Top stock ideas for September 15

The author is bullish on Stride Inc. (LRN), a provider of comprehensive virtual education services. The author points out the demand for online schooling solutions, driven in part by an increase in home-schooled children. The author underscores the value generated from Stride's acquisitions of Galvanize, Medcerts and Tech Elevator in 2020, stating that these purchases, which totaled around $260 million, have not only allowed Stride to expand its offerings but have also led to 70% year-over-year revenue growth. Additionally, the operating margins were noted to have significantly grown due to efficiency and automation initiatives. The Career Learning segment is anticipated to witness stable growth due to demand for industry-focused coursework. Despite competition risks and reliance on the growth of online education, the author predicts that Stride's share price could reach $70 to $80 over the next five years.

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The author believes CVS Health is undervalued and has a bullish outlook. They argue CVS' diverse operations in pharmacy retail, insurance, and pharmacy benefits management give it competitive advantages and moat sources like scale, cost benefits, and network effects. Following strategic acquisitions (Caremark in 2007, Aetna in 2018, and healthcare service provider Oak Street in 2023), CVS now boasts top-tier retail pharmacy, health insurance, and Pharmacy Benefits Management (PBM) franchises. The analyst views these as having potential to improve health outcomes and control costs. CVS plans to further delve into healthcare services, potentially accelerating its profit growth. Economic moat analysis assigns CVS a narrow economic moat rating due to scale-related cost advantages and network effects. Risks include healthcare reform, potential declining foot traffic at physical retail stores, and repeatedly delayed double-digit earnings growth. Though near-term headwinds like Medicaid eligibility changes may impact growth, the author sees CVS' leadership in higher-margin Medicare Advantage and employer-based plans offsetting this.

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The author of the article is bullish on Twilio (TWLO), emphasizing the belief that the company will likely accelerate its revenue growth in the future from its current rate of about 5%. The acceleration is expected due to the company's position in core industries such as CPaaS, CX, CDP, and Cloud-Native Contact Center. Given a challenging past, the author highlights Twilio's recent efforts in organization restructuring, go-to-market strategy improvements, and divestitures as turning points towards better execution and growth. They also draw attention to Twilio's vision of coupling its data asset with AI to unlock value for businesses. Despite the odds the company has faced, including fierce competition, interest rate pressures, and poor execution in the past, the author maintains confidence in Twilio's potential and places a strong emphasis on its bright future and their vision to be an AI-powered customer engagement platform is progressing. The author sees Twilio growing to $20B+ in revenue, with its NRR recovering to 120%+ in 12-36 months. Using conservative assumptions, they model potential 20%+ annualized returns over 10 years.

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The author ardently advises against investing in the pre-revenue stage stock, FREYR Battery (FREY), attributing his bearish perspective to a multitude of concerns. FREYR's initial competitiveness through low-cost renewable energy sourcing is found impractical, given the attractive tax incentives for domestic battery production in the U.S. FREYR's business model mainly relies on licensing technologies without exclusivity or substantial innovation on their part. European regulations pose a threat to FREYR's flagship production venture, the Giga Arctic Factory in Norway, by imposing a 10% tax on non-EU or UK manufactured batteries starting 2027. The future of FREYR's manufacturing prospects seems bleak, especially considering the unresolved regulatory barriers and lack of experience. The author also points out that FREYR is embarking on a financially demanding endeavor to construct a new factory in the U.S, triggering skepticism over the company's efficiency and the scalability of the 24M's technology they license. With a mounting need for cash, FREYR's entire future hinges on subsidies and equity financing, all remaining highly uncertain. FREYR's current $800 million valuation is deemed unjustifiable, given their lack of proprietary technology and experience, alongside the looming dilution of shareholder equity. The author concludes by recommending FREYR as an excellent short to balance exposure in the EV battery and energy storage sector.

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The author of the article is bullish on Accor, the fifth-largest asset light hotel group globally. Accor has substantially underperformed its peers over the past decade but the author believes that things are turning which could lead Accor to strong outperformance over the next few years. Several factors, including lower unit growth, poor capital allocation decisions, and mixed shift to lower-tier segments, have been pointed out as reasons for this underperformance. Despite still being down >20% compared to pre-Covid levels, Accor shares have started to improve. Accor’s geographical significance to Europe and Asia, and the recovery post-Covid in these regions play a major role in improving Accor's stock performance. The author emphasizes Accor’s strong positioning in Europe and believes this could drive group unit growth long after the US market is saturated with conversions. With the projected EBITDA recovery, impending buyback program, and the potential disposal of its remaining stake in AccorInvest, the author expects the stock price to reach circa $16.50 in 3 years, representing a 33% IRR.

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The analyst believes now is a good time to invest in Albertsons (ACI), given the market's increased chance of closing the pending buyout from Kroger (KR). Due to the earnings ACI had appreciated, the arbitrage gap has narrowed to ~15%, while the merger completion sets out a 15% upside for ACI. It is also stated that should the merger fail, there lies roughly a 10% downside. However, the author remains optimistic that the chance of completion is greater than 50%. Obstacles, such as monopolistic fear from consumers and inadequate competition, have been diminished due to the planned sale of overlapping stores to C&S Wholesale, a company that is favored for its operational strength, which makes for a more competent rival to KR/ACI's soon-to-be united front. Although there is a downside to Kroger shareholders in terms of assets sold at an EBITDA multiple being lower than expected, KR's CFO explains that the projections remain on track for amalgamation. Therefore, the analyst sees no clear obstacles to hinder the merger from wrapping up in Q1 or Q2 of 2024.

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