Top stock ideas (Tue, Dec 26)

Author

Connor Van Ooyen
December 26, 2023

👋 Good Morning!

Welcome to the 161 new readers who joined over the holiday weekend!

Our AI read and summarized 86 stock ideas, 1106 news articles, and 102 insider trades and found:

  • $SE has 50% upside potential (featured stock idea)

  • Tencent, Netease shares plummet on new China online gaming guidelines (news)

  • A director at $DLTR bought almost $100M of the stock (insider trade)

  • $AEP has 30% upside, $KMX dip was an overreaction (76% upside), and $BAX has 92% upside (bonus stock ideas)

  • and much more…

I hope everyone had a great Christmas!

Connor

* If you missed yesterday’s email, don’t forget to read it here

Premium members can see all of the exclusive stock ideas on Discord (and the Yellowbrick Road Premium Portfolio) and the updated Yellowbrick Road Portfolio by clicking the button below.

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FEATURED STOCK IDEA

TWITTER

$SE set to drop then pop

Sea Limited is a leading Southeast Asian conglomerate with key focus areas in e-commerce, digital entertainment, and digital financial services. Major operations include the Shopee e-commerce platform, Garena gaming division, and SeaMoney digital financial services.

Ticker: SE | Price: $38.91 | Price Target: $58.36 (+50%) | Timeframe: early 2024

💻 Tech Conglomerate | 🇸🇬 Singapore | 📈 Bullish Idea

We are planning on adding $SE to the Yellowbrick Road Premium Portfolio in the beginning of 2024. See the YBR Portfolio here

Sea Limited ($SE) is underappreciated in the current market with potential tailwinds on the horizon. Despite broader market highs, $SE is languishing at its lows due to tax loss selling, reminiscent of $META’s experience last year. A relaunch of Free Fire in India could serve as a significant catalyst, especially once tax loss selling eases. The expectation is that gaming, particularly with the Indian market re-entry, can show renewed acceleration over the next year. On the e-commerce front, regulatory dynamics in Indonesia may disrupt the recent TikTok-Tokopedia partnership, aligning with governmental aims, while new legislation in Malaysia has just been passed that disadvantages $SE's competitors. These factors suggest a strengthening of Sea Limited's competitive position. Given these prospects in gaming and e-commerce, coupled with current tax loss selling pressure, now appears to be an opportune time to buy $SE. If the stock were to decline further into the mid-$30s without substantial negative news, it would present an even more attractive buying opportunity. There is potential for a 50% appreciation in the stock price, or even a doubling, and possibly more gains if further negative actions are taken against TikTok. In a market short on quality long positions following recent run-ups, $SE stands out as a highly promising long investment for the coming year.

Read the full article here. Read time: 2 min

POLL - FEATURED STOCK IDEA

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How do you rate the featured stock idea?

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Yesterday’s Rating (link):

Altus Power ($AMPS)

🟩🟩🟩⬜️⬜️ - Buy (36%)
🟥⬜️⬜️⬜️⬜️ - Pass (26%)
🟨🟨⬜️⬜️⬜️ - Watchlist (38%)

* There are more stock ideas later in the email!

MARKET OVERVIEW

Today’s market overview is sponsored by RAD AI. They have over $27M invested into its AI, has 3x’d revenue w/ clients and is the future of AI marketing. Invest before they IPO!

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

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Yesterday’s Poll Results: 53% bullish

Kind of a middling end to last week in terms of sentiment. Most of the indexes were still up, but not as much as the first half of the week. The Fear v Greed index moved back up into the Extreme Greed category, but still below the peak of 81 it hit last week. The news sentiment was slightly below the previous 7-days average and Yellowbrick Road readers ended the week 2 points less bullish.

STOCK MARKET NEWS

Karuna Therapeutics surges 47% after Bristol Myers Squibb announces $14 billion deal - CNBC

Tencent, Netease shares plummet on new China online gaming guidelines - CNBC 

Rocket Lab Shares Blast Off After New US Government Satellite Launch Contract - Investopedia 

Apple reportedly exploring AI deals with news publishers — and willing to pay millions - New York Post 

QUIZ

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Which company, originally known as 'Brad's Drink,' was created in the 1890s by Caleb Bradham?

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Yesterday’s Question (link): Which famous watch company was founded by Hans Wilsdorf and Alfred Davis in London in 1905?

Answer: Rolex!

FEATURED INSIDER TRADE

The featured insider trades are 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

Director at DOLLAR TREE, INC. ($DLTR)

The Director purchased 738,862 shares at $134.37/share ($99.28M total) which increased their holdings by 6.5%. The current price is $134.33 (-0.0%). (trade link)

Historic Returns
1m returns: -13% weighted | -13% median | 0% win rate (0/1)
3m returns: -3% weighted | -3% median | 0% win rate (0/1)
6m returns: 3% weighted | 3% median | 100% win rate (1/1)
1y returns: 25% weighted | 25% median | 100% win rate (1/1)

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Secret Question: How was your Christmas weekend?!

BONUS STOCK IDEAS

ANALYST REPORT

American Electric Power Company: Third-quarter results top consensus

American Electric Power is a major U.S. investor-owned electric utility with operations in generation, transmission, and distribution. The company serves over 5.6 million customers across 11 Midwest and Southeast states, and owns the nation's largest electricity transmission system. AEP is diversifying its energy mix with a significant portion of coal but is also investing in renewable energy.

Ticker: AEP | Price: $80.80 | Price Target: $106 (+31%) | Timeframe: N/A

🏗️ Electric Utility | 📈 Bullish Idea

American Electric Power (NYSE: AEP), a significant U.S. utility company with 5.6 million customers across 11 states, exceeded 3Q23 consensus operating earnings, reporting a 9% increase year-over-year to $924 million ($1.77 per share). Analyst Marie Ferguson maintains a BUY rating with a $106 price target, noting that AEP's share price is influenced by higher interest rates. Despite this, AEP benefits from its vertical integration and coal reliance, providing a hedge against rising oil and gas prices. AEP is streamlining to emphasize regulated utilities, expecting 6.5% year-over-year growth for 2024. The company's capital plan projects $43 billion in investments, while it recently sold nonregulated renewable assets for $1.2 billion, channeling funds into regulated operations. AEP's stock trades below the peer average with a P/E of 15.0, despite an above-average 4.2% dividend yield following a 6% dividend increase. The company's financial strength is deemed Medium, with consistent dividend growth and a strategic focus on regulated business and transmission improvements, which are expected to encourage 5%-7% long-term earnings growth. AEP faces risks from regulatory issues, environment liabilities, and interest rate sensitivity, yet remains a robust investment for dividend and modest capital appreciation.

Read the full article here (paywall). Read time: 7 min

ANALYST REPORT

CarMax: Auto Dealer Stocks Falling Hard on Hyundai-Amazon Partnership Is Too Much Fear-Mongering

CarMax is the largest used-vehicle retailer in the world, offering a no-haggle selling process with a wide inventory selection and convenient financing and delivery options. The company focuses on customer satisfaction and operates an omnichannel platform, allowing customers the flexibility to shop digitally or in store.

Ticker: KMX | Price: $76.64 | Price Target: 135 (+76%) | Timeframe: N/A

🚗 Auto Retailer | 🚨 Event Driven | 📈 Bullish Idea

Hyundai's partnership with Amazon, allowing 18 dealers to sell new vehicles on Amazon starting next year, instigated a 5%-8% drop in auto dealer stocks, which David Whiston, a strategist, views as excessive fear over Amazon encroaching on traditional dealer turf. This concern overlooks state franchise laws and the full spectrum of services dealers offer. CarMax, in particular, remains robust with a customer-centric model, significant omnichannel presence, and plans to reach $33-$45 billion in revenue by fiscal 2026. CarMax's revenue growth and unique selling process contribute to its narrow economic moat, including a flat commission structure for salespeople, avoiding traditional finance department upselling, and its Love Your Car Guarantee policy. Despite attempts by competitors to mimic CarMax's approach, the company's expertise in used-vehicle retailing, significant market presence, and proprietary data infrastructure present significant barriers to entry. Furthermore, CarMax Auto Finance provides a competitive edge, contributing significantly to the company's valuation. Given CarMax's proven ability to adapt and scale, recent hikes in interest rates, and increasing competition, the company's established market position is expected to persevere with strong free cash flow projections, strategic capital allocation, and ongoing investments in omnichannel capabilities ensuring its leadership amidst a crowded and cyclical industry.

Read the full article here. Read time: 15 min

ANALYST REPORT

Baxter: Shares Look Attractively Valued Considering its Improving Intermediate-Term Outlook

Baxter International Inc. is a global healthcare company that specializes in renal care and acute therapies, providing a range of dialysis equipment and related consumables, as well as injectable therapies, IV solutions, and advanced surgery products. The company's key focus areas include its peritoneal dialysis products for at-home kidney care and a variety of medical supplies aimed at improving patient care in hospitals and other healthcare settings.

Ticker: BAX | Price: $34.85 | Price Target: $67 (+92%) | Timeframe: N/A

🩺 Healthcare | 📈 Bullish Idea

Baxter International (BAX), trading below our $67 fair value estimate, presents an attractive investment opportunity with an improving intermediate-term outlook post-2025 due to the easing of recent profitability pressures from costs and contractual challenges. The company is focused on divesting its Kidney Care division and capitalizing on post-pandemic medical utilization trends, inflationary easing, and advantageous contract renegotiations, including with group purchasing organizations (GPOs) effective 2025 that could allow higher pricing reflecting increased input costs. While concerns about the impact of obesity drugs on dialysis demand have overly depressed the valuation of Baxter's kidney care division, our analysis indicates that the market has overreacted. Baxter’s financial results have been affected by inflation and weak medical utilization trends, but we expect relief as hospitals renegotiate third-party payer contracts. The company’s diversified portfolio across its renal care, advanced surgery, and basic medical supplies divisions benefits from high barriers to entry and strong, moat-worthy competitive positions. With expected profit growth driven by increased medical service demand, contract renegotiations, and an improving margin environment, Baxter's long-term prospects look robust, despite short-term operational challenges reflected in recent share performance and the High Uncertainty rating due to current external pressures. Our Capital Allocation rating for Baxter remains Standard, taking into account the company’s balance sheet post the Hillrom acquisition and execution missteps during 2022-23.

Read the full article here. Read time: 10 min

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Which bonus stock idea was the most compelling to you?

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Yesterday’s Poll Results (link):

🟩🟩🟩⬜️⬜️ Avrobio ($AVRO) [38%]

🟨🟨⬜️⬜️⬜️ Creative Realties ($CREX) [32%]

🟥⬜️⬜️⬜️⬜️ Zenvia ($ZENV) [30%]

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