices.

Read the full article here. Read time: 3 min

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Which bonus stock idea was the most compelling to you?

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Yesterday’s Poll Results (link):

🟩🟩🟩⬜️⬜️ British America Tobacco ($BTI) [44%]

🟨🟨⬜️⬜️⬜️ Lululemon ($LULU) [29%]

🟥⬜️⬜️⬜️⬜️ Fiverr ($FIVR) [27%]

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