Tuesday's best stock ideas (Oct 24)

The author makes a compelling case that Bank of Nova Scotia, Canada's most international bank, is undervalued trading below book value and at just 10x earnings. While its international exposure adds risk, it also provides higher growth potential versus domestic peers. The bank operates in the attractive, protected Canadian market with strong positions in mortgages, auto lending, and wealth management. Though efficiency gains have been delayed by ongoing investments, the author believes Bank of Nova Scotia can achieve mid-teens returns on equity. With shares undervalued on both price-to-book and P/E metrics, the author sees significant upside even assuming just low double-digit returns. Macroeconomic risks in Canada are present but manageable, and new CEO Scott Thompson may catalyze improved performance. Overall the author sees Bank of Nova Scotia as offering an attractive risk-reward profile.

Read the full article here (paywall). Read time: 7 min

The author elaborates on the several reasons why Jabil Inc. (JBL) is an attractive investment opportunity. The first is the company's potential to benefit from the re-shoring trend, stimulated by logistics considerations and government interventions. Secondly, the rising demand for outsourcing in the semiconductor and healthcare sectors, combined with JBL's strong partnership with Johnson & Johnson, puts the company in a promising position for sustained growth. Thirdly, the company's participation in high-growth sectors, especially Electric Vehicles, promises significant expansion. Forthly, JBL's strategic alliances with Amazon and its focus on AI and machine learning also lend to its investment appeal. Despite the risk of customer concentration and potential supply chain shortages, the author strongly believes in the compelling nature of JBL's diverse, technologically adept and well-established client relationships and hence initiates a Strong Buy recommendation with a target price of $170.10.

Read the full article here (5 free per month). Read time: 8 min

The author makes a compelling case that FIS is undervalued after deciding to sell a 55% stake in its Worldpay merchant acquiring business to GTCR. This allows FIS to retain exposure to Worldpay's growth potential under new ownership, while reorienting itself around its stable, recurring revenue bank technology business which benefits from a narrow moat. Though FIS sold Worldpay at a relatively depressed 9.8x EBITDA valuation, the author believes going private may enable faster turnaround of Worldpay's challenges. Meanwhile, FIS' bank tech business warrants a premium given its entrenched position providing mission-critical infrastructure to banks. New leadership at FIS is focused on addressing past operational issues that have hindered performance. The Worldpay sale also provides cash for shareholder returns. Risks exist around limited transparency into Worldpay's turnaround progress, but the author believes FIS shares are undervalued based on the quality and stability of its core bank technology business. With a renewed focus, the author sees an attractive risk-reward profile in FIS stock.

Read the full article here (paywall). Read time: 8 min

BFF Group ($BFF.IM), which I've posted about before continues to be our largest position. Combination of cheap starting multiple (~7x 1-yr forward PE, ~13% dividend yield), IMMENSE anti-fragility (macro scaries leads to higher factoring volumes by customers, whilst higher rates for longer will lead to a material benefit to it's bond book and factoring & lending income) and conservative CMD targets to FY26e which if achieved will see the stock double. >15% annual EPS growth and a 13% dividend yield gets you to >25% IRR's with no re-rate).

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The author makes a compelling case that Lufax, a Chinese financial services company, is significantly undervalued trading at just 0.17x price-to-book value and below net current asset value. With $9.6 billion in cash compared to a $2.1 billion market cap and solid consumer finance fundamentals, Lufax appears poised to recover as the Chinese economy stabilizes. While earnings have declined and the dividend may face further cuts, Lufax focuses primarily on SME lending and holds a consumer finance license, enabling growth potential. With PingAn as a major shareholder, fraud risk seems limited. Despite risks from regulation and financial crises, the author sees Lufax as among the cheapest US-listed stocks and warranting at least a 3x return based on normalizing fundamentals and reducing discounts.

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Sesa ($SES.IM): Italian IT Services provider which can grow organically at >10% for the forseeable future given digitization secular tailwinds, government subsidies and continued market share gains from share donors like Atos and TD Synnex. Can add another +5% of top-line growth annually from continuing their rapid serial acquisition story. EBITDA margins will expand to >8% due to operating leverage and a continued focus on acquiring higher-margin businesses. Trades on a eFCF yield of 9% w/ eFCFPS growth of >15%.

Read the full article here. Read time: 1 min