Top stock ideas (Wed, Jan 24)

Connor Van Ooyen
January 24, 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 102 new readers who joined yesterday!

Our AI read and summarized 122 stock ideas, 1531 news articles, and 181 insider trades and found:

A semiconductor company with 160% upside (featured stock idea)
An energy technology company, a Chilean lithium company with an expected 8.5% dividend, and a turnaround opportunity in Unilever (bonus stock ideas)
Netflix to start streaming WWE content (news)
A CEO sells $5.88M of stock (insider trade)
and much more…

Thanks for reading! Have a great day.

Connor

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FEATURED STOCK IDEA

BLOG POST

Navitas, outlook post investor day

Navitas Semiconductor (ticker: NVTS) is a company specializing in the design and manufacture of high-efficiency power semiconductors based on gallium nitride (GaN) technology, which are used in a variety of applications including mobile, consumer, enterprise, eMobility, and renewable energy.

Ticker: NVTS | Price: $6.40 | Price Target: $16.70 (+160%)
Market Cap: $1B | Timeframe: N/A

⚡️ Semiconductor | 🏭 Manufacturing | 📈 Bullish Idea

Navitas Semiconductor (NVTS), priced around $6.15 with a target of $16.7, is positioned within the evolving power semiconductor industry, where the shift from silicon-based semiconductors to more efficient silicon-carbide (SiC) and gallium-nitride (GaN) technologies is critical for applications demanding controlled electricity, such as electric vehicles (EVs) and renewable energy systems. SiC is favored for high-voltage requirements like EVs and wind power, while GaN is gaining traction in lower voltage, fast-charging applications, including smartphones and TVs, and is penetrating markets typically served by SiC. Navitas, a prominent player in GaN with a 10% charger market penetration, has showcased a $1.25 billion pipeline poised for future growth in sectors such as solar, EVs, and data centers. The company, also venturing into the packed SiC market with a modest $20 million investment, utilizes efficient 6-inch wafers for SiC and partners with TSMC and X-FAB for manufacturing, staying cost-effective despite industry shifts towards larger 8-inch wafers. Though revenues are anticipated to surge to $200-$400 million in coming years, the risk remains in gallium supply due to Chinese export controls and intense competition with over ten rivals, including Renesas. Despite current modest 42% gross margins, Navitas expects to exceed 50% in the long term. If it succeeds in capturing significant GaN market shares while managing to yield over 50% gross margins, NVTS may present a compelling investment opportunity.

Read the full article here. Read time: 16 min

+3 POINTS - WEEKLY TOURNAMENT

How do you rate the featured stock idea?

Yesterday’s Featured Stock Idea

JPMorgan Chase ($JPM)

🟩🟩🟩⬜️⬜️ - Buy (50%)
🟥🟥⬜️⬜️⬜️ - Pass (28%)
🟨⬜️⬜️⬜️⬜️ - Watchlist (22%)

✅ sweirl**** - I have the stock as a long-term investor and it has done well. I think that there will be an ongoing demand for loans and other bank services as the economy strengthens and credit card debt rises.
✅ alpo**** - Megabanks will always be protected. "Too big to fail" And JPM is at the top of the heap.
❌ dmcc**** - They kicked the can on earnings. Their chart at best looks sideways. GS is a better choice. Better chart.

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

TODAY’S SPONSOR

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BONUS STOCK IDEAS

BLOG POST

Schlumberger Is A Strong Buy After The Earnings (Rating Upgrade)

Schlumberger Limited (ticker: SLB) is one of the world’s leading providers of technology and services to the energy industry, offering solutions for drilling, production, and reservoir characterization among others, across the entire lifecycle of oil and gas reservoirs.

Ticker: SLB | Price: $50.42 | Price Target: N/A
Market Cap: $72B | Timeframe: N/A

🛢️ Energy Tech | 💰 2% Dividend | 📈 Bullish Idea

Schlumberger Limited (NYSE:SLB) presents an attractive investment opportunity as negative sentiment in the energy sector has driven its share price to oversold levels not seen since the regional banking crisis, despite the company recently reporting an earnings beat, issuing bullish guidance, and announcing a dividend increase. Schlumberger, with 80% of its business focused on the resilient international and offshore markets, is well-positioned to benefit from a long-cycle upswing driven by energy security and capacity expansion plans by national oil companies, particularly in the Middle East, Asia, and offshore regions like Brazil, West Africa, and Australia. Consistent with double-digit revenue growth over ten consecutive quarters internationally, the company achieved its highest free cash flow since 2015 at $4 billion and has seen improved profitability per dollar of revenue, indicating operating leverage. With a significant reduction in net debt and increased shareholder returns—including a 10% dividend hike and expanded buyback program anticipated to exceed $2.5 billion in 2024—Schlumberger appears undervalued with low multiples relative to its growth rate. While the current valuation implies an 8x EBITDA multiple by 2025, a 10x multiple seems reasonable, suggesting a potential stock price closer to the Wall Street analysts' average target of $65. Risks include oil price volatility, although international cycle investments are reportedly less oil-price sensitive, and the long-term potential for decreased oil dependence.

Read the full article here. Read time: 5 min

BLOG POST

SQM: A Pivotal Buying Moment Is Knocking At The Front Door

Sociedad Quimica y Minera de Chile S.A. (ticker: SQM) is a Chilean chemical company and one of the world's largest producers of lithium, potassium nitrate, iodine, and solar-grade potassium. It plays a significant role in the global lithium market, crucial for battery production in electric vehicles and other technologies.

Ticker: SQM | Price: $48.42 | Price Target: N/A
Market Cap: 14B | Timeframe: N/A

🔋 Lithium | 💰 8.5% Dividend | 📈 Bullish Idea

Sociedad Química y Minera de Chile S.A. (SQM) has seen its stock decline by nearly 40% over the past year amidst a broader 80% drop in lithium prices, significantly impacting the valuation of this lithium miner. Investors were encouraged as the company formed a joint venture (JV) with Codelco, which will extend its lease in the Salar de Atacama through 2060, hinting at stability post-2030 lease expiry concerns, in exchange for transferring mining assets at Salar de Maricunga to Codelco without costs and sharing 30 years of industry expertise. Despite the perceived medium to long-term risks associated with the JV and geopolitical uncertainties which could lead to continued discounting in comparison to its peer Albemarle (ALB), SQM's attractive valuation at a forward EBITDA multiple of 4.7x and a high dividend yield of 8.5% present a compelling opportunity for value and income investors. The company's profitability and competitive position remain strong despite expected EPS declines over 2023 and 2024, before an anticipated growth inflection in 2025. Considering SQM’s stock bottoming actions in late 2023 and its significant share price decline from 2022 highs, the current levels may offer a ‘peak pessimism’ buying opportunity despite the lack of clear near-term market catalysts and ongoing caution from analysts regarding lithium price trends. Maintained Strong Buy Rating.

Read the full article here. Read time: 5 min

BLOG POST

Unilever: Long Turnaround Journey Ahead, But Priced Attractively

Unilever PLC is a multinational consumer goods company headquartered in London, England. It produces a wide range of products, including foods, beverages, cleaning agents, and personal care items, with well-known brands like Dove, Lipton, Ben & Jerry's, and Axe.

Ticker: UL | Price: $47.47 | Price Target: $68.62 (+45%)
Market Cap: $117B | Timeframe: end of 2026

🛍️ CPG | 💰 3.9% Dividend | 📈 Bullish Idea

Unilever (Ticker: UL) currently trades near its 52-week low at a price-earnings ratio of 16.5x and offers a 3.9% dividend yield. Despite being a global consumer conglomerate with a significant presence in emerging markets (59% of sales), which historically masked its lack of competitiveness, Unilever struggles with cultural issues that affect its pricing power, resulting in falling margins and stagnant earnings. The new CEO, Hein Schumacher, echoes the successful turnaround narrative of Proctor & Gamble, under the influence of activist investor Nelson Peltz, but Unilever's efforts are much more limited in scope. With guidance implying a flat earnings per share for 2023 and long-term growth at 3-5%, limited upside is seen due to valuation with modest downside risk. Assuming a modest re-rating to a 20x price-earnings ratio by 2026 and incorporating dividends and a forecasted 3% compounded annual growth rate in earnings per share, a total return of 46% (14.3% annualized) is projected. With a price target of $68.62 by the end of 2026, the recommendation on Unilever is rated a Buy, albeit with a speculative outlook due to the uncertain success of the turnaround program.

Read the full article here. Read time: 10 min

+3 POINTS - WEEKLY TOURNAMENT

Which bonus stock idea was the most compelling to you?

Yesterday’s Poll Results:

🟩🟩🟩⬜️⬜️ Farmer Brothers ($FARM) [47%]

🟨🟨⬜️⬜️⬜️ Stellantis ($STLA) [33%]

🟥⬜️⬜️⬜️⬜️ Teladoc Health ($TDOC) [20%]

Your comments:

🚗 burkh*** ($STLA): I have a soft spot for automakers. STLA is doing some good work, but their products can tend to be quirky. I think the article understates some of their financial issues. Here's what Chaikin says : Expert activity for STLA is very positive which is evidenced by relative strength of the stock's industry. STLA's financial metrics are poor due to a high long term debt to equity ratio." I'm going to initiate a small position to keep an eye on it.

MARKET OVERVIEW

Today’s market overview is sponsored by RAD AI - the future of AI marketing. 3X revenue growth proves it’s working and major clients like Accenture, MGM, and Sweetgreen — not to mention 6,000+ investors, VCs, Fidelity, and execs from Google and Amazon — already trust RAD. Invest today

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

Yesterday’s Poll Results: 72% bullish

The day started out pretty flat but ended on an upswing. The indexes were mixed and led by big tech with the Nasdaq and S&P ending the day green while the Dow and Russell were red. The Fear v Greed index gained a couple of points and is edging towards Extreme Greed. Yellowbrick Road readers maintained their record bullishness while the news sentiment took a big jump after a bunch of solid earnings releases.

STOCK MARKET NEWS

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Netflix to stream WWE's Raw starting next year in its biggest jump into live entertainment - CNBC

Netflix adds 13.1 million subscribers, tops revenue estimates as membership push gains steam - CNBC

Procter & Gamble revenue rises 3%, short of expectations - CNBC

Johnson & Johnson narrowly tops quarterly estimates as pharmaceutical, medtech sales jump - CNBC

Verizon's flexible mobile plans drive subscriber additions, strong forecast - Reuters

RTX's fourth-quarter revenue jumps on aftermarket strength, defense demand - Reuters

Defense firm Lockheed forecasts dour 2024 profit on supply chain woes - Reuters

GE posts higher profit on strong demand for engine parts, services - Reuters

Dow Jones Giant 3M Sinks After 2024 Guidance Misses Wall Street Expectations - Investors Business Daily

Computer parts maker Logitech's third-quarter sales fall - Reuters

Analog chipmaker Texas Instruments forecasts quarterly revenue below estimates - Reuters

Alibaba stock skyrockets on news of Chinese government market stimulus - Finbold

FEATURED INSIDER TRADE

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President and CEO at MSC INDUSTRIAL DIRECT CO INC ($MSM)

The President and CEO sold 60,939 shares at $96.57/share ($5.88M total) which decreased their holdings by 2.9%. The current price is $97.70 (+1.2%). (trade link)

QUIZ

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Which economist is credited with developing the Efficient Market Hypothesis?

Yesterday’s Question: When did Coca-Cola join the Dow Jones Industrial Average?

Answer: Not until 1987!

LINKS YOU’LL LOVE

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“Use your edge”. A letter by Peter Lynch

Summary and key learnings from The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success

10 learnings from an interview with the CEO of Markel

The longer you own the S&P index, the lower your chances of losing money.

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WEEKLY TOURNAMENT

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🏆 This Week’s Leaderboard

penco**** (89 points)
loome*** (89 points)
llemi**** (89 points)

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