Top stock ideas (Thu, Feb 29)

Author

Connor Van Ooyen
February 29, 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 107 new readers who joined yesterday!

Our AI read and summarized 156 stock ideas, 1333 news articles, and 314 insider trades and found:

  • Tiptree Inc. ($TIPT) is poised for a 50%+ stock price increase (featured stock idea)

  • $ESTC is a less talked about AI beneficiary, the publisher of Harry Potter is undervalued and has a 2.5% dividend, and a homebuilder supplier with nearly 200% upside (bonus stock ideas)

  • Snowflake says Frank Slootman is retiring as CEO; stock plunges 20% (news)

  • President and CEO at Enact Holdings bought hte 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

VALUE INVESTORS CLUB

Fortegra and Tiptree - $TIPT

Tiptree Inc., through its subsidiaries, provides specialty insurance products and related services primarily in the United States. The company operates in two segments, Insurance and Mortgage.

Ticker: TIPT | Price: $17.67 | Price Target: $29.10 (+65%)
Market Cap: $624M | Timeframe: N/A

💸 Specialty Insurance | 🚨 Event Driven | 📈 Bullish Idea

Tiptree Inc. (TIPT) is poised for a 50%+ stock price increase, targeting $29.10, triggered by the upcoming IPO of its 73.1%-owned subsidiary, The Fortegra Group (TFG), managed by a top-tier syndicate including Goldman Sachs and JPM. Fortegra, a niche specialty insurer, has demonstrated strong growth with a 25% CAGR in premiums since 2019, maintaining combined ratios in the low 90s, and returns on equity around 30%. Fortegra's expected late January IPO at 17.5x 2023 Adjusted Net Income could undervalue Tiptree's ownership at approximately $31.87/share, suggesting significant market mispricement given TIPT's obscurity with no sell-side coverage and its portrayal as merely an O&G services company. If Fortegra is accurately valued like its peers at 19.4x EPS, TIPT’s share could be worth $39.95, given Fortegra’s 2023 Adjusted Net Income estimates. Tiptree, beyond Fortegra, holds Tiptree Capital (10% value), including mortgage originator Reliance and senior housing company Invesque, valued at $4.74/share. Corporate costs are a detractor at ~$7.51/share. However, the Fortegra IPO should catalyze a re-rerating of TIPT’s stock as the market recognizes the value subsequent to the IPO. Our firm holds a long position in TIPT, with the understanding that this note’s reader should perform independent due diligence before investing.

Read the full article here. Read time: 15 min

+3 POINTS - WEEKLY TOURNAMENT

How do you rate the featured stock idea?

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Yesterday’s Featured Stock Idea

International Money Express ($IMXI)

🟩🟩🟩⬜️⬜️ - Buy (46%)
🟥🟥⬜️⬜️⬜️ - Pass (31%)
🟨⬜️⬜️⬜️⬜️ - Watchlist (23%)

  • ✅ jasonm**** - The ROIC exceeding 20% is indicative of efficient capital utilization and strong operational performance. The stock may be undervalued considering its growth trajectory.

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

TODAY’S SPONSOR

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BONUS STOCK IDEAS

TWITTER

$ESTC: Riding the Wave of Enterprise AI (Scotiabank)

Elastic N.V., a data analytics company, delivers solutions designed to run in public or private clouds in multi-cloud environments. It primarily offers Elastic Stack, a set of software products that ingest and store data from various sources and formats, as well as performs search, analysis, and visualization on that data.

Ticker: ESTC | Price: $130.70 | Price Target: $185 (+42%)
Market Cap: $13B | Timeframe: N/A

🤖 AI | 💽 Data | 📈 Bullish Idea

Elastic N.V. (ticker: ESTC), with a Scotiabank one-year price target of $185, is strongly positioned to capitalize on the enterprise generative AI wave, particularly in search — a field destined for significant growth due to technological advancements in LLMs, RAG, vector databases, and sparse encoders. Elastic's unique offering is reinforced by its large install base and proprietary ELSER model, simplifying semantic search deployment. Despite Elastic's recent sharp stock price increase from a low in the high $40s in 2023, Scotiabank believes its transformative potential and competitive edge in enterprise search, backed by generative AI advancements, are undervalued by the market. The company's outlook is optimistic, with an expected revenue reacceleration in late F24 and predictions of an F25 growth rate surpassing current modest Street forecasts. Alternative NPM download data, correlated with Elastic's cloud revenue, supports the expectation of a 2H24 consensus beat. While Elastic's observability and security sectors may not be as exciting, with no expected major market share gains despite the launch of Elastic AI Assistant, its primary strength lies in search and the use of AI, where significant financial and competitive advantages are anticipated through F24 and F25.

Read the full article here. Read time: 3 min

BLOG POST

Bloomsbury Publishing - $BMY.L

Bloomsbury Publishing Plc publishes academic, educational, and general fiction and non-fiction books for children, teachers, students, researchers, and professionals worldwide.

Ticker: BMY.L | Price: 545 | Price Target: N/A
Market Cap: 459M | Timeframe: N/A

📚 Publishing | 💰 2.6% Dividend | 📈 Bullish Idea

Bloomsbury Publishing Plc (BMY.L) is an established book publisher, famous for the Harry Potter series, and has demonstrated an impressive 20% annual EPS growth over the past seven years. This growth, coupled with a price-to-earnings (PE) ratio of around 12, leads to a PEG of 0.6, indicating that the stock might be significantly undervalued. Bloomsbury meets the stringent criteria set by investor Jim Slater for a 'Zulu' stock, signifying strong financials, sustained earnings growth, and strategic competitive advantages. Of note is their growing back catalogue sales which offer higher margins than new book sales and the recent success of Romantasy author Sarah J. Maas. Upcoming catalysts include the Netflix adaptation of Cixin Liu's 'The Three Body Problem' which could boost back catalogue sales, along with high-margin revenue streams from their academic publishing arm, Bloomsbury Digital Resources. After a robust revenue forecast of £331 million up 25% from the previous year and profit before tax anticipated over £45m, the company boasts £45m in net cash and plans for M&A, internal investment, and shareholder returns. Bloomsbury's stock, despite its strong earnings growth and stable financial position, trades at a lower PE than peers such as Informa, Relx, or Pearson. The company looks set to leverage its respected status gained from its Harry Potter success and its knack for discovering notable fantasy writers in a genre boosted by film and TV adaptations. With year-end results due on May 23rd and a history of the stock surging upon similar past events, Bloomsbury presents itself as a potentially undervalued investment opportunity with prospects for considerable growth and a dividend yield of around 3%.

Read the full article here. Read time: 6 min

VALUE INVESTORS CLUB

Builders FirstSource, Inc. - $BLDR

Builders FirstSource, Inc., together with its subsidiaries, manufactures and supplies building materials, manufactured components, and construction services to professional homebuilders, sub-contractors, remodelers, and consumers in the United States.

Ticker: BLDR | Price: $193.16 | Price Target: $540 (+180%)
Market Cap: $23B | Timeframe: 5 years

🏡 Homebuilding Product Distributor | 📈 Bullish Idea

Builders FirstSource, Inc. (BLDR) is the premier U.S. distributor of building products with only a 2.6% market share in a highly fragmented $874 billion industry poised to grow by 3% annually. BLDR operates with over 30,000 employees, 570+ locations, and boasts an impressive customer retention rate of 90%. Since its 1998 inception and 2005 IPO, BLDR has strategically grown through significant acquisitions and mergers, such as ProBuild and BMC, and more recently, 14 tuck-in acquisitions, exhibiting seamless integration and an operational focus that reduced costs by $275 million annually through modernizations like truss plant automation. Their innovative installation service business complements product offerings, contributing $2.5 billion in revenue and representing substantial growth potential. BLDR also stands out with a robust 100% return on working capital and an unlevered RoIIC of over 100%. Financially, BLDR showcases a strong balance sheet, with a net debt/EBITDA ratio of 0.8x, and capital deployment focuses on value-accretive opportunities and shareholder return mechanisms like dividends and buybacks, using 85% of operational cash flow. Analysts forecast a prosperous future, driven by organic growth, operational efficiencies, accretive acquisitions, and market consolidation, despite acknowledging downside risks such as slower acquisition growth and market slowdowns. BLDR's management strongly aligns with shareholder interests, shown through significant stock ownership and compensation structures linked to performance metrics. With a short-term price target of $245 and a longer-term projection of $540, reflecting a 26% IRR over 5 years, BLDR’s stock is poised for growth supported by industry trends, operational strengths, and a successful track record of strategic acquisitions and market expansion.

Read the full article here. Read time: 9 min

+3 POINTS - WEEKLY TOURNAMENT

Which bonus stock idea was the most compelling to you?

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Yesterday’s Poll Results:

🟩🟩🟩⬜️⬜️ Google ($GOOGL) [52%]

🟨🟨⬜️⬜️⬜️ Smart Sand ($SND) [26%]

🟥⬜️⬜️⬜️⬜️ Centrepoint Alliance ($CAF.AX) [22%]

MARKET OVERVIEW

The Market Overview is powered by Koyfin (link). Koyfin is my personal Bloomberg terminal that doesn’t cost $2,000/month. It has all of the news, financials, watchlists, screeners, charts, etc that I need to be an informed investor. *I’ve partnered with them to give you a 20% discount if you use my link!

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

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Yesterday’s Poll Results: 78% bullish

All of the indexes were slightly down, but surprisingly, everything else remained roughly the same level of bullish as the day before. Yellowbrick Road readers were again 78% bullish and the Fear v Greed index actually went up a point, but the news sentiment did fall slightly to just +0.104 (out of a max of 1.5). It seems like most people expect this to just be a tiny blip.

STOCK MARKET NEWS

Salesforce slips after the company calls for single-digit full-year revenue growth - CNBC 

Paramount falls short of revenue expectations but posts surprise profit, strong streaming results - CNBC 

Tesla aims to ship Roadster cars next year, Musk says - Reuters 

Snowflake says Frank Slootman is retiring as CEO; stock plunges 20% - CNBC 

Advance Auto Parts Stock Jumps After Better-Than-Expected Profit Guidance - Investopedia 

7% interest rates hit weekly mortgage demand hard - CNBC 

US fourth-quarter economic growth revised slightly lower - Fox Business 

Electronic Arts to lay off 5% of workforce - Reuters 

Online trading platform Webull is set to go public via a $7.3 billion SPAC deal - CNBC 

ASML reaches 'first light' milestone on first High NA EUV tool - Reuters 

FEATURED INSIDER TRADE

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President and CEO at Enact Holdings, Inc. ($ACT)

The President and CEO purchased 10,000 shares at $26.97/share ($270K total) which increased their vested holdings by 9.3%. The current price is $26.82 (-0.6%). Their median purchase size is $194K and this is their 2nd largest purchase out of 4 all time. (trade link)

Historic Returns
1m returns: 17% weighted | 8% median | 67% win rate (2/3)
3m returns: 4% weighted | 6% median | 100% win rate (3/3)
6m returns: 18% weighted | 23% median | 100% win rate (3/3)
1y returns: 21% weighted | 19% median | 100% win rate (2/2)

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 was the career path of John Meriwether, the founder of LTCM, following the fund's collapse in 1998?

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Yesterday’s Question: By the time of its collapse in 1998, what was the total amount of money Long-Term Capital Management (LTCM) had lost?

Answer: LTCM, once a behemoth in the hedge fund world, experienced a dramatic downfall, culminating in losses of nearly $4.6 billion by the time of its collapse in 1998, reflecting the high risks associated with its leveraged trading strategies. It was one of the largest losses of all time at that point.

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+15 POINTS - WEEKLY TOURNAMENT

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SECRET QUESTION

+10 POINTS - WEEKLY TOURNAMENT

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Secret Question: What was your most recent stock purchase? Mine’s pretty boring, I just picked up more META and AMZN a couple of weeks ago.

WEEKLY TOURNAMENT

Gain points and earn prizes every week just for voting on the quizzes/polls, replying to this email, and clicking on ads/sponsored links!

🏆 This Week’s Leaderboard

  1. eliza**** (79 points)

  2. rcmone*** (79 points)

  3. jake.s**** (79 points)

Scoring

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