Top stock ideas (Tue, Jan 30)

Connor Van Ooyen
January 30, 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 89 new readers who joined yesterday!

Our AI read and summarized 166 stock ideas, 1045 news articles, and 190 insider trades and found:

Upside potential and possible a merger for $PARA (featured stock idea)
3 funds share their holdings: $FTLF, $ALIT, and $NLOP (bonus stock ideas)
Hedge funds lap up China stocks at fastest pace in 5 years (news)
An insider bought $200k of his own stock (insider trade)
and much more…

Thanks for reading! Have a great day.

Connor

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FEATURED STOCK IDEA

BLOG POST

Before-Merger Arbitrage ($PARA)

Paramount Global, formerly known as ViacomCBS, is an American multinational media conglomerate that focuses on television, film production and distribution, and interactive media, with well-known brands such as Paramount Pictures, CBS, MTV, Nickelodeon, and Showtime.

Ticker: PARA | Price: $13.75 | Price Target: $40.43 (+194%)
Market Cap: $9B | Timeframe: N/A

🎥 Entertainment/Media | 🚨 Event Driven | 💰 1.5% Dividend | 📈 Bullish Idea

Paramount Global (ticker: PARA) emerged from the Viacom-CBS merger with a dual-class share structure controlled by National Amusements, with Shari Redstone holding significant power. Warren Buffett's Berkshire Hathaway and Mario Gabelli are key investors suggesting confidence in Paramount's valuation, further encouraged by CEO Bakish's compensation tied to stock performance and 'golden parachute' provisions signaling a change in control being possible. A dividend cut, despite its impact on the controlling shareholder's income, and connection to Buffett's banker Byron Trott hint at preparation for a sale. Public bids and executive statements add credence to the notion of a sell-off, with private market valuations (PMV) indicating a break-up might be imminent and lucrative. Assets including BET Media Group (PMV $3.5B), Showtime (PMV $4B), South Park (PMV at least $1B), Pluto TV (PMV at least $1B), Nickelodeon, MTV, and Comedy Central (combined PMV at least a $1B), CBS and Paramount Network (PMV $14B to $30B), Paramount+ (PMV $6B), and Paramount Pictures (PMV $9B to $12B), along with $1.8B in cash and an expected $1.3B from a sale, offset by $15.6B in debt, could amass a total PMV of $40.8–59.8B. Subtracting net debt projects a Paramount Global equity value of $27–46B versus its current $8.9B market cap, suggesting the stock could be undervalued 3–5 times or offer a double value even with a 30% safety margin. The primary risk is Shari Redstone refusing to sell, disproving the breakup sale thesis. With a price target of $40.43, Paramount is poised as a potentially undervalued opportunity with Buffett-like support and clear signals of a transition.

Read the full article here. Read time: 12 min

+3 POINTS - WEEKLY TOURNAMENT

How do you rate the featured stock idea?

Yesterday’s Featured Stock Idea

Evotec SE ($EVO)

🟩🟩🟩⬜️⬜️ - Buy (47%)
🟥🟥⬜️⬜️⬜️ - Pass (28%)
🟨⬜️⬜️⬜️⬜️ - Watchlist (25%)

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

TODAY’S SPONSOR

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BONUS STOCK IDEAS

FUND LETTER

Smoak Capital holding: $FTLF

FitLife Brands, Inc. (ticker: FTLF) is a company that designs, markets, and distributes nutritional supplements for health-conscious consumers, focusing on categories such as weight loss, general health, and sports nutrition.

Ticker: FTLF | Price: $22.01 | Price Target: N/A
Market Cap: $105M | Timeframe: N/A

💊 Nutritional Supplements | 📈 Bullish Idea

FitLife Brands (Nasdaq: FTLF) saw transformation in 2023, with an uplisting to Nasdaq, and acquiring Mimi’s Rock for $20M, quickly raising its EBITDA to $6-8M annually. Despite a challenging Q3 with a slump in GNC sales and uneven wholesale orders, plus slowed online growth, legacy FitLife's contributions are now overshadowed by the potential of recent acquisitions, particularly as FitLife expects Mimi’s and MusclePharm to drive future earnings. FitLife purchased MusclePharm from bankruptcy for $18.5M—an enterprise generating an estimated $16-18M in revenue and $3-4M in adjusted operating income. This acquisition, at approximately 5-6x EBIT, positions FitLife for significant improvements, with plans to increase gross margins through direct Amazon sales, re-launch popular MusclePharm products, and expand distribution. Early moves on Amazon and product relists signal progress. Heading into 2024, FitLife aims for an adjusted EBITDA between $16M and $20M, viewing the current valuation of 5-6x EBITDA as too conservative, especially when considering the company's strategic acquisitions, the prospect for organic growth, and management's focus on enhancing shareholder value.

Read the full article here. Read time: 2 min

FUND LETTER

Greenlight Capital new position: Alight ($ALIT)

Alight, Inc. (ticker: ALIT) is an American cloud-based provider of integrated digital human capital and business solutions, offering services such as health and wealth solutions, payroll, and finance administration to employers and their employees.

Ticker: ALIT | Price: 9.05 | Price Target: N/A
Market Cap: $4.9B | Timeframe: N/A

💻 HR Enterprise SaaS | 📈 Bullish Idea

Alight (ticker: ALIT) is a software-based provider of health and wealth benefits and payroll solutions for large enterprises. Over the past few years, the company has undergone a significant cloud-based platform upgrade and has been successful at growing both revenue and profits. The business is much higher quality than most that meet our disciplined valuation criteria. Customer retention is approximately 98% and margins are healthy. We believe that the efficiency of this new platform will enable further cost cutting, leading to improved cash flows that can be used to pay down debt and repurchase its shares. There should be further margin upside, as AI enables ALIT to replace labor with technology. We also believe that a significant overhang on the stock was recently removed when its private equity sponsors exited. We acquired our position for an average price of $7.98, or 10.9x 2024 consensus earnings. ALIT shares ended the quarter at $8.53.

Read the full article here. Read time: 1 min

FUND LETTER

Alluvial Capital new largest holding: Net Lease Office Properties ($NLOP)

Net Lease Office Properties (NYSE: NLOP) is a publicly traded real estate investment trust with a portfolio of 59 high-quality office properties, totaling approximately 8.7 million leasable square feet primarily leased to corporate tenants on a single-tenant net lease basis.

Ticker: NLOP | Price: $25.40 | Price Target: $38 (+50%)
Market Cap: $367M | Timeframe: N/A

🏠 REIT | 💰 5.4% Dividend | 📈 Bullish Idea

Net Lease Office Properties (ticker: NLOP) is a real estate investment trust (REIT) spun off from W.P. Carey, consisting of diverse office properties with no exposure to the most challenged markets. Initially unpopular due to the decline in office assets, NLOP's share price fell to $11 before we started buying around $13, and it's undervalued even at the current price of $24. The REIT's portfolio, a mix from quality buildings to properties needing repositioning, trades at $103 per square foot, which is well below the conservative market value estimate of $130 per square foot. NLOP is essentially a liquidation play, already offloading properties at favorable prices, like solid, long-leased assets at $170 per square foot and expiring leases at $87 per square foot. These disposals are used to reduce substantial high-cost debt, bolstering the cash flow to shareholders. With 8.4 million square feet of leasable space, even after debt, the REIT is valued at approximately $38 per share. Despite potential volatility due to economic or market sentiment changes and the precarious position of office properties, the significant upside to NLOP's liquidation value makes it an attractive investment with a promising return profile as the company continues to sell assets and cut down debt.

Read the full article here. Read time: 3 min

+3 POINTS - WEEKLY TOURNAMENT

Which bonus stock idea was the most compelling to you?

Yesterday’s Poll Results:

🟩🟩🟩⬜️⬜️ Marathon Oil ($MRO) [50%]

🟨🟨⬜️⬜️⬜️ British American Tobacco ($BTI) [35%]

🟥⬜️⬜️⬜️⬜️ Zoom Video ($ZM) [15%]

Your comments:

🛢️ vande*** & mikemc*** ($MRO): It diversifies my portfolio and I love that dividend

MARKET OVERVIEW

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

Yesterday’s Poll Results: 80% bullish

If you thought things couldn't get any more bullish, think again! Just a week after Yellowbrick Road readers crossed 70% bullish for the first time, we have now crossed 80% bullish! All of the indexes were green and the Russell is just 0.07% away from turning green on the year which would make all of the indexes green for the year. The news sentiment actually fell just a touch, but is still bullish and the Fear v Greed index remains in “Extreme Greed”.

STOCK MARKET NEWS

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Today’s stock market news is sponsored by Morning Download, a daily email that provides quick market insights and investment tips. It’s free, easy to read, and gets you caught up on most important headlines across the economy. Don’t miss out — sign up for free.

Amazon terminates iRobot deal, vacuum maker to lay off 31% of staff - CNBC

SoFi soars after first-ever profit beats estimates - Reuters

FanDuel-parent Flutter to list on the NYSE, challenging DraftKings as sports-betting pure play - CNBC

Sen. Elizabeth Warren pushes Fed Chair Powell to cut 'astronomical' rates, ease housing pressure - CNBC

HEDGE FLOW Hedge funds lap up China stocks at fastest pace in 5 years - Goldman - Reuters

Super Micro's monster earnings forecast sends stock soaring yet again - Market Watch

Court orders China's bankrupt Evergrande to liquidate - Fox Business

Sony is making a bold bet on an African gaming startup to boost PlayStation's reach in the continent - CNBC

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 Adicet Bio, Inc. ($ACET)

The 10% Owner purchased 3,125,000 shares at $2.40/share ($7.50M total) which increased their holdings by 165.4%. The current price is $2.53 (+5.4%). Their median purchase size is $4.50M and this is their 9th largest purchase out of 26 all time. (trade link)

Note: Purchased as part of a $98M public offering

QUIZ

+3 POINTS - WEEKLY TOURNAMENT

In finance, what is 'Beta' used to measure?

Yesterday’s Question: The 'Barings Bank' collapse was mainly attributed to unauthorized trading activities by which individual?

Answer: Nick Leeson

LINKS YOU’LL LOVE

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From VantagePoint: 4 Stocks to Avoid at All Cost - The Fed is making an announcement on January 31st that could wipe out billions of dollars in the market. There are 4 stocks you MUST avoid. This could be worse than the .com bubble, housing meltdown, or covid-crash… Learn FREE The Secret Weapon to Safeguard Your Trades Now*

Back to the Future: The Economic Deja Vu of the 2020s mirroring the 60s and 70s

The top insider trades from last week

6 highlights from Morgan Stanley’s paper: "The Equity Compounders".

* Sponsored link

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