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Top stock ideas (Thu, Feb 15)
Connor Van Ooyen
February 15, 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 167 new readers who joined yesterday!
Our AI read and summarized 141 stock ideas, 1099 news articles, and 144 insider trades and found:
80% upside and 12% dividend for $BTI (featured stock idea)
$EL has 56% upside, IWG’s path to success, and 7.5% dividend in oil/gas company (bonus stock ideas)
Uber stock pops more than 10% (news)
3 biggest insider trades (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
British American Tobacco: ~12% Dividend Yield for 'Glass Half Full' Investors
British American Tobacco p.l.c. engages in the provision of tobacco and nicotine products to consumers worldwide. It also offers vapour, heated, and modern oral nicotine products; combustible cigarettes; and traditional oral products, such as snus and moist snuff.
Ticker: BTI | Price: $30.31 | Price Target: $54.93 (+81%)
Market Cap: $68.5B | Timeframe: end of 2026
🚬 Tobacco | 💰 11.82% Dividend | 📈 Bullish Idea
British American Tobacco (BATS.L) reported stable 2023 profits despite a struggling U.S. market and posted revenue growth driven by its non-U.S. segments. The company faces challenges from declining U.S. cigarette volumes and competition in New Categories but anticipates revenue and PfO growth in the low-single-digits for 2024 with a flattish EPS. Its strategic efforts include potential buybacks resuming in 2024, underpinned by its plan to reduce its stake in ITC, which could bring in up to £2bn. With shares trading at 2,480.2p and a valuation of 6.6x P/E and a 15.1% FCF Yield, the stock offers a 9.5% dividend yield and is projected to generate a 78% total return (25.2% annualized) by the end of 2026. The investment thesis also hinges on potential regulatory crackdown on illicit e-vapor products which could stabilize U.S. cigarette volumes. BAT, offering a significant yield and upside, is rated a Buy, with a preference over Altria due to a stronger presence in Reduced Risk Products, but it remains second to Philip Morris, which is considered a higher-quality stock.
Read the full article here. Read time: 10 min
+3 POINTS - WEEKLY TOURNAMENT
How do you rate the featured stock idea? |
Yesterday’s Featured Stock Idea
Driven Brands Holdings ($DRVN)
🟩🟩🟩⬜️⬜️ - Buy (52%)
🟥⬜️⬜️⬜️⬜️ - Pass (27%)
🟨🟨⬜️⬜️⬜️ - Watchlist (21%)
❌ jdenn**** - No reason to enter this week with earnings next week and a massive lawsuit pending in North Carolina with a pension fund's legal team.
❌ burkh**** - I spent my life in the automotive aftermarket. The DRVN brands were competitors and sometimes customers, but they were not much of a factor. They also have a ton of long-term debt. Mostly though, I want to know what happened last August, when the share price fell off a cliff.
There are 3 more stock ideas after “Today’s Sponsor”
TODAY’S SPONSOR
+15 POINTS - WEEKLY TOURNAMENT
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BONUS STOCK IDEAS
BLOG POST
Estée Lauder: Inflection Point After Q2 FY24
The Estée Lauder Companies Inc. manufactures, markets, and sells skin care, makeup, fragrance, and hair care products worldwide.
Ticker: EL | Price: $142.65 | Price Target: $222 (+56%)
Market Cap: $52.4B | Timeframe: June 2026
💄 Beauty Products | 💰 1.8% Dividend | 📈 Bullish Idea
Estée Lauder (EL) has experienced a significant 59% drop in share price since 2021, currently trading at $150.28 after a 12% post-results increase, but management anticipates a turnaround with resumed sales growth and has expanded their 'profit recovery' plan to cut headcount by 3-5% and achieve $1.1-1.4 billion in incremental EBIT by FY26, up from the original $0.8-1.0 billion target. Despite a 7.6% organic sales decline in Q2 FY24 and slight adjustments downward in FY24 guidance due to geopolitics and tax rates, the company predicts an 'inflection point' in Q3 FY24 with 4-6% organic sales growth. Significant inventory reductions have been made and restructuring will begin in Q3 FY24 aiming to yield gross savings of $350-500 million. EL trades at a 27.4x P/E ratio on FY19 figures and with predictions of a Net Income CAGR at 5.5% through FY26, there is an expected 53% total (19.7% annualized) return by June 2026 with a $222 price target. The bullish outlook is predicated on EL's strong brand franchises and manageable debt levels, despite operational execution concerns and recent missteps. Our analysis maintains a Buy rating on Estée Lauder.
Read the full article here. Read time: 8 min
BLOG POST
IWG's Path to Success in Office Real Estate Transformation
IWG plc, together with its subsidiaries, provides workspace solutions in the Americas, Europe, the Middle East, Africa, the Asia Pacific, the United Kingdom, and internationally.
Ticker: IWG.L | Price: 192.60 | Price Target: N/A
Market Cap: 2B | Timeframe: N/A
🖥️ Flexible Workspaces | 📈 Bullish Idea
IWG plc (IWG.L) is a leading global provider of flexible workspaces, holding a commanding market position distinct from the ill-fated Wework, with IWG's rigorous cost-discipline translating into a historically profitable business, unlike its high-growth, loss-making competitor. With a network spanning 3,445 locations across 120 countries and catering to over 8 million users, the company serves a significant portion of Fortune 500 companies. Despite the impacts of COVID-19, IWG's legacy company-owned operations are nearing pre-pandemic EBITDA levels, with the business anticipated to reach around $350 million EBITDA by 2024. The company is projected to realize a $700 million contribution profit in 2023, with maintenance capex forecasted below $100 million annually, and interest and tax payments roughly $70 million, resulting in an approximate free cash flow (FCF) of $180 million per year. In addition to its primary operations, IWG's Worka segment (formerly Instant Group), a marketplace for flexible workspace services, is expected to deliver $448 million in revenue and $150 million in EBITDA for 2023. This segment has been rumored to be valued at $2 billion, potentially being sold off or spun-off as a separate entity. Worka boasts a compelling growth profile, having expanded revenue at over 20% CAGR in the last decade, and if maintained at a more conservative 15% EBITDA CAGR, the business could be worth between $6 billion to $9 billion by 2033. Furthermore, IWG's transition to a capital-light managed and franchised business model could amplify growth without the capital intensity that hobbled Wework, enabling a comparably modest revenue growth rate historically. With the current market cap markedly low relative to the industry potential and considering IWG's pioneering position in the flexible workspace market, combined with the transformation to a capital-light business model, the company is poised for significant valuation growth, positioned as a potential 10-bagger over the next decade. Currently, IWG is the most considerable holding in my portfolio at 16%, ticking all the boxes for a long growth runway at a price I consider not just reasonable, but cheap.
Read the full article here. Read time: 6 min
BLOG POST
Enterprise Products Partners: This 8% MLP Yield Is Way Too Good To Miss
Enterprise Products Partners L.P. provides midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, petrochemicals, and refined products.
Ticker: EPD | Price: $26.51 | Price Target: $29 (+9.3%)
Market Cap: $57.4B | Timeframe: FY 2024
🛢️ Oil/Gas | 💰 7.56% Dividend | 📈 Bullish Idea
Enterprise Products Partners L.P. (NYSE: EPD) surpassed Q4 expectations with robust volume momentum in core businesses, attributing its appeal to predictable cash flows backed by long-term supply contracts and strong distribution coverage in FY 2023. The midstream company, which operates extensive U.S. pipeline networks, witnessed 20% Y/Y growth in marine terminal volumes and 16% in NGL fractionation, driven by a growing economy and reduced inflation. About 77% of EPD's gross margin was fee-based in FY 2023, up by 3 PP from FY 2022, ensuring stable EBITDA and cash flows. With $6.8B in growth projects, EPD is set to enhance its cash flow, particularly with two new gas processing plants in the productive Permian basin, due online in FY 2024. The firm boasts high investor cash returns, distributing $4.5B (94% FCF) in dividends and buybacks in 2023. EPD, with an EV/EBITDA ratio of 8.9X and potential for modest EBITDA growth, is undervalued compared to peers like Enbridge and Kinder Morgan, and could see a 12% upside if valued at 10X EBITDA. Possible risks include reliance on organic cash flow growth in a large enterprise value context and speculative demand for gas processing affecting growth project outcomes. Nevertheless, with a solid 8.1% yield and growth in distributions, EPD is an attractive income investment for FY 2024.
Read the full article here. Read time: 5 min
+3 POINTS - WEEKLY TOURNAMENT
Which bonus stock idea was the most compelling to you? |
Yesterday’s Poll Results:
🟩🟩🟩⬜️⬜️ StealthGas Inc ($GASS) [76%]
🟨🟨⬜️⬜️⬜️ Baezer Homes ($BZH) [17%]
🟥⬜️⬜️⬜️⬜️ Anexo ($ANX.L) [7%]
MARKET OVERVIEW
Are you short-term bullish or bearish on the market? |
Yesterday’s Poll Results: 73% bullish
And in just one day everything has turned bullish again. All of the indexes were green with the Russell index leading the way at +2.44%. The news sentiment jumped back to positive and above the 7-day average. The Fear v Greed index rose 7 points but hasn’t quite made it back to “Extreme Greed” levels. Yellowbrick Road readers remain very bullish with dans**** even calling for the S&P to hit $6k by the end of the year.
STOCK MARKET NEWS
Uber stock pops more than 10% on $7 billion share buyback - CNBC
Nvidia passes Alphabet in market cap and is now the third most valuable U.S. company - CNBC
Cisco to lay off 5% of workforce, cuts annual revenue forecast - Reuters
Heineken's profits suffer as price hikes hit volumes - Proactive Investors
High inflation is still squeezing Americans' budgets - Fox Business
Mortgage rates surge higher again, causing homebuyers to pull back - CNBC
Colorado sues to stop $25 billion Kroger-Albertsons merger - Reuters
Meta says Broadcom CEO Hock Tan is joining board of directors - CNBC
Sony posts record quarterly revenue, smashing through expectations, on PlayStation bump -
Typo in earnings report sends Lyft stock soaring 67% — then crashing: ‘A debacle of epic proportions' - New York Post
Daniel Loeb's Third Point slashes stake in Uber - Reuters
Bridgewater increased Nvidia stake more than 450% in Q4 -filings - Reuters
BIGGEST INSIDER TRADES
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10% Owner at MERCURY SYSTEMS INC ($MRCY) purchased 1,335,850 shares at $27.90/share ($37.27M total) which increased their holdings by 25.6%. Their median purchase size is $8.69M and this is their 1st largest purchase out of 3 all time (link)
CEO and Chairperson at Helix Acquisition Corp. II ($HLXB) purchased 2,400,000 shares at $10.00/share ($24.00M total) which increased their holdings by 0.0%. Their median purchase size is $15.30M and this is their 3rd largest purchase out of 13 all time (link)
10% Owner at Childrens Place, Inc. ($PLCE) purchased 1,849,400 shares at $11.02/share ($20.39M total) which increased their holdings by 148.2%. Their median purchase size is $458K and this is their 3rd largest purchase out of 45 all time (link)
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
By 1997, LTCM began to diversify into what type of trades, which were riskier and more speculative than its traditional arbitrage strategies? |
Yesterday’s Question: Which regulatory change in 1996 posed a challenge to LTCM's bond arbitrage strategy, leading it to seek riskier trades?
Answer: The revision of the U.S. bankruptcy code in 1996 adversely affected LTCM's bond arbitrage strategy. The revision included a provision known as the "safe harbor" for derivatives. This provision meant that in the event of a bankruptcy, derivatives contracts could be terminated immediately, and counterparties could claim their collateral, bypassing the usual stay on claims by other creditors. This change increased the risk associated with certain types of arbitrage strategies, including those used by LTCM.
LINKS YOU’LL LOVE
+15 POINTS - WEEKLY TOURNAMENT
Michael Burry’s investment strategy one-pager
* Sponsored link
WEEKLY TOURNAMENT
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🏆 This Week’s Leaderboard
stocks**** (102 points)
bszym*** (102 points)
evie_**** (102 points)
Scoring
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+50 points for referring a friend
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MY OTHER FREE NEWSLETTERS
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+3 POINTS - WEEKLY TOURNAMENT
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