Top stock pitches (Thu, May 2)

Connor Van Ooyen
May 02, 2024

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👋 Good Morning!

Starbucks’ earnings were miserable and the stock got crushed; Carvana crushed earnings after hours and popped over 30%; the FOMC meeting happened and the market loved it for about 10 seconds before giving back all of the gains; the Hang Seng has shown a breadth thrust over the last two weeks (link); another Chinese stock ($NIO) appeared in the biggest gainers list - Chinese stocks have been showing up there much more frequently recently (market overview section); a stock pitch for $SGRP with 70% upside (stock pitches section); and much more in this email.

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

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

STOCK PITCHES

BLOG POST

Spar Group (SGRP) trades at less than 3.5x EV/EBITDA with several potential catalysts

SPAR Group, Inc., together with its subsidiaries, provides merchandising and brand marketing services in the Americas, the Asia-Pacific, Europe, Middle East, and Africa.

Ticker: SGRP | Price: $1.82 | Price Target: $3.09 (+70%)
Market Cap: $40M | Timeframe: N/A

📢 Merchandising/Brand Marketing | 📈 Bullish Idea

SPAR Group, Inc. (SGRP) has simplified its business after selling its joint venture partnerships, leaving it with about 40% of its market cap in net cash and trading at less than 3.5x EV/EBITDA (15% FCF yield). Share buybacks and M&A serve as potential catalysts going forward. The company provides marketing services to big retailers like Walmart, helping them increase sales through merchandising, store remodeling, and distribution services. Margins are improving, with merchandising accounting for over 40% of revenue at double the margins of the remodeling business. SGRP has 85%+ upside potential to its historical 6x EBITDA valuation. Risks include bad M&A decisions and a potential recession impacting the business.

Read the full article here. Read time: 5 min

BLOG POST

UFP Industries ($UFPI): The Power of Aligning Employees, Management and Shareholders

UFP Industries, Inc., through its subsidiaries, designs, manufactures, and markets wood and non-wood composites, and other materials in North America, Europe, Asia, and Australia. It operates through Retail, Packaging, and Construction segments.

Ticker: UFPI | Price: $113 | Price Target: N/A
Market Cap: $6.99B | Timeframe: 5 years

🪵 Wood Materials | 💰 1.2% Dividend | 📈 Bullish Idea

UFP Industries (UFPI) is a diversified manufacturer of wood products with a 70-year history. The company is balanced across retail, industrial, and construction markets. UFPI is a serial acquirer, adding $3 billion in sales since 2003. It has a decentralized structure with a strong culture and experienced management, with the CEO in place since 2011. Sales exceed $7 billion, and the company is expanding margins via value-added products. While there are challenges in housing and industrial markets near-term, long-term tailwinds include the housing shortage, repair and remodel activity, and e-commerce packaging growth. UFPI trades at 7.5x EV/EBITDA with five-year targets of $10 billion in sales and a 12.5% EBITDA margin. It is a quality business at a reasonable valuation.

Read the full article here. Read time: 10 min

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FUND LETTER

Artisan Focus Fund Portfolio Holding: DraftKings Inc.

DraftKings Inc. operates as a digital sports entertainment and gaming company in the United States and internationally. It provides online sports betting and casino, daily fantasy sports, media, and other consumer products, as well as retails sportsbooks.

Ticker: DKNG | Price: $42.19 | Price Target: N/A
Market Cap: $20B | Timeframe: N/A

🎰 Sports Betting | 📈 Bullish Idea

DraftKings Inc. (DKNG) is poised for a significant profitability inflection as the sports betting duopoly solidifies, with EBITDA expected to shift from an annual loss to an estimated $2 billion profit by 2026, well ahead of consensus estimates. The company's trajectory is similar to that of Spotify, the world's most popular audio streaming subscription service with 602 million monthly active users, where focus is now shifting towards the underappreciated economics of the model as the leading player in its industry.

Read the full article here. Read time: 1 min

Which stock idea was the most compelling to you?

Yesterday’s Poll Results:

🟩🟩🟩⬜️⬜️ TSMC ($TSM) [69%]

🟨🟨⬜️⬜️⬜️ Grown Rogue ($GRIN.CN) [20%]

🟥⬜️⬜️⬜️⬜️ Kansai Paint ($4613.T) [11%]

MARKET OVERVIEW / NEWS

Market Overview

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

Yesterday’s Poll Results: 57% bullish

A pretty mixed day yesterday. The market was slightly down in the lead-up to the FOMC meeting and then briefly spiked and then fell after the meeting. The Nasdaq and S&P ended the day slightly down while the Russell and Dow ended slightly up. The Fear v Greed index fell one point while Yellowbrick Road Readers remained at the same “bullish” level and the news sentiment jumped back into slightly bullish territory. Even the biggest winners/losers list was mixed with well-known companies appearing on both lists (notably Pinterest as the biggest gainer and CVS, Starbucks, and $SMCI as big losers).

Stock Market News

Fed holds rate steady and moves to ease the pace of balance sheet reduction - CNBC

CVS posts big earnings miss - cuts profit outlook on higher medical costs - CNBC

Pfizer beats revenue estimates, raises profit outlook on cost cuts and strong non-Covid sales - CNBC

Qualcomm gives better-than-expected revenue forecast as company pushes AI-powered smartphones - CNBC

EBay forecasts quarterly revenue below expectations - Reuters

Private payrolls increased by 192,000 in April, more than expected for resilient labor market - CNBC

DoorDash projects quarterly core profit below estimates on higher costs - Reuters

Amazon-backed Anthropic launches iPhone app and business tier to compete with OpenAI's ChatGPT - CNBC

Pinterest shares soar 16% on earnings beat, strong revenue growth - CNBC

Carvana shares spike 30% as used car retailer posts record first quarter - CNBC

Aston Martin's losses nearly doubled on lower sales, but carmaker projects growth from new models - CNBC

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EVP & GENERAL COUNSEL at Orion Group Holdings Inc ($ORN)

The EVP & GENERAL COUNSEL purchased 1,000 shares at $7.03/share ($7,031.40 total) which increased their vested holdings by 1.4%. The current price is $7.11 (+1.1%). Their median purchase size is $21,952.00 and this is their 4th largest purchase out of 4 all time. (trade link)

Note: 2 other insiders also purchased the stock

LINKS YOU’LL LOVE

The collapse of Starbucks is truly insane (link)

10 mental models to level up your thinking (link)

How inflation swindles the equity investor by Buffett (link)

One of the reasons we see far fewer IPOs now

THAT’S ALL FOLKS

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Connor

*Follow Yellowbrick on Twitter at @joinyellowbrick

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