Top stock pitches (Wed, Nov 31)

Author

Connor Van Ooyen
January 31, 2024

Sponsored by

👋 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 93 new readers who joined yesterday!

Our AI read and summarized 133 stock ideas, 1234 news articles, and 111 insider trades and found:

  • A mobile satellite services company with nearly 300% upside (featured stock idea)

  • The cheapest oil stock and two fund holdings (bonus stock ideas)

  • AMD shares fall as first-quarter forecast comes in light (news)

  • $KALV insider buys the stock for the 7th time (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

VIC

Globalstar - $GSAT

Globalstar, Inc. is a company that provides mobile satellite services, including voice and data communication services to commercial and recreational users around the world. Their services are aimed at aiding those in remote locations beyond the reach of traditional wireless providers.

Ticker: GSAT | Price: $1.64 | Price Target: $6 (+271%)
Market Cap: $3B | Timeframe: N/A

📡 Mobile Satellite Services | 📈 Bullish Idea

Globalstar (GSAT), priced at $1.42, is a satellite and terrestrial telecom infrastructure provider poised for growth with a price target of $6, undervalued due to its legacy challenges and misperceptions. Its Mobile Satellite Services (MSS) and valuable S-Band spectrum are underappreciated by the market. The MSS segment is a revitalized business with $150M in revenue and <40% EBITDA margins in 2022, expected to grow to $250-300M revenue with $137-171M in EBITDA by 2026, largely due to a transformative partnership with Apple for iPhone's 'Emergency SOS' which will provide $100M in annual revenue at 75%+ EBITDA margins, with further growth anticipated. Apple's investment covers 95% of new constellation construction costs, essentially granting GSAT a 15-year CapEx holiday. The appointment of Dr. Paul Jacobs, ex-CEO of Qualcomm, with extensive experience and significant incentive to unlock the value of GSAT's spectrum assets, further boosts GSAT's potential. Multiple monetization opportunities exist for US and international S-Band spectrum, providing a strong upside beyond the conservative SOTP valuation of $6 per share. Potential risks include delays in spectrum deals and failure to realize value. Catalysts for stock appreciation include spectrum monetization, a potential company sale, and increased investor awareness. I and/or others I advise hold a material investment in GSAT's securities.

Read the full article here. Read time: 4 min

+3 POINTS - WEEKLY TOURNAMENT

How do you rate the featured stock idea?

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Yesterday’s Featured Stock Idea

Paramount Global ($PARA)

🟩🟩🟩⬜️⬜️ - Buy (52%)
🟥⬜️⬜️⬜️⬜️ - Pass (22%)
🟨🟨⬜️⬜️⬜️ - Watchlist (26%)

  • 🔎 palsr*** - It seems all entertainment media companies are scrambling right now. This recommendation sounds promising, but I'd like to wait a bit to see how this all settles out.

  • ❌ nanra***, danda***, alpot*** - Too speculative/risky

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

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BONUS STOCK IDEAS

FUND LETTER

Smoak Capital holding: Hammond Manufacturing ($HMM-A.TO)

Hammond Manufacturing Company Limited (ticker: HMM-A.TO) is a Canadian company that manufactures a broad range of products for the electronic and electrical products industry, including electrical enclosures, racks, cabinets, transformers, and climate control products.

Ticker: HMM-A.TO | Price: $9.10 | Price Target: $16.38 (+80%)
Market Cap: $120M | Timeframe: N/A

⚡️ Electrical Products | 🏭 Manufacturing | 🇨🇦 Canada | 📈 Bullish Idea

Hammond Manufacturing (TSX:HMM.A), a maker of electrical enclosures, racks and cabinets, and other power distribution products, is significantly undervalued with strong growth prospects led by trends in cloud computing and infrastructure investment. With a revenue and gross profit CAGR of 11.2% and 15% over the past 7 years, HMM is trading at a mere 5x earnings, which is a striking discount compared to its sister company, Hammond Power Solutions (trading at 18x P/E). HMM's real estate assets, consisting of over 500,000 sq ft of manufacturing space near Toronto, likely match or exceed its current market cap of $100M CAD. In contrast, peer nVent Electric, with an organic growth rate of 5.78% compared to HMM's 11.79%, trades at 15x EV/EBITDA and a 21x P/E. HMM's diverse product range and consistent profitability since 2002 suggest it is less cyclical than perceived. If HMM traded at a 50% discount to its sibling HPS, there would be an 80% upside to the stock; at a 30% discount, the upside is over 130%, deadlining that the current valuation disparity is unjustified.

Read the full article here. Read time: 3 min

BLOG POST

Africa Oil: The cheapest oil stock I know

Africa Oil Corp. is a Canadian oil and gas company with assets in Kenya and Ethiopia, and production in Nigeria. The company is involved in the exploration, development, and production of oil and hydrocarbon resources in Africa.

Ticker: AOI.TO | Price: 2.64 | Price Target: N/A
Market Cap: 1B | Timeframe: N/A

🛢️ Oil/Gas | 🇨🇦 Canada | 🏷️ Undervalued | 📈 Bullish Idea

Africa Oil (ticker: AOI.TO) has shifted course after a period of stagnation and lack of direction, thanks to new management and a clarified corporate strategy as depicted in recent presentations. With a market capitalization of $907 million USD and an enterprise value (EV) of $705.5 million USD at a stock price of $2.64 CAD, the company is debt-free and holds significant cash reserves totaling $201.5 million USD. Africa Oil's value largely hinges on four key assets: two public company stakes in Africa Energy and Eco Atlantic valued at roughly $32 million USD and $6.9 million USD, respectively, and two private companies, Prime and Impact. Prime, their cash cow, is 50% owned by Africa Oil and holds minority stakes in prolific offshore Nigerian oilfields operated by majors including Chevron and Total, reducing operational and jurisdictional risks. In 2022, Prime distributed $250 million USD to Africa Oil, yet it's the company's stakes in Prime's potential cash distributions that provide significant intrinsic value, more so than their market cap or EV. Africa Oil's interest in Impact, primarily through the Venus discovery in Namibia, is a key upside asset due to a recent farm-out deal with majors, granting Impact a fully-paid carry to first oil, which means no upfront capital expenditure and only post-tax cash flow repayments if the project succeeds. Additionally, Africa Oil bought a larger stake in the South African offshore 3B/4B exploration block, with prospective resources estimated to be significant. Execution near-term includes farming out and potential drilling, and success here could dramatically increase valuation for Africa Oil's 26.25% direct ownership and 3% through Eco Atlantic. With a new, sharp focus on core assets, clear capital allocation through buybacks or dividends, and potential acquisitions around their Nigerian core assets in 2024, the company seems to be an undervalued oil player with a favorable risk-reward profile, as recognized through recent insider buying by the new CEO and others.

Read the full article here. Read time: 13 min

FUND LETTER

Inter Parfums ($IPAR): The Fragrance Expert Behind Leading Perfume Brands

Inter Parfums, Inc. (ticker: IPAR) is an American company that manufactures, markets, and distributes an array of fragrances and fragrance related products. The company partners with various fashion brands and designers for the creation and management of signature scents.

Ticker: $IPAR | Price: $137 | Price Target: $260 (+89%)
Market Cap: $4.3B | Timeframe: 4 years

🧪 Perfume Manufacturing | 💰1.8% Dividend | 📈 Bullish Idea

Inter Parfums (IPAR) is a niche industry leader in fragrance licensing and distribution, notably for prestige brands that seek to extend their product lines into the scent segment. IPAR, founded in 1982 by Jean Madar and Phillipe Benacin, operates a capital-light, high-margin business model, boasting high returns on invested capital with a long runway for investments and growth. The company has achieved durable growth by both bolstering existing brands—like Montblanc, Jimmy Choo, Coach, and Guess—and acquiring new licenses including recent additions like Ferragamo, DKNY, Lacoste, and Roberto Cavalli. These strategies have secured IPAR long-term revenue growth estimates of 8-10%, supported by a high gross margin profile (~65%) and moderate EBITDA margins (~20%), laying a foundation for 10-15% EPS growth. Strategic financial use of strong free cash flows includes dividend hikes, share repurchases, and license acquisitions. IPAR's founders maintain a high insider ownership, guaranteeing alignment with shareholder interests. Despite short-term concerns of inflated sales post-COVID and a trough valuation, IPAR's consistent track record and potential growth—the China market being a significant untapped venue—support a price target of $260 in four years, translating to a 15% CAGR from its current valuation, assuming a return to a P/E multiple of 30x on projected 2028 EPS of $7.95, inclusive of accumulated cash.

Read the full article here. Read time: 8 min

+3 POINTS - WEEKLY TOURNAMENT

Which bonus stock idea was the most compelling to you?

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Yesterday’s Poll Results:

🟩🟩🟩⬜️⬜️ FitLife Brands ($FTLF) [37%]

🟨🟨⬜️⬜️⬜️ Alight ($ALIT) [35%]

🟥⬜️⬜️⬜️⬜️ Net Lease Office Properties ($NLOP) [28%]

Your comments:

  • 🏡 steveng*** ($NLOP): You may have to wait a while for the price to appreciate from this level, but they are paying you over 5% to wait

  • 🏡 alpot*** ($NLOP): I Like the liquidation theme W.P. Carey is an expert in managing real estate. I’m confident they can select appropriate properties to sell.

  • 💻 emoj*** ($ALIT): Using AI to replace certain technology (ahem-people) is going to continue to expand.

MARKET OVERVIEW

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

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Yesterday’s Poll Results: 78% bullish

A slight dip in bullishness that I assume will come down even further after some rough earnings from some of the big earnings from yesterday. Three of the four indexes were red, the Fear v Greed index dropped out of “Extreme Greed”, Yellowbrick Road readers are still very bullish at 78% bullish, and the news sentiment is below the 7-day average.

STOCK MARKET NEWS

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UPS stock tumbles after package giant reports drop in volume - CNBC 

GM upbeat on 2024, betting on a 'resilient' US economy - Fox Business 

Pfizer posts surprise quarterly profit on resilient COVID products demand - Reuters 

Google-parent Alphabet reports quarterly ad revenue below estimates - Reuters 

Microsoft beats estimates as Azure grows faster than expected - CNBC 

Judge rules in favor of plaintiffs challenging Musk's Tesla pay package - Reuters 

Payments firm PayPal to cut around 2,500 jobs - Bloomberg News

AMD shares fall as first-quarter forecast comes in light - CNBC 

White House touts highest consumer confidence in more than 2 years - 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 KalVista Pharmaceuticals, Inc. ($KALV)

The 10% Owner purchased 91,804 shares at $14.05/share ($1.29M total) which increased their holdings by 2.0%. The current price is $14.33 (+2.0%). Their median purchase size is $1.73M and this is their 7th largest purchase out of 11 all time. (trade link)

Historic Returns
1m returns: 75% weighted | 13% median | 100% win rate (5/5)
3m returns: 46% weighted | 30% median | 50% win rate (2/4)
6m returns: 19% weighted | 3% median | 50% win rate (2/4)
1y returns: 37% weighted | 20% median | 50% win rate (2/4)

Note: 7th purchase in the last month

QUIZ

+3 POINTS - WEEKLY TOURNAMENT

Who was the first woman to head a major Wall Street bank, becoming CEO of Citigroup in 2020?

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Yesterday’s Question: In finance, what is 'Beta' used to measure?

Answer: The volatility of a stock relative to the overall market

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