Top stock ideas (Wed, Jan 17)

Connor Van Ooyen
January 17, 2024

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

👋 Good Morning!

Welcome to the 110 new readers who joined yesterday!

Our AI read and summarized 140 stock ideas, 1591 news articles, and 124 insider trades and found:

A stock with large insider ownership and a large short position against it (featured stock idea)
$ESPR has a potential blockbuster drug, a short idea on $SOFI, and a new position from a fund letter (bonus stock ideas)
Pentagon awards $2.5 billion in satellite contracts (news)
A Chief Scientific Officer sells $300k (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

Roku: Outlook For 2024 As Ad Spending Is Expected To Grow

Roku, Inc. is an American publicly traded company based in San Jose, California, that manufactures a variety of digital media players for video streaming as well as operates its own streaming service, offering access to various television streaming channels.

Ticker: ROKU | Price: $83.05 | Price Target: $161.35 (+94%) | Timeframe: 5 years

🎥 Entertainment/Media | 📢 Advertising | 📈 Bullish Idea

A year after dubbing Roku, Inc. (NASDAQ: ROKU) a 'Generational Buy' in the $40s on account of its improving business metrics and attractive valuation, the company has seen a near 70% surge in stock price, bolstered by its strategic cost-cutting measures and a reacceleration in account and streaming hours growth. Awarded much-deserved recognition by the market, Roku is well-positioned to benefit from a predicted 22.3% to 39.5% jump in the US connected TV (CTV) ad spending in 2024, fueled by a more favorable macroeconomic climate, cooling inflation, and upcoming US presidential elections enhancing ad market prospects. Roku's foray into manufacturing its own TVs will drive ecosystem growth and reinforce its advantageous stance in the market, with $2 billion-plus in net cash to bolster aggressive investments. Assuming a 10-12 million active account growth for 2024 with a conservative Average Revenue Per User (ARPU) of $45, platform revenues could hit approximately $3.83 billion, propelling total revenue predictions to $4.33 billion (~23.7% year-over-year increase). Roku’s progressive strategy bet on growing its user base by subsidizing hardware is likened to Apple’s ecosystem approach, setting a trajectory for expanded margins and GAAP profitability in 2024. The stock, trading at a discount compared to digital ad giants, maintains strong buy recommendation for long-term investors at around $80, with a projected fair value of $161.35 per share and long-term growth forecasts hinting at a $30-40 billion annual ad revenue business.

Read the full article here. Read time: 7 min

+3 POINTS - WEEKLY TOURNAMENT

How do you rate the featured stock idea?

Yesterday’s Featured Stock Idea

Adyen ($ADYEY)

🟩🟩🟩⬜️⬜️ - Buy (38%)
🟥⬜️⬜️⬜️⬜️ - Pass (28%)
🟨🟨⬜️⬜️⬜️ - Watchlist (34%)

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

TODAY’S SPONSOR

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BONUS STOCK IDEAS

TWITTER

ADMQ: Profitable small cap trading at less than 1x revenue

ADMQ, Inc., formerly known as ADM Endeavors, Inc., is a company that operates through its subsidiaries in the business of customizing and distributing promotional products and providing uniforms and apparel for school systems, emergency services, and other organizations.

Ticker: ADMQ | Price: 0.04 | Price Target: N/A | Timeframe: N/A

📢 Promotional Products | 📈 Bullish Idea

ADM Endeavors ($ADMQ), through its subsidiary 'Just Right Products', is a direct marketing and manufacturing company dealing in customized promotional products and wearables, trading below 1x revenues and maintaining profitability with nearly $500,000 cash on hand. The CEO, who owns 37% and all preferred shares, has demonstrated confidence through steady insider buying in 2022 and by personally guaranteeing a $4.6 million, 5.5% interest rate construction loan for a new 80,000 sq.ft facility, expected to quintuple production capacity and substantially expand retail space. This positions the company for potential growth, especially with its focus on securing \"sticky\" government and school contracts. Despite lower revenues of $3.9M and a net profit of $162,000 in the nine months to September 30, 2023, compared to 2022, the company increased its cash position and anticipates significant expansion once the new building becomes operational in late 2023. The CEO also has aspirations to list on Nasdaq by 2024, indicating potential upside. Believing in an asymmetrical opportunity, I've been increasing my position in $ADMQ for the long term.

Read the full article here. Read time: 3 min

TWITTER

Brief update on EML Payments

EML Payments Limited is an Australian company that provides payment solutions, offering a range of services such as prepaid card programs, mobile solutions, and virtual account numbers primarily for payments and gift card solutions across various industries.

Ticker: EML.AX | Price: 0.75 | Price Target: 1.50 (+100%) | Timeframe: 6 months

💸 Payment Services | 🇦🇺 Australia | 📈 Bullish Idea

EML Payments (EML.AX), currently trading at $0.75, is undervalued due to market skepticism over divesting its problem-saddled PCSIL division and legacy stakeholders like First Sentier selling shares. The market seems to ignore the potential sale of Sentenial by June '24, which could fetch over $50 million, and neglects the value of the non-PCSIL portion of PFS UK, currently generating over $20 million in EBITDA. The core business is also being undervalued at a 7x multiple, despite its high-value gifting segment warranting a higher multiple of over 10x. I estimate the sum of the parts (SoTP) valuation at $1.61, significantly above the market's $0.76, implying a major upside potential. Even with no core business improvement and conservative estimates, divesting PCSIL and selling Sentenial should justify a 35% upside, making EML a stock with over $1 potential in 6 months, and with technical headwinds reversal, it could rise to $1.50. This presents an attractive opportunity to take on market fatigue with significant reward potential.

Read the full article here. Read time: 1 min

FUND LETTER

Aristotle Capital holding: US Bancorp ($USB)

U.S. Bancorp, with ticker USB, is an American bank holding company based in Minneapolis, Minnesota. It is the parent company of U.S. Bank National Association, and it is the fifth largest banking institution in the United States, offering a variety of financial services including banking, investment, mortgage, trust, and payment services products to individuals, businesses, governmental entities, and other financial institutions.

Ticker: USB | Price: $42.15 | Price Target: N/A | Timeframe: N/A

🏦 Banking | 📈 Bullish Idea

U.S. Bancorp (USB), headquartered in Minneapolis and the fifth-largest retail bank in the US, has expanded its footprint with the $8 billion acquisition of Union Bank, adding $82 billion in assets and enhancing its West Coast presence. With $668 billion in assets and a well-balanced portfolio, USB boasts of a 15-year track record of operating efficiency, generating returns above peers, and a diverse revenue stream with about 40% coming from fee-based businesses like payment and corporate trusts. USB has consistently grown its dividend and reduced shares outstanding by an average of 2% annually over the past decade. The bank's stock is currently undervalued relative to its intrinsic value, and anticipated catalysts for growth include revenue increase and cost savings from the Union Bank merger, persistent low-risk loan growth with deposit share gains, improved return-on-assets from efficiency and product enhancement, and a resumption of share buybacks following a brief pause due to regulatory measures associated with the acquisition.

Read the full article here. Read time: 2 min

+3 POINTS - WEEKLY TOURNAMENT

Which bonus stock idea was the most compelling to you?

Yesterday’s Poll Results:

🟩🟩🟩⬜️⬜️ E-L Financial Corp ($ELF.TO) [39%]

🟨🟨⬜️⬜️⬜️ Meta ($META) [36%]

🟥⬜️⬜️⬜️⬜️ Paycom ($PAYC) [25%]

MARKET OVERVIEW

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

Yesterday’s Poll Results: 59% bullish

Yellowbrick Road readers and the news sentiment both jumped up a little bit to start the week. However, all of the indexes started the week down and the Fear v Greed index fell another point.

STOCK MARKET NEWS

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Goldman Sachs profit climbs as equity traders ride market rebound - Reuters

Judge blocks JetBlue-Spirit merger in a major win for Biden's Justice Department - CNBC

Musk seeks 25% voting share at Tesla - Reuters

Morgan Stanley revenue tops estimates, helped by strong investment banking business - CNBC

Uber to shut down booze app Drizly after acquiring it 3 years ago for $1.1B - New York Post

Pentagon awards $2.5 billion in satellite contracts to L3Harris, Lockheed Martin and Sierra Space - CNBC

FEATURED INSIDER TRADE

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Chief Scientific Officer at KalVista Pharmaceuticals, Inc. ($KALV)

The Chief Scientific Officer sold 22,679 shares at $13.03/share ($296K total) which decreased their holdings by 36.3%. The current price is $12.96 (-0.5%). (trade link)

Historic Returns

Note: This is the third sale in the last week, all of which are part of a 10b5-1 plan.

QUIZ

+3 POINTS - WEEKLY TOURNAMENT

What was the original use for Bubble Wrap, now a popular packaging material?

Yesterday’s Question: Which luxury car manufacturer started as a tractor company?

Answer: Lamborghini

LINKS YOU’LL LOVE

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Michael Ovitz - Knowledge is power

JP Morgan’s Guide to the Markets

How AI adversely affects Google

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