Top stock ideas (Thu, Jan 18)

Connor Van Ooyen
January 18, 2024

YBR Portfolio // About // Sponsor YBR // YBR Premium

👋 Hello!

Sorry about yesterday’s email. It looks like I somehow messed up the polls for the Featured and Bonus Stock Idea sections.

In one of the fastest wins we’ve had for this newsletter, the $EML.AX stock pitch sent out before the market opened yesterday already popped 24% yesterday (link)!

Welcome to the 167 new readers who joined yesterday!

Our AI read and summarized 130 stock ideas, 1104 news articles, and 91 insider trades and found:

An investment fund that has crushed the S&P over the last 20 years (featured stock idea)
An oil stock pitch for $OXY, drivers for $CLPT in 2024, and a specialty contract manufacturer in medical devices (bonus stock ideas)
Apple again banned from selling watches in U.S. with blood oxygen sensor (news)
An insider buys stock for the third week in a row (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

Pershing Square: Attractive Buying Opportunity For The Long Term

Pershing Square Holdings, Ltd. is an investment holding company structured as a closed-end fund that manages the assets of its investment funds, primarily through the Pershing Square Capital Management, L.P. hedge fund, and is led by the well-known investor William Ackman. The company takes significant positions in a concentrated portfolio of publicly traded companies in North America with the goal of obtaining management influence.

Ticker: PSHZF | Price: $44.75 | Price Target: $67.62 (+51%) | Timeframe: N/A

🏦 Investment Holding Company | 📈 Bullish Idea

Pershing Square Holdings Ltd. (OTCPK: PSHZF), with a market cap of £6.5 billion and managed by William Ackman, stands out as a compelling long-term investment opportunity despite typically avoiding funds. Notable for its historic annual returns averaging 15.7% since 2004, substantial insider ownership (26%), and share buyback policy, the fund's performance remarkably outpaces the S&P benchmark by 6.7%. Pershing Square employs a concentrated investment strategy, which has been proven effective among similar successful funds like Berkshire Hathaway. The market currently misprices PSHZF, trading below its NAV due to misconceptions about market efficiency and perceived risks related to the fund's active management, concentrated holdings, and leverage. Future performance is tentatively projected at an annual compounded return of 14.41% factoring in Ackman's past performance adjustment for larger capital management, market overvaluation, strategic closures to new investors, abandoning short selling, and continued share repurchases. Pershing Square also boasts financial strength, with low-cost debt and significant cash reserve, and other favorable aspects including tax benefits from its Guernsey domicile, dividend reinvestment options, and rigorous auditing by Ernst & Young. Risks include volatility of fund performance, reliance on Ackman (key man), and US economic and political challenges. Nevertheless, the expectation is for the discount to NAV to narrow, potentially boosting returns by an additional 47% and railing towards a £434,311 value on a £20,000 investment over a span of 20 years, ideal for early retirement planning.

Read the full article here. Read time: 8 min

+3 POINTS - WEEKLY TOURNAMENT

How do you rate the featured stock idea?

Yesterday’s Featured Stock Idea

Roku ($ROKU)

🟩⬜️⬜️⬜️⬜️ - Buy (22%)
🟥🟥🟥⬜️⬜️ - Pass (48%)
🟨🟨⬜️⬜️⬜️ - Watchlist (30%)

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

TODAY’S SPONSOR

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BONUS STOCK IDEAS

BLOG POST

The Growth Bug Bites Occidental Petroleum

Occidental Petroleum Corporation (ticker: OXY) is an American company engaged in hydrocarbon exploration and petrochemical manufacturing. It operates in the oil and gas industry, with its primary activities being oil and natural gas exploration and production, as well as the transportation and storage of these resources.

Ticker: OXY | Price: $56.22 | Price Target: N/A | Timeframe: N/A

🛢️ Oil/Gas | 💰 1.28% Dividend | 📈 Bullish Idea

Despite management's initial indications against acquisitions, Occidental Petroleum (NYSE: OXY) surprised shareholders with its CrownRock acquisition, adding to its pattern of aggressive expansion following the Anadarko purchase. The risk now is whether this strategy can deliver higher share prices and dividends, as the industry still reels from a price-earnings ratio collapse and oil prices that haven't returned to pre-2014 highs. The potential $1 billion in free cash flow from CrownRock is promising, considering Occidental doesn't typically hedge against commodity price fluctuations, relying instead on low production costs to withstand market volatility. Comparatively, similar-sized companies like Baytex Energy and Vital Energy don’t forecast such robust free cash flow. The acquisition, deemed high-quality due to its purported production levels and cost advantages, is backed by industry trends toward increased Tier 1 acreage and technological advancements that could drive future profitability. Management's free cash flow pitch revolves around the idea that even with a high acquisition price, it would immediately enhance free cash flow per share, though higher debt levels from the transaction are acknowledged, with a commitment to speedy repayment. Asset sales are also planned to help lower costs in parallel with debt reduction. The overall narrative from management emphasizes the potential for enhanced shareholder value, although it competes with industry-wide cost improvements and the possibility that continued commodity price moderation may dilute acquisition benefits. Nevertheless, Occidental remains an attractive buy as internal confidence is high, with insider acquisitions hinting at a positive outlook for the company amidst an early industry recovery cycle.

Read the full article here. Read time: 7 min

TWITTER

CLPT - Drivers for the company in 2024 and beyond

ClearPoint Neuro, Inc. (ticker: CLPT) is a medical device company that specializes in the development and commercialization of navigation and delivery technologies for the treatment of neurological disorders, with a focus on providing precise, minimally invasive surgical solutions for patients.

Ticker: CLPT | Price: $7.41 | Price Target: N/A | Timeframe: N/A

🦾 Medical Devices | 📈 Bullish Idea

Seeing a lot of basic research + Qs on $CLPT so wanted to present a few key high-level ideas that will be drivers for the company in '24 and beyond. There are multiple levers to be aware of as the company becomes much larger: Expansion into the OR in full attack mode | CRO services - Partnership depth and new revenue streams; sample economic algorithm for major programs. #'s may change based on milestones, pricing power and clinical advancement | CRO services: Sample clinical and commercial economics (#'s may vary). 'They’ll get a certain type of request and they’ll work on that. And then they’ll get two more of the same and say ‘wait a second we have an expertise here…' | LITT expansion and pricing power (200% price increase). | Additional product innovation (leading to more pricing; more to come with spine) and international expansion for pharma. Example: Brazil. | Breakeven + 100 x 100 guide (100 centers doing $100m in revenue). Quality of earnings (pricing power) + flat out growth + monopolistic economics = multiple expansion in the life sci/medtech world. | Partnership expansion, opportunity and launch of subscription service.

Read the full article here. Read time: 2 min

BLOG POST

Pro-Dex: A specialty contract manufacturer in medical devices with a burgeoning order backlog

Pro-Dex, Inc. specializes in the design, development, and manufacture of high-precision medical, dental, and research device products, most notably for powered surgical devices and rotary drive systems.

Ticker: PDEX | Price: $20.88 | Price Target: N/A | Timeframe: N/A

🩺 Medical Devices | 📈 Bullish Idea

Pro-Dex Inc. ($PDEX) is trading at $19.35 with a market cap of $68.64M, TEV of $77.67M, and net debt of $9.03M. They design, develop, and manufacture surgical devices such as drivers and shavers for orthopedic and other markets, with patented adaptive torque-limiting software and special sealing solutions and also sell rotary air motors. Insiders hold 32.53% of shares, and institutions own approximately 25.25%, with significant share buybacks implemented since 2013, at an average price of $14.36 per share. Recent aggressive moves include using leverage for acquisitions and buybacks, plus some potentially dubious historical investments in stocks to cover operating expenses – a red flag for some investors. Notably, their customer concentration is high, with top clients representing 92% of sales in fiscal 2023, a trait that mirrors Pro-Dex's niche contract manufacturing market position. Pro-Dex's expansion, specifically their Franklin property, is set to double their manufacturing capacity, correlating with a jump in their backlog from $16.5M in 2022 to $41.6M in 2023. However, a balanced view must account for balance sheet volatility due to current investments in other companies like Air T Inc. and Monogram Orthopaedics. In conclusion, Pro-Dex is a profitable microcap with promising short-term growth prospects, despite some governance concerns and high customer concentration.

Read the full article here. Read time: 7 min

+3 POINTS - WEEKLY TOURNAMENT

Which bonus stock idea was the most compelling to you?

Yesterday’s Poll Results:

I messed up the poll, so skipping this. But the $EML.AX stock pitch sent out before the market opened yesterday already popped 24% (link)!

MARKET OVERVIEW

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

Yesterday’s Poll Results: 42% bullish

A BIG step down in bullishness yesterday. Yellowbrick Road Readers fell to under 50% bullish for the first time since we started the poll. All of the indexes were red again and all except the Nasdaq are now negative on the year. The Fear v Greed index dropped a massive 12 points and is now getting close to falling out of the “Greed” section altogether. Oddly, the news sentiment actually jumped a little bit.

STOCK MARKET NEWS

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Today’s stock market news is brought to you by IBD. If you want to beat Wall Street, you need an edge––IBD Digital gives you the tools to invest with success. Try 8 weeks today for just $8.

Apple again banned from selling watches in U.S. with blood oxygen sensor - CNBC

Charles Schwab profit drops as costly deposits squeeze interest revenue - Reuters

Tesla slashes car prices across Europe after similar cuts in China - CNBC

Sheryl Sandberg says she's leaving Meta's board - CNBC

Red Sea risk to oil 'very real,' prices could change rapidly if supply disrupted, Chevron CEO says - CNBC

US retail sales beat expectations in December - Reuters

Samsung packs newest Galaxy S24 smartphones with AI functions to beat Apple - Reuters

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 KalVista Pharmaceuticals, Inc. ($KALV)

The 10% Owner purchased 19,599 shares at $12.73/share ($249K total) which increased their holdings by 0.5%. The current price is $12.83 (+0.8%). (trade link)

Historic Returns

Note: The third week in a row they have bought the stock, but the Chief Scientific Officer also sold some stock last week. We own this in the CEO Watcher Portfolio.

QUIZ

+3 POINTS - WEEKLY TOURNAMENT

Which famous fast-food chain's original mascot was a character named "Speedee"?

Yesterday’s Question: What was the original use for Bubble Wrap, now a popular packaging material?

Answer: Wallpaper! (Super ugly wallpaper)

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Benedict Evans presentation on AI

Books read in 2023 by investor Michael McGaughy

How a $7.50 product that saved Kmart from ‘death row’

US tech companies have destroyed China tech in returns over the last decade

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