YB new stock pitches (Tue, Feb 18)

Baidu (BIDU) is an undervalued AI leader trading below its net assets, with a market cap of $34 billion compared to $59 billion in total assets and $18.3 billion in cash. The company's core search business funds growth in AI, cloud, and autonomous driving. ERNIE, Baidu's AI model, rivals GPT-4 in capabilities, while Apollo Go robotaxis are already operational. The stock trades at 11.73x forward P/E, significantly below its historical median of 21.15x. Catalysts for re-rating include AI monetization gains, autonomous driving commercialization, shifting market sentiment on Chinese tech stocks, and potential return of capital to shareholders. The market underestimates Baidu's AI and cloud opportunities, Apollo Go's potential, and overlooks the company's strong financial position. With limited downside risk and substantial upside potential, Baidu presents an asymmetric investment opportunity for long-term investors.

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Leon's Furniture Limited (LNF.TO) is an undervalued furniture retailer with a strong free cash flow yield of 12.5% and significant real estate assets. The company has potential for aggressive share buybacks, which could boost EPS by 13.6-21% by 2028. With a price target of $60, there is a 100% upside potential. Buybacks could enhance liquidity, reduce volatility, and benefit retail investors. The company could potentially repurchase 15% of shares for $265 million. Management alignment is key for value realization. Two scenarios are presented: Scenario A involves repurchasing 2.5% of shares annually, resulting in a 5.5% free cash flow per share CAGR through 2028, while Scenario B considers using modest leverage to repurchase 15% of shares in 2025 and 1% annually thereafter, leading to a 6.5% free cash flow per share CAGR. The stock is currently trading at $26, significantly below its intrinsic value, which is estimated to be $50-60 per share when factoring in the value of the real estate portfolio.

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FutureFuel Corp. (FF), a biodiesel and chemical products company, trades at 1.6x EV/FCF with a 4.8% dividend yield. The company has consistently generated positive free cash flow since 2007, averaging $51.4 million annually, and has paid dividends for 17 consecutive years. With $133.4 million in cash, no debt, and a market cap of $215.3 million, FF appears undervalued. Insider buying has occurred between $4.35 and $6.10, and a director owns 39.04% of the company. Risks include customer concentration and poor capital allocation. A $25 million share repurchase program has been authorized but not executed; a Dutch auction tender could potentially boost value by 24%. The stock has a 22% upside to a $6 price target. Despite its strong financials, FF's stock performance has been poor, likely due to its small size, lack of growth, and illiquidity. The company's capital allocation strategy, particularly its cash hoarding, has been questioned, though recent lower cash balances suggest improvement.

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