YB new stock pitches (Tue, Nov 19)

AdvisorShares Pure US Cannabis ETF (MSOS) presents an opportunity as cannabis stocks trade near all-time lows due to regulatory disappointments, limited institutional participation, and pricing compression. The potential rescheduling of cannabis from Schedule I to Schedule III by mid-2025 could remove the 280E tax, improve operations, and attract capital. This process has been fast-tracked, with HHS and DEA recommendations progressing swiftly. Rescheduling could trigger further reforms like SAFER Banking and uplisting to major exchanges. MSOS is trading at 7.2x 2025 EBITDA, significantly below its historical high of 14x. Risks include uncertainty in timing and potential political obstacles, such as Trump's stance on cannabis reform. The Florida adult-use catalyst in November 2024 could jumpstart growth in a major market. Key impacts of rescheduling include significant tax savings for MSOs and potential operational efficiencies through interstate commerce. While concerns persist about the DEA's involvement and political commitment, the current risk-reward profile appears favorable given the trough valuations and potential industry changes.

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* More stock pitches from L1 Capital in “The Rest of the Pitches” section

Tesco PLC (TSCO.L), the UK's largest grocer with a 28% market share, is trading at an attractive valuation of ~13x FY25 P/E compared to peers at over 20x, despite expectations of double-digit EPS growth over the next three years. The company boasts a strong balance sheet with minimal net debt and property assets worth approximately 70% of its market cap. Tesco has consistently gained market share over the past 18 months through competitive pricing strategies and strong execution in areas like premium private label products. The business is highly cash generative, and the pending sale of its banking operations is funding a substantial share buyback program. Recent H1 FY25 results beat consensus expectations, leading to upgraded full-year profit guidance. As food inflation eases in the UK, Tesco is experiencing volume growth and continued market share gains, positioning it well for the crucial Christmas trading period.

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Northeast Bank (NBN) reported strong Q3 results, purchasing $808M in loans at 90.7% of unpaid principal balance, expected to add $30M in annual net interest income. The bank's partnership with Newity for SBA 7(a) loans is gaining traction, originating 766 loans totaling $82.4M in Q3, making NBN the 5th largest SBA originator. This partnership now contributes over 10% of combined net interest and non-interest income. Q4 has started strong, with SBA loan originations in the first month potentially matching the entire Q3 volume. The stock ended Q3 at $77.13 and has since surpassed $100, delivering a 20.8% IRR over a 7+ year holding period. Management remains optimistic about the bank's outlook, citing the significant loan purchases and growing SBA loan business as key drivers for future growth.

Read the full article here. Read time: 3 min