YB new stock pitches (Mon, Dec 9)

Valaris Limited (VAL) presents a compelling investment opportunity with its world's largest offshore drilling fleet valued at only 10% of replacement cost and an enterprise value of $4 billion. The company has a $2 billion EBIT backlog and a joint venture (ARO) that nearly covers its entire enterprise value, providing downside protection. Valaris owns high-spec rigs in a consolidating sector, with only four core players remaining. The company is accelerating share buybacks, which will increase as it generates cash flow in 2025. Offshore drilling is gaining momentum against shale due to lower breakevens and better IRRs, with major players like Chevron shifting focus to offshore operations. The potential for higher day rates, coupled with the company's operating leverage and free cash flow directed towards buybacks, offers significant upside. Valaris' fleet has an estimated replacement cost of $30-40 billion, highlighting its undervaluation at current prices.

Read the full article here. Read time: 2 min

Finance of America Companies Inc. (FOA), a reverse mortgage provider with a $220M market cap, has originated $18B in reverse mortgages from 2018-2023, with $7.3B in non-agency securitized floating-rate mortgages. The company captures a 4.8% spread between the 7.9% floating rate and fixed rates paid to investors, potentially generating $350M annually. FOA is poised to benefit from several megatrends, including the 'silver tsunami' of $14T in home equity, structurally higher prices increasing reverse mortgage appeal, and peak Boomer retirement. With a 37% market share in reverse mortgages, FOA is undervalued at $20 per share and has potential to reach $100+ in a few years. The company is expected to see $1B in cash flow over the next four years. However, risks include interest rate changes and complex accounting. The stock's current undervaluation may be due to the market's failure to recognize FOA's dominant position in a niche market and its potential as a long-term bet on rates around 4%.

Read the full article here. Read time: 2 min

Okta, Inc. (OKTA) reported strong Q3 results with a conservative 9% RPO guide for Q4, but faced a selloff due to a preliminary 7% revenue growth view for FY25. Analysts clarified that this guide is less conservative than previous years but still likely to beat expectations. Trading at 20x FCF, Okta appears undervalued with promising new products accounting for 15% of bookings and potential AI seat pricing. The company's trough growth phase is ending, and it has consistently beaten initial guidance by 500-600 basis points across revenue, operating margin, and FCF. Okta's structural FCF margins of 35%+ and 5-6% FCF yield make it an attractive M&A target at $83 per share. Despite headwinds from customer seat purchasing behavior, the company expects these issues to resolve early next year. With a market cap of $12 billion and $3 billion in revenue, Okta presents a significant opportunity into 2025 as a laggard in the software sector.

Read the full article here. Read time: 3 min