Top stock ideas (Wed, Feb 21)

Author

Connor Van Ooyen
February 21, 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 92 new readers who joined yesterday!

Our AI read and summarized 113 stock ideas, 1219 news articles, and 238 insider trades and found:

  • Coupang's ecommerce dominates South Korea and has 90% upside (featured stock idea)

  • An aftermarket airlines parts company with 98% upside, $HOOD is becoming a strong competitor in the brokerage industry, and $FIS is addressing misteps and trading below industry averages (bonus stock ideas)

  • Palo Alto Networks shares plunge (news)

  • An insider with 800% returns buys more 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

PODCAST

Coupang's E-Commerce Dominance in South Korea

Coupang, Inc., together with its subsidiaries owns and operates in e-commerce business through its mobile applications and Internet websites primarily in South Korea. The company operates through two segments, Product Commerce and Developing Offerings.

Ticker: CPNG | Price: $15.76 | Price Target: $30 (+90%)
Market Cap: $28B | Timeframe: N/A

🚗 Ecommerce | 🇰🇷 South Korea | 📈 Bullish Idea

Coupang, Inc. (ticker: CPNG), often dubbed the 'Amazon of South Korea,' is a powerhouse in e-commerce with a customer base of over 20 million active users spending on average $100 per month across a diverse product range. The company prides itself on a robust fulfillment network spanning 47 million square feet, allowing for 99.3% of orders to be delivered within 24 hours to over 70% of South Korea's populace. Their subscription service, Rocket WOW, provides privileges such as free shipping and dawn delivery to its 11 million subscribers for $4/month. Coupang also drives growth through ancillary services like logistics, food delivery, payments, and streaming, with its logistics service handling 4% of units sold last quarter. Financially, Coupang has a market cap of roughly $26 billion, with $5 billion in cash, less than $1 billion in debt, and an enterprise value of about $22 billion. The company has recently seen a surge in profitability with $1.8 billion in free cash flow over the last year, boasting 8%-9% free cash flow margins, albeit inflated due to holding customers' cash. With a long-term NOPAT margin projection of ~5% and revenue growth expected at 10% yearly over the next five years, potentially reaching $33 billion in revenue and almost $2 billion in NOPAT, the stock seems poised for significant growth, trading at ~43x EV/EBT and 12x free cash flow, suggesting the potential for a doubling in stock price, conservative by some growth projections.

Read the full article here. Read time: 2 min

+3 POINTS - WEEKLY TOURNAMENT

How do you rate the featured stock idea?

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Yesterday’s Featured Stock Idea

Vanda Pharmaceuticals ($VNDA)

🟩🟩🟩⬜️⬜️ - Buy (47%)
🟥⬜️⬜️⬜️⬜️ - Pass (23%)
🟨🟨⬜️⬜️⬜️ - Watchlist (30%)

  • ❌ jason**** - The decision to invest $100 million in a product divested by Janssen raises questions about the management's strategic direction and the potential for return on this investment.

  • 🔎 furl03**** - Seems like a lot is riding on the outcome of the FDA decision

  • 🔎 alpo**** - Good valuation; insider ownership. Too many unknowns right now

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

TODAY’S SPONSOR

+15 POINTS - WEEKLY TOURNAMENT

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Please support my sponsors. It’s how I pay the bills to keep this newsletter free :)

BONUS STOCK IDEAS

BLOG POST

AerSale: Inflection In H2'23 Results And Recent AerAware Approval Set Stage For A Potential Near-Term Double

AerSale Corporation provides aftermarket commercial aircraft, engines, and its parts to passenger and cargo airlines, leasing companies, original equipment manufacturers, and government and defense contractors, as well as maintenance, repair, and overhaul (MRO) service providers worldwide.

Ticker: ASLE | Price: $9.60 | Price Target: $19.05 (+98%)
Market Cap: $508M | Timeframe: near-term

🛩️ Aircraft Parts/Maintenance | 📈 Bullish Idea

AerSale Corporation (NASDAQ: ASLE) presents a highly asymmetric investment opportunity, with over 100% upside potential at a depressed share price of $9.27, down 55.5% since March 2023, due to temporary setbacks in FY 2023 and its largest shareholder, Leonard Green, liquidating its stake. Despite guidance downgrades and FAA certification delays for its AerAware system, AerSale has seen a robust recovery in H2’23 with $200m feedstock investments driving a $38m Adj. EBITDA, indicative of a strong FY 2024 outlook. The FAA-approved AerAware system, partnering with Elbit, shows promise post-test flights with major airlines, projecting significant growth potential with potential orders from United Airlines and others. With a projected annual EPS increase of $4 due to AerAware, optimistic insiders have increased their stake—CEO Finazzo investing $6m since August 2023. Trading just above tangible book value, with minimal debt and strong management, a conservative estimate sets ASLE's price target at $19.05 with a 15x earnings multiple, or $25.40 at a 20x multiple, offering substantial appreciation from the current level.

Read the full article here. Read time: 14 min

FUND LETTER

Gator Capital Management Portfolio Holding - Robinhood Markets

Robinhood Markets, Inc. operates financial services platform in the United States. Its platform allows users to invest in stocks, exchange-traded funds (ETFs), options, gold, and cryptocurrencies.

Ticker: HOOD | Price: $14 | Price Target: N/A
Market Cap: $12B | Timeframe: N/A

📈 Brokerage | 📈 Bullish Idea

Robinhood Markets, Inc. (NASDAQ: HOOD) was a striking addition to our portfolio in Q4, despite its deviation from our preference for profitable, low-valuation companies. Post-earnings in November 2023, HOOD's stock dipped 15% due to minor guidance adjustments linked to interest rates and seasonal trading slowdowns, a reaction we deemed excessive. Our thesis for buying at $8.07, with a tangible book value of $7.92, focused on the following: the valuation offered downside protection, noted by Robinhood's own share buybacks; the company’s robust growth, adding 30,000 accounts and over $1 billion in customer inflows monthly, translating to an 18% annual growth rate; its competitive edge as a customer advocate over Schwab, especially with Schwab’s low interest rates on excess cash; Robinhood's rapid roll-out of new products like Gold Accounts, retirement accounts, and credit cards, with plans for futures, advisory accounts, and more; its success in reining in expenses, including stock-based compensation; and the historical propensity for investors to value growing discount brokerages highly, as seen with Ameritrade in the late '90s. However, risks linger with Robinhood's low-end customer base, potential reputational damage from meme stock turmoil, and consistent insider selling. Nevertheless, we see the stock's current state as appealing with limited downside to tangible book value and significant upside from customer growth and market share gains. We're optimistic about Robinhood's future as a strong competitor in the brokerage industry, aiming to fill the gap created by the Schwab-Ameritrade merger.

Read the full article here. Read time: 4 min

FUND LETTER

Broyhill Asset Management Portfolio Holding - Fidelity National Information Services

Fidelity National Information Services, Inc. provides technology solutions for financial institutions and businesses worldwide. It operates through Banking Solutions, Merchant Solutions, and Capital Market Solutions segments.

Ticker: FIS | Price: $63.65 | Price Target: N/A
Market Cap: $38B | Timeframe: N/A

🏦 Finance Institution Tech | 💰 3.3% Dividend | 📈 Bullish Idea

Fidelity National Information Services (FIS) operates as a payment provider for financial institutions and merchants globally. Initially, we closely evaluated FIS around the time we established our investment in Fiserv, a detailed discussion of which can be found here. Fortunately, we opted not to invest in FIS back then, favoring what we perceived as a significantly stronger competitor with a more robust track record of execution. Subsequently, FIS encountered escalating challenges. Their $48 billion acquisition of Worldpay in 2019, which elevated leverage to 5.5x on the balance sheet, failed to yield outcomes comparable to Fiserv's acquisition of First Data. Presently, FIS is addressing past missteps by divesting a 55% interest in the recently acquired business, thereby providing clarity on the remaining 45% ownership stake, and utilizing the proceeds to reduce leverage to 2.5x post-close while committing to repurchase at least $3.5 billion of stock through the next year. Consequently, shareholders stand to benefit from a strengthened balance sheet and a streamlined organizational structure, primarily focused on their resilient and profitable core banking business. Despite this positive trajectory, their core banking business has traded at a single-digit multiple, well below historical industry averages closer to 20x.

Read the full article here. Read time: 1 min

+3 POINTS - WEEKLY TOURNAMENT

Which bonus stock idea was the most compelling to you?

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Yesterday’s Poll Results:

🟩🟩🟩⬜️⬜️ Exxon Mobile ($XOM) [49%]

🟨🟨⬜️⬜️⬜️ Capital One Finance ($COF) [29%]

🟥⬜️⬜️⬜️⬜️ Payfare ($PAY.TO) [22%]

Your comments:

  • 🛢️ jred*** ($XOM): US needs to refill strategic reserves and electric car sales are declining.

MARKET OVERVIEW

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

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Yesterday’s Poll Results: 70% bullish

Another down day in the market and it pulled the Fear v Greed and news sentiment down with it. All of the indexes were down, the Fear v Greed index fell 10 points, and the news sentiment fell into bearish territory. Could be a rough one if Nvidia doesn’t kill earnings tomorrow.

STOCK MARKET NEWS

Walmart to buy TV maker Vizio for $2.3 billion in move to grow its ad business - CNBC 

US awards $1.5 bln to GlobalFoundries for domestic semiconductor production - Reuters 

Nintendo shares slide on reports of delayed Switch successor release - Reuters 

Palo Alto Networks shares plunge 13% after company cuts full-year billings, revenue guidance - CNBC 

Medtronic beats profit estimates on strong demand for heart devices - Reuters 

Larry Summers said there's ‘15% chance' Fed raises interest rates to curb inflation - New York Post 

Lunar company Intuitive Machines' stock surges again as lander approaches the moon - CNBC 

Bayer slashes dividend by 95% as company faces wave of litigation over Roundup weed killer - New York Post 

FEATURED INSIDER TRADE

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10% Owner at EMCORE CORP ($EMKR)

The 10% Owner purchased 4,851,570 shares at $0.36/share ($1.75M total) which increased their vested holdings by 63.0%. The current price is $0.44 (+21.5%). Their median purchase size is $1.08M and this is their 2nd largest purchase out of 4 all time. (trade link)

Historic Returns
1m returns: -7% weighted | 29% median | 67% win rate (2/3)
3m returns: 36% weighted | 49% median | 67% win rate (2/3)
6m returns: 829% weighted | 829% median | 100% win rate (1/1)
1y returns: 254% weighted | 254% median | 100% win rate (1/1)

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

How did the Federal Reserve respond to the crisis at LTCM in 1998 to prevent a wider financial meltdown?

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Yesterday’s Question: What was a critical error made by LTCM in its models, particularly revealed during the Russian Financial Crisis?

Answer: LTCM's models critically underestimated how securities could become highly correlated during a crisis, leading to a simultaneous decline in diverse holdings.

ONE OF MY FAVORITE TOOLS

+15 POINTS - WEEKLY TOURNAMENT

$PANW beats earnings but cuts FY guidance and falls 20%

Use Quartr to get a company’s slides

Slides taken from yesterday’s earnings call (Feb 20)

You can’t know whether a company is a good investment without knowing its recent performance.

Quartr is the best tool for earnings calls, transcripts, slides, and reports. You can listen in real-time or look at any company’s historical earnings documents.

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LINKS YOU’LL LOVE

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WEEKLY TOURNAMENT

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🏆 This Week’s Leaderboard

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