YB new stock pitches (Wed, Mar 5)

Onity Group Inc. (ONIT), formerly Ocwen Financial, is a mortgage servicer and originator trading at 0.3x tangible book value compared to peers at 1.5x. The company has overcome past regulatory issues and is now structurally profitable with a healthier balance sheet. ONIT has a hidden $600 million deferred tax asset, potentially adding 40% to its tangible book value. Management guides for 2025 EPS of $10-12, implying a P/E of 3-4x. The company is a potential takeover target for competitors like Mr. Cooper, PennyMac Financial, or Rithm Capital, with a 50% premium still being accretive to acquirers. Risks include the possibility of being a value trap, a major financial crisis impacting advance payments, and a prolonged zero interest rate environment hurting the servicing business. The company's business model is designed to be rate-neutral due to the counter-cyclicality of originations and servicing.

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NACCO Industries (NC) is a diversified resource company involved in coal, limestone, and lithium mining, with additional interests in mitigation resources and mineral rights. The company's Thacker Pass lithium project is now fully funded, with reimbursements expected. Coal operations are rebounding after temporary concessions ended, and natural gas prices are rising, benefiting the company's mineral rights segment. Limestone contracts have been renegotiated favorably. Management projects mid-term profit before taxes of approximately $50 million, implying a forward P/E ratio below 6x. The company has a strong balance sheet with minimal net debt and working capital representing 56% of its market cap. Recent operational updates, including the resolution of legal challenges for Thacker Pass, improved coal market conditions, and optimistic limestone contract renegotiations, suggest potential near-term earnings beats. Risks include the long-term decline of coal, potential recession impacts, and concerns about capital allocation given the family-controlled nature of the business. The stock is relatively illiquid with a wide spread, requiring caution for potential investors.

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Payton Planar Magnetics (PAY.BR), a market leader in planar transformers for EVs, data centers, and AI, trades at a 4x EV/EBIT multiple compared to peers at 14x. The company boasts 30% margins, 12% annual growth, and a 6.5% dividend yield. With $60M in net cash and a clean balance sheet, Payton offers a 50% arbitrage opportunity due to its dual listing in Belgium and Israel. Recently, PE firm FIMI acquired a controlling stake, potentially catalyzing growth and closing the listing gap. The stock's cheapness is attributed to illiquidity on the Belgian exchange, a 30% withholding tax, and its small-cap status. Payton's moat stems from its specialized technology, patents, and reputation in a niche market. Management, still family-run, has been cautious on growth, but FIMI's involvement could change this strategy. With a potential 200%+ upside, Payton presents an attractive investment opportunity in high-growth sectors.

Read the full article here. Read time: 3 min