Wednesday's best stock ideas

The author recommends buying shares of Halliburton (HAL) due to positive growth outlook and strong performance. Despite decreasing rig counts in the US, HAL has observed a revenue growth of 11% in the US and 20% internationally. The company's efforts in developing software services propelling it to gain a significant market share, and help in bringing down capital expenditure. Key growth areas include Brazil, Saudi Arabia, and Guyana. Halliburton's revenues will continue to grow given the projected oil demands over the next five years and its profitability through the well's life cycle. The author expects HAL to generate about $3.25 per share and sees the shares moving to about $45-48 as HAL begins to yield returns now that its balance is strong. Although lower oil prices and recessions pose risks, the need for prolonged upcycle in global drilling compensates for these risks.

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Analyst Michael Hodel projects Roblox (RBLX) to experience substantial growth, benefiting from a growing user base, primarily among younger consumers, and expanding monetization capabilities. Noting that the company grew its active user base to 65 million in Q2 of 2023, he anticipates the daily average users to reach 152 million by 2032, driven by the platform's compelling network effect. However, the company's reliance on younger customers who are under 13 to 17 and its potential regulatory issues related to content moderation and in-game purchases appear as substantial risks. Despite these challenges, Hodel expects bookings to grow 14% annually over the next decade and operating margin to expand from 5% in 2021 to 24% in 2032, leading to a $60 fair value estimate. However, competitors with better graphics and deeper gameplay might pose risks as Roblox users grow older.

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The Barrick Gold Corporation (GOLD) is positioned as a key player in the global copper market according to the analyst, leveraging on the high industrial demand and green technology transitions that rely heavily on copper. The company has rolled out strategic expansions, including a recent $2 billion investment in Zambia, enhancing its position and growth prospects in the global copper market. GOLD is also expanding its gold footprint, as gold prices could soar due to looming Federal Reserve rate cuts amidst increasing economic uncertainties. Despite slipping to yearly lows, the analyst sees an attractive risk/reward in Barrick's shares, with an upside potential of around 50% on a 2-3 year basis, particularly if both gold and copper prices lend support.

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Spirent Communications, a company offering automated test and assurance solutions has seen significant earnings and EBITDA growth over the past 10 years. However, as the article highlights, the company's reliance on large telecoms operators for most of its revenue is a potential risk. In 2022, the top ten customers represented 36% of Group revenue. Spirent's share price dropped significantly in October 2023 following their announcement of a projected 20% decrease in annual revenue due to delayed investments from telecommunications market and key customers, which resulted in lowered order placements. Despite this, the article suggests that Spirent’s underlying business is stable, with this sudden decrease being caused by temporary delays. The 5G rollouts, hyperscaling, satellite broadband, new radio technologies and 800G ethernet will likely continue contributing to the company’s revenue. However, due the unexpected revenue shift, both the discounted cash flow model and Graham formula suggest that Spirent's market value has been unfairly punished if the revenue downturn is temporary.

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The author is bearish on Joby Aviation, a developmental stage aircraft firm valued at $4.8 billion, forecasting a bleak future due to its far-off revenue generation and doubtful profitability. Joby, designing an electric vertical-take-off-and-landing (eVTOL) plane for a proposed global "aerial ride-sharing network," hinges on the promise of battery-powered flight being economical and safer. However, the author argues that current lithium-ion technology falls short on essential energy parameters: power, capacity, and rechargeability, critical for the eVTOL's operation. Joby's claim of 100-mile range and a 10,000-cycle battery life is debunked by the author, who estimates a mere 35-mile range and a battery life of a few thousand cycles, reducing the eVTOL to a mere "science project." Joby's production forecast of eVTOLs at a unit cost of $1.3 million is termed naive, contrasting the slow, costly scaling experiences of established airplane manufacturers. Moreover, the author disputes Joby's cost-saving claims on fuel and maintenance, pointing out overlooked significant costs that make eVTOL flights pricier than helicopters. Joby's type-certification timeline by 2025 is seen as overly optimistic since major steps in real-life testing and crucial safety concerns remain unaddressed. The author emphasizes that aircraft manufacturing isn't akin to "writing code" and that Joby's unrealistic assumptions and underestimated challenges could spell disaster, urging investors to brace for a potential nose-dive rather than a rough landing.

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The author believes Tiny is an attractive investment trading at $3.80 per share, with an estimated fair value of $4.50-$5.50 per share, representing 23-28x his estimated 2023 earnings of $0.20 per share. He is bullish because Tiny has an exceptional track record of capital allocation and acquiring quality businesses like MetaLab, Dribbble, and Stamped under founders Andrew Wilkinson and Chris Sparling, who own 81% of Tiny. The author sees Tiny as a "bet on jockeys" with proven skills at buying strong assets at reasonable prices and optimizing them. Tiny has profitable digital services and platform businesses generating recurring revenues and cash flows to fund further acquisitions. The author believes Tiny can compound earnings over time as it continues acquiring businesses with growth runways and optimizes assets like Dribbble. Risks include dependence on the founders and MetaLab and Dribbble as crown jewels.

Read the full article here (free with guest account). Read time: 8 min