Top stock ideas (Thu, Feb 8)

Connor Van Ooyen
February 08, 2024

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👋 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 119 new readers who joined yesterday!

Our AI read and summarized 109 stock ideas, 1672 news articles, and 231 insider trades and found:

A South Korean e-commerce company with 130% upside (featured stock idea)
A fund pitches a French stock, a rocket company with 132% upside, and a digital payments company poised for margin expansion (bonus stock ideas)
Bill Ackman launches a new fund (news)
Insiders at $PAYS buy the stock again (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

TWITTER

Why I am adding Coupang ($CPNG)

Coupang, Inc. is a South Korean e-commerce giant that offers a variety of products and services, including online retail and delivery, through a user-friendly platform, often providing next-day or even same-day delivery on a wide array of items.

Ticker: CPNG | Price: $14.37 | Price Target: $32.90 (+129%)
Market Cap: $24.8B | Timeframe: in a few years

📦 E-commerce | 🇰🇷 South Korea | 📈 Bullish Idea

Coupang, under the CPNG ticker, stands out as an exceptional e-commerce platform in South Korea with a vertical integration strategy, creating a broad and growing moat that outperforms competitors, including international giants like Amazon. Its Rocket WOW subscription, similar to Amazon Prime and priced at just ~$4/month, delivers immense value through free and fast shipping, grocery delivery, food delivery discounts via Coupang Eats, and Coupang Play streaming service. The company's control over the fulfillment process allows for profitable operations despite nearly $1 billion in annual capital expenditures, which are set to further enhance its competitive edge. Founder-led by Bom Suk Kim, Coupang is geared towards long-term value, currently having a relatively low penetration of the South Korean commerce market, indicating significant growth potential. At a stock price of $14.25 and given a market cap of $25.5 billion and an enterprise value of $21.4 billion, the financials look promising with anticipated revenue growth at 10% leading to $1.3 billion in operating income in the next year and $3.2 billion by 2026. With an expected free cash flow exceeding operating income, Coupang might accumulate $7.2 billion in free cash flow from 2024 to 2026. Scenario analysis suggests a potential market cap of $60 billion - $90 billion in the future against minimal downside risks. Possible sale triggers include unfavorable international expansions, poor capital allocation, or leadership changes. Upside drivers include successful market expansion, fintech initiatives like Coupang Pay, and reinvestment in Coupang Play. Overall, Coupang's stock presents a compelling buy opportunity with an estimated upside potential of 135%, being a rare find that checks the boxes for quality, leadership trust, and undervaluation.

Read the full article here. Read time: 2 min

+3 POINTS - WEEKLY TOURNAMENT

How do you rate the featured stock idea?

Yesterday’s Featured Stock Idea

Clarus ($CLAR)

🟩🟩🟩⬜️⬜️ - Buy (39%)
🟥🟥⬜️⬜️⬜️ - Pass (33%)
🟨⬜️⬜️⬜️⬜️ - Watchlist (28%)

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

BONUS STOCK IDEAS

FUND LETTER

River Oaks Capital holding: Logan Ridge Financial ($LRFC)

Logan Ridge Finance Corporation, formerly known as, Capitala Finance Corp. is a Business Development Company specializing in senior subordinated debt and unitranche debt, unitranche loan, first-lien and second-lien loans, lower middle market and middle market, equity co-investment in sponsored companies.

Ticker: LRFC | Price: $22.42 | Price Target: N/A
Market Cap: $61M | Timeframe: 6-12 months

🏦 Business Development | 📈 Bullish Idea

Logan Ridge Financial (LRFC) is a Business Development Company (BDC) with a $60m market cap, specializing in financing for small to midsize private firms through debt or equity and represents our fund's fourth-largest position. BC Partners has nearly completed their turnaround plan, reducing Logan Ridge's equity investments from ~28% to ~17% and growing their dividend from 0% to ~5%. The final step is to merge Logan Ridge with the larger BDC, Portman Ridge, to address scalability challenges, as highlighted by the significant shareholder Punch and Associates. This merger is expected to eliminate $4m in overhead, increase assets by $100m, and raise the Net Asset Value. If merged within 6-12 months, Logan Ridge might offer a 17+% dividend yield in the combined entity; if not, it remains a standalone BDC trading at 60% of NAV with a potential to boost the dividend to 8-10% while repurchasing shares at a lower value. Our investment is positioned where a successful deal or a standalone scenario both present upside potential with limited downside.

Read the full article here. Read time: 3 min

BLOG POST

Rocket Lab: A Strong Buy On Growth Prospects And Backlog Strength

Rocket Lab USA, Inc. (ticker: RKLB) is an aerospace manufacturer and small satellite launch service provider that designs and launches advanced rockets for commercial and government missions to space.

Ticker: RKLB | Price: $4.27 | Price Target: $9.92 (+132%)
Market Cap: $1.9B | Timeframe: two years

🚀 Commercial Space | 📈 Bullish Idea

Rocket Lab USA, Inc. (NASDAQ: RKLB), a leading commercial space company founded in 2006, provides comprehensive space solutions including launch services with its Electron and in-development Neutron rockets, and space systems with offerings like photon spacecraft and numerous components. Despite the recent setback of an Electron rocket anomaly, the company boasts a robust launch backlog and growing space systems business (e.g., supplying NASA with solar arrays). With key developments in the defense industry and government trust—evidenced by a $515 million contract from the U.S. Space Development agency—Rocket Lab displays a strong potential for growth, backed by a deepening experience in the challenging space market. Financially, a shift away from introductory pricing has led to healthy GAAP gross margins above 22% despite the company currently not being profitable. Valued at $2.5 billion or about 10x trailing twelve months (TTM) sales, analysts eye a possible doubling of the share price within two years, with the prospects of 24% annualized returns, even if the multiple drops to 6x by 2026. Despite the high-risk nature of rocket-related enterprises, RKLB is positioned as a strong competitor, second only to SpaceX, with diverse capabilities that suggest a strong buy rating.

Read the full article here. Read time: 7 min

BLOG POST

My Top February Stock Pick: Cantaloupe Poised For Margin Expansion

Cantaloupe, Inc., a digital payments and software services company, provides technology solutions for the unattended retail market. The company offers integrated solutions for payments processing, logistics, and back-office management.

Ticker: CTLP | Price: $6.76 | Price Target: $10 (+47%)
Market Cap: $494M | Timeframe: N/A

💸 Digital Payments | 📈 Bullish Idea

Cantaloupe, Inc. (NASDAQ: CTLP) is attracting attention due to its shift towards a subscription model and impressive revenue growth despite a flat stock performance over the past five years. Despite a high P/E ratio and market skepticism over its valuation and management turnover, insiders and hedge funds are bullish, with prominent investors like David Abrams and David Nierenberg holding significant stakes. Cantaloupe is the leading U.S. provider in self-service retail commerce, aiming to expand globally in a market with an estimated TAM of $3-20 billion. They generate revenue through equipment sales, payment processing, and ERP software, with strong growth in micro-markets and international sectors, and they are setting themselves apart with competitive advantages in payment processing, equipment innovation, and subscription-based software services that contribute to a 'razor and blades' business model. Management turnover has settled with new leadership focused on transparency and improvement, and the company is well-positioned for growth, planning to shift customers from traditional purchase to subscription models—which significantly improves profit margins. Under conservative estimates, Cantaloupe could vastly exceed analyst EPS expectations and even with a reduced P/E ratio, the stock could experience substantial gains. Potential risks include competition, labor/part shortages, and slower-than-expected margin improvement which could lead to a devalued share price. The upcoming quarterly earnings report could serve as a catalyst for the stock's rerating as Cantaloupe's business model transformation becomes evident. Overall, market expectations haven’t fully appreciated Cantaloupe's transition, offering an early investment opportunity at a possible risk due to its current high valuation.

Read the full article here. Read time: 18 min

+3 POINTS - WEEKLY TOURNAMENT

Which bonus stock idea was the most compelling to you?

Yesterday’s Poll Results:

🟩🟩🟩⬜️⬜️ International Business Machines ($IBM) [83%]

🟨🟨⬜️⬜️⬜️ Bollore SE ($BOL.PA) [13%]

🟥⬜️⬜️⬜️⬜️ Vonovia ($VONOY) [4%]

Your comments:

🤖 joelmc*** ($IBM): I have observed the rebound and steady rise of this company for 3 years. Their focus on AI shows promise

MARKET OVERVIEW

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

Yesterday’s Poll Results: 78% bullish

The only thing not bullish today are small-cap stocks (again). The other three indexes were all green, Yellowbrick Road Readers remain around 80% bullish, the Fear v Greed index jumped into Extreme Greed territory, and the news sentiment jumped way up above 0.6 which is the highest it’s been in over a week.

STOCK MARKET NEWS

Uber beats estimates as revenue and bookings see double-digit growth - CNBC

Alibaba shares drop 5% in premarket trade after revenue miss, $25 billion boost to buyback plan - CNBC

Disney beats earnings estimates, hikes guidance as it slashes streaming losses - CNBC

CVS cuts 2024 profit forecast on elevated medical costs - Reuters

Disney to take $1.5 billion stake in Epic Games, work with Fortnite maker on new content - CNBC

Roblox beats estimates and issues strong guidance - CNBC

Fortinet beats Q4 profit on cybersecurity demand, shares jump - Reuters

Arm shares spike after chip designer gives strong forecast, says AI is increasing sales - CNBC

PayPal issues disappointing guidance even as fourth-quarter earnings top estimates - CNBC

Hedge fund billionaire Bill Ackman to launch a NYSE-listed fund for regular investors - CNBC

Fed's Neel Kashkari expects only two or three interest rate cuts this year - CNBC

Target considering new paid membership program - Bloomberg News

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

10% Owner at Paysign, Inc. ($PAYS)

The 10% Owner purchased 112,300 shares at $2.98/share ($334K total) which increased their holdings by 2.0%. The current price is $3.10 (+4.1%). Their median purchase size is $294K and this is their 3rd largest purchase out of 10 all time. (trade link)

Note: This is the second purchase in the last couple of weeks. We bought this for the CEO Watcher portfolio a couple of weeks ago and are up 6% so far.

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QUIZ

+3 POINTS - WEEKLY TOURNAMENT

If you like this quiz section, then you are probably like me and love to learn! One way I learn is by using Shortform. They are a website/app that creates summaries/guides for 1000s of nonfiction books and connects ideas between books. Whenever I have a free 10 minutes, I just open their app and learn something new from a book about finance, business, history, etc.

I’ve been lucky enough to partner with them and offer you a free trial and a 20% discount if you use my link: https://shortform.com/yellowbrickroad

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 (20% off using my link!).

LTCM's initial capital raised from investors was the largest initial fundraise ever until that point. How much did they raise?

Yesterday’s Question: What was LTCM's primary trading strategy, focusing on the relationship between the prices of bonds?

Answer: Bond Arbitrage. LTCM specialized in betting on the narrowing or widening of spreads between different types of bonds. They would look for small differences in bonds that were statistically (according to their models) the same and then bet the price would converge.

LINKS YOU’LL LOVE

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Henry Ford’s legendary profit-sharing plan

A case study on how to utilize financial disclosures to better understand a business

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WEEKLY TOURNAMENT

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🏆 This Week’s Leaderboard

matt.w**** (107 points)
tradi*** (107 points)
dwals**** (107 points)

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