Top trade ideas (Wed, Nov 8)

Following the release of PayPal's Q3 2023 results, the company's shares experienced an 8.6% increase in two days, although they are down nearly 25% year-to-date and more than 80% from their 2021 peak. The report acknowledges past misjudgments but underscores the positive changes expected with new CEO Alex Chriss. Despite a slightly worse-than-expected Q3, key financial metrics such as Total Payment Volume, Net Revenues, and Transaction Margin Dollars demonstrated some growth. Importantly, Alex Chriss shared his initial thoughts on PayPal's strategy, focusing on core areas, cost reductions, profit-accretive growth, and improved financial reporting. The company is also undergoing a C-suite reshuffle with new CFO and CTO appointments. The stock is seen as undervalued, offering limited downside, and it's estimated that a return to 10% EPS growth from 2025 and a P/E of 20 could result in a 115% total return by 2026. The analysis indicates that PayPal's current valuation doesn't reflect its turnaround potential and positions it as a buy opportunity.

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CWST is the 5th largest waste company in the U.S., and it’s the #1 player in the dense Northeast. CWST is vertically integrated and has significant rural market exposure (~70%) versus its peers. The Northeast hasn’t approved a new landfill permit in 30 years, so the scarcity value of landfills combined with CWST’s vertical integration has given it significant pricing power. We’re attracted to CWST’s leading position in a stable business with high degree of recurring revenue. It has low leverage and is family owned. Plus, as a smaller player in a consolidating industry, CWST could possibly be acquired by a large player in the future.

Read the full article here. Read time: 7 min

Shopify Inc. (NYSE: SHOP) receives a solid BUY recommendation from Jim Kelleher, CFA, with a target price of $80, backed by its impressive third-quarter performance in 2023, outperforming consensus with $1.71 billion in revenue and non-GAAP diluted EPS of $0.24, $0.10 above expectations. This marks Shopify's second consecutive quarter of GAAP profitability. Post-exit from the delivery and logistics business, now operated by Flexport, Shopify has seen a boost in margins and can now better focus on merchant services in the burgeoning AI era with its Shopify Magic suite. The company is on a growth trajectory with a 22% year-over-year increase in gross merchandise volume, signaling robust business activity as it heads into the holiday season. Despite a 75% plunge in 2022, SHOP has rebounded 77% year-to-date in 2023, outpacing peers. The restructuring, including a 30% workforce reduction, and strategic shift away from low-margin logistics have improved margins and operating efficiency. With an expanding merchant base, innovative AI tools like Sidekick, and a focus on global expansion and customer relationships, Shopify is positioning itself as a category leader. Financial strength remains high, with substantial cash reserves, even as the company carries a considerable debt load. Management, under CEO Tobias Lutke and President Harvey Finkelstein, is steering Shopify towards long-term growth, but risks from the logistics divestment remain, although minimized by the partnership with Flexport. Shopify does not pay dividends, focusing instead on growth and stock repurchases to offset option dilution.

Read the full article here (paywall). Read time: 9 min

MTN owns 41 ski resorts and regional ski hills across North America, Australia & Europe. MTN has aggregated quality assets in a supply-constrained industry. Its scale and diverse portfolio offers a competitive advantage. Its season pass program, Epic Pass, promotes customer loyalty and generates recurring revenue. We believe MTN’s growth outlook is favorable and aligns with trends favoring outdoor and experience-based tourism. MTN has a solid balance sheet and trades at an attractive valuation coming out of a disappointing ski season

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Kulcs-Soft, a Hungarian Accounting Software business founded in 1989 by Tibor Kulcsár, evolved from a custom-built solution to address specific customer problems to a standardized program. The company provides its software to SMEs through both desktop and cloud channels. It has gradually introduced cloud functionality considering cost-effectiveness and their established customer base. Tibor Kulcsár owns >93% of the company but has shown a commitment to shareholder value through strong earnings growth and a dividend payout strategy. The current CEO, Ervin Szabo, appointed in 2016, has accelerated growth and improved margins. Over the last 12 years, earnings have compounded at 17.4% p.a. with an average dividend yield of 6.2%. Recently, the dividend yield was 7.8%, with the EPS growing from 151 in FY2022 to 170 in the LTM. Kulcssoft's offerings are complex, with material only available in Hungarian, making it difficult to have a strong understanding of the business. Despite this, Kulcssoft has shown consistent earnings and growth.

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Magellan, a Canadian aerospace supplier, is poised for growth, benefiting from the expected uptick in commercial aircraft production and supply chain improvements. Its enterprise value of $490 million is a mere 3x normalized EBITDA of $156 million, potentially offering a 15-17% FCF yield by 2025/2026, with a stock value of $13-$14 at a 10% FCF yield (86% potential gain). Downside risk is mitigated with a tangible book value of $11.75 and NWC per share of $6.00, coupled with a clean balance sheet. Magellan's diversified global business and consistent performance in the aerospace industry make it an enticing investment opportunity. With a fairer valuation in line with industry peers, the stock could reach $12.50, providing nearly a 70% upside.

Read the full article here. Read time: 4 min