🤖📈 Top Trade Ideas for July 20

The stock price would potentially be 2-3 times higher if it weren’t in the hated tobacco industry. With an 83% gross margin and a 31% net margin, the company is witnessing modest revenue growth. The company anticipates an all-time record free cash flow (FCF) of $9B next year and, with a market cap of $58B and $39B in net debt, the enterprise value stands at $97B, indicating a 9% FCF yield. The company also has a generous 8% dividend, which accounts for only 50% of the FCF. Moreover, it repurchased $2B in stock last year, marking the first significant buyback since 1997. With a new CEO at the helm since May, the company trades at a 37% discount on a P/E basis compared to the US/EU peer group. Even though the stock seems to be priced for a worst-case scenario, there is still a strong smoking demographic in emerging markets.

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Encore Wire is a manufacturer of electrical wires and cables that contribute to the transition to a more sustainable infrastructure through electrification. The price of copper heavily influences the company's business, which may deter some investors. Encore Wire's single, vertically integrated campus in Texas is considered a competitive advantage, addressing scalability and supply chain disruptions. The company differentiates itself through innovation, exceptional customer service, and a diverse product line. Encore Wire primarily sells its products to wholesale electrical distributors in the United States. It competes with companies like Southwire, Cerrowire, General Cable, and AFC Cable Systems in the industry. The company's sales are heavily tied to the price of copper, and it has maintained a streak of year-over-year increases in unit volume of copper sold since 2005. Encore Wire has operated with no debt since 2010 and has a conservative approach to cash flow management. The recent financial performance of the company is concerning, with a decrease in revenue in Q1'23 and a projected decrease in revenue and EPS for 2023. However, the author highlights the long-term potential of the "Electrification of Everything" trend and predicts an upward trajectory for the price of copper. The author recommends buying Encore shares with a long-term investment horizon, as the company can potentially grow with the Electrification of Everything movement.

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Bank of America (BAC) reported Q2 2023 results, with ROTCE of 15.5% and a slight decrease in Net Interest Income (NII). However, NII is expected to stabilize throughout 2023. BAC's shares have gained 21.0% over roughly 4 years but have fallen 31.0% since the start of 2022. The company expects to lower expenses and maintain modest credit costs in the second half of the year. It's currently trading at a low valuation with a P/E of less than 10x, and a Dividend Yield of 3.1%. BAC expects full-year 2023 NII to be slightly above $57 billion, with Q3 and Q4 at approximately the same level as the second quarter. The company has also reduced its headcount by 4,000 during Q2, signaling further expense reductions in the coming quarters. Regulations are seen as the main risk for BAC's investment case, with potential for higher capital requirements imposed by the Fed. The author expects a total return of 71% (25.3% annualized) by the end of 2025 and recommends buying BAC shares.

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