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Top stock pitches (Fri, May 31)

Top stock pitches (Fri, May 31)

Connor Van Ooyen
May 31, 2024

About // Sponsor YBR // Yellowbrick Website // Twitter

*This newsletter is for entertainment purposes only. Nothing in this newsletter is financial advice or recommendations.

👋 Good Morning!

Thanks for reading the Yellowbrick Road where I share the best stock pitches from fund letters, analyst reports, blogs, and more!

The three stock pitches you’ll read about in today’s email are:

Rentokil Initial ($RTO)

Jack in the Box Inc. ($JACK)

Clean Harbors, Inc ($CLH)

Feel free to share this email with any other investors that may like it.

Connor (follow the Yellowbrick Twitter account - @joinyellowbrick)

* If you missed yesterday’s email, don’t forget to read it here

YBR PORTFOLIO

The YBR Portfolio copies the trades of the top 10 investors (based on the average returns of their previous stock pitches) in our database of 1,000+ investors. If you want to be alerted when the best investors buy/sell a stock, then this section is for you.

*All investments in the YBR Portfolio will be for ~3% of the portfolio value (which allows us to hold a maximum of 33 stocks at a time).

**I use Interactive Brokers (link) for the portfolio because it makes it easy to trade international and OTC stocks. If you decide to open an account with them, use this link so they know I sent you.

New Trade Alert!

We just made a new investment in the YBR Portfolio and copied a trade from the #7 investor in our database who averages 42%+ 2-year returns on their stock pitches.

The new stock is…

The YBR Portfolio is only available to Premium Subscribers. If you want to know which stocks the top investors are investing in, upgrade to Yellowbrick Premium (you get a 20% discount using that link or the button below).

WINNING PITCH

+100% Returns in 4 Months for $APP

This Applovin pitch was from the January 11th email (link) when the stock was at $40.53. It is now up to $83.46 which means it is up over 100% and hit its price target.

Shoutout to the Tech Fund blog (link) for the pitch.

STOCK PITCHES

Author Returns

The below stock pitch is from Voss Capital.

We have 61 stock pitches from them in our database and their historic returns are:

Upgrade to Yellowbrick Road Premium to unlock the historic returns for this author. Upgrade for 20% off.

FUND LETTER - Voss Capital

Voss Capital Value Fund Portfolio Holding: Rentokil Initial plc

Rentokil Initial plc, together with its subsidiaries, provides route-based services in North America, the United Kingdom, rest of Europe, Asia, the Pacific, and internationally. It offers a range of pest control services for rodents, and flying and crawling insects, as well as other forms of wildlife management for commercial customers.

Ticker: RTO | Price: $26.60 | Price Target: $52 (+95%)
Market Cap: $13.30B | Timeframe: 2-3 years

🪲 Pest Control Services | 💰 2% Dividend | 📈 Bullish Idea

Rentokil Initial (RTO), the global pest control leader, trades at a discounted 10x 2025 EBITDA following its acquisition of Terminix, which caused a temporary slowdown in growth due to integration efforts. The stock's valuation is significantly lower than transaction comps (15-26x), its closest competitor Rollins (ROL) at 27x, and its own historical average of 15x. With the pest control market growing at 4.9% CAGR and RTO targeting organic revenue growth at 1.5x the market rate, the company has substantial upside potential. Once integration issues are resolved and organic growth improves, RTO could see a 100% upside by re-rating to its historical multiple, which would still be at the low end of comps and a 40% discount to ROL. A potential shift to USD reporting and a US listing could drive the re-rating even higher.

Read the full article here. Read time: 2 min

Author Returns

The below stock pitch is from @marginofdanger on Twitter.

Their historic returns are:

Upgrade to Yellowbrick Road Premium to unlock the historic returns for this author. Upgrade for 20% off.

TWITTER - @marginofdanger

Jack in the Box Inc.: A Value Play with Strong Growth Potential

Jack in the Box Inc. operates and franchises Jack in the Box and Del Taco quick-service restaurants in the United States. The company was founded in 1951 and is headquartered in San Diego, California.

Ticker: JACK | Price: $53.15 | Price Target: $139 (+162%)
Market Cap: $1.02B | Timeframe: N/A

🍔 Fast Food Restaurant | 💰 3.4% Dividend | 📈 Bullish Idea

Jack in the Box Inc. ($JACK), trading at a P/E of 8x compared to peers like Wendy's at 18x, is a franchisor of ~2,800 Jack-in-the-Box and Del Taco restaurants, with a 10% annualized EPS growth over the past decade. Despite recent slowdowns in same-store sales due to tough comparisons, the company is expanding to new markets with strong results and has updated its FY24 EPS guidance to $6.25-6.40. A sum-of-the-parts analysis, valuing the rental stream at 12x EBITDA and the royalty stream at 12x EBITDA, suggests a price target of $139 per share. The company has a $250 million stock buyback plan and a 3% dividend yield, with activists such as Blue Harbour and Sardar Biglari involved. The opportunity exists due to the limited number of value investors in the market.

Read the full article here. Read time: 3 min

Author Returns

The below stock pitch is from Merion Road Capital

We have 3 stock pitches from them in our database and their historic returns are:

Upgrade to Yellowbrick Road Premium to unlock the historic returns for this author. Upgrade for 20% off.

FUND LETTER - Merion Road Capital

Merion Road Capital Portfolio Holding: Clean Harbors, Inc.

Clean Harbors, Inc. provides environmental and industrial services in the United States and internationally. The company operates through two segments, Environmental Services and Safety-Kleen Sustainability Solutions.

Ticker: CLH | Price: $214.37 | Price Target: N/A
Market Cap: $11.61B | Timeframe: N/A

🗑️ Waste Management | 📈 Bullish Idea

Clean Harbors (CLH), the largest U.S. hazardous waste management company, presents a compelling investment opportunity due to its scarce assets (nine incinerators, eight landfills), over 500 permits, and scale benefits. The company's business is divided into two segments: Environmental Services, which provides diverse waste remediation and cleaning services despite cyclical end-markets, and Safety-Kleen Oil, a volatile commodity-driven business accounting for 13% of consolidated EBITDA. CLH's EBITDA margin has expanded to 24.5% in 2023 following Republic Services' acquisition of US Ecology, which aimed to improve pricing and margins in the hazardous waste sector. Currently trading at 10.6x 2025 EBITDA (10.8x ex-Oil), CLH is at a steep discount to waste peers at 15x. A potential 500bps margin expansion could lead to a 20% EBITDA upside and a multiple compression to <9x, making CLH an attractive investment given its market position and significant barriers to entry. Merion Road Capital made it their largest position.

Read the full article here. Read time: 3 min

Which stock idea was the most compelling to you?

Yesterday’s Poll Results:

🟩🟩🟩⬜️⬜️ Microsoft ($MSFT) [40%]

🟨🟨⬜️⬜️⬜️ Achieve Life Sciences ($ACHV) [32%]

🟥⬜️⬜️⬜️⬜️ SolarWinds ($SWI) [28%]

Your comments:

💻 burkh*** ($SWI): Nothing but positives for SWI. I don't usually buy green energy companies, but I will make an exception for this one. I would have picked MSFT, but I already have a large position there, and it's doing quite well. As for ACHV, I have been burned many times on bio-techs, so I avoid them. If you don't understand how and why the company makes money, you should not own its stock.

MARKET OVERVIEW / NEWS

Market Overview

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

Yesterday’s Poll Results: 44% bullish

Yesterday was the most bearish day we’ve had in quite a while. Surprisingly, the Russell index was positive while the other indexes were down significantly. Earnings season has started again and some of the software companies have been struggling and getting clobbered.

Yellowbrick Road readers fell below 50% bullish, the news sentiment fell to the lowest number since we’ve started tracking it, and the Fear v Greed index is on the edge of falling back into bearish territory.

Stock Market News

Kohl's stock plummets 20% after massive earnings miss - CNBC

Foot Locker's turnaround is showing signs of life, CEO sees consumers willing to pay full price - CNBC

Dell shares fall 12% after company reports first-quarter earnings - CNBC

UiPath shares tank 30% after company announces CEO shakeup - CNBC

HP Stock Jumps on Solid Earnings, Optimism for AI-Powered PCs - Investopedia

Palantir wins $480 million US Army deal for 'Maven' prototype - Reuters

Dollar General beats Q1 sales estimates on demand for pocket-friendly groceries - Reuters

Gap blows pasts earnings estimates, raises guidance as all four brands post sales growth - CNBC

Economy grew just 1.3% last quarter, consumer spending was weaker than expected - New York Post

Amazon Prime now includes a Grubhub food-delivery subscription - CNBC

Costco beats quarterly revenue estimates on strong grocery demand - Reuters

Zscaler shares soar as strong cybersecurity demand powers upbeat Q4 forecast - Reuters

Amazon to expand drone delivery service after clearing FAA hurdle - 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

EVP & Chief Operations Officer at Sunoco LP ($SUN)

The EVP & Chief Operations Officer purchased 3,000 shares at $50.18/share ($151K total) which increased their vested holdings by 1.3%. The current price is $50.34 (+0.3%). Their median purchase size is $148K and this is their 1st largest purchase out of 2 all time. (trade link)