Today's best stock ideas (Mon, Oct 30)

👋 Good Morning!

Sorry this is being sent a little late. I’m traveling today, but should be back on schedule tomorrow.

Our AI read and summarized 241 articles and found:

  • 2 new hedge fund purchases (stock ideas)

  • 10 mental models for investors (resource)

  • 2 new short reports (stock ideas)

  • and much more…

Thank you so much for reading!

Connor

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FEATURED TRADES
HEDGE FUND

🥇 Polen Capital New Holding: Novo Nordisk

Novo Nordisk manufactures and markets pharmaceutical products and services, specifically diabetes care medications and devices. Its main product is the drug semaglutide, used to treat diabetes under the brand name Ozempic and obesity under the brand name Wegovy.

Ticker: $NVO | Price: $95.59 | Price Target: N/A | Timeframe: N/A

💊 Pharmaceuticals | 📈 Bullish Idea

Denmark-based pharmaceutical leader Novo Nordisk, specializing in diabetes and obesity care products, has transitioned from developing human insulin to synthetic insulins, and notably to GLP-1 drugs like Ozempic and Wegovy, which are pivotal for blood sugar control and weight loss respectively. These GLP-1 drugs now constitute nearly 70% of the company's sales, tapping into a vast market given the high prevalence of diabetes and obesity, especially in the U.S. Analysts peg the addressable GLP-1 market at around $100 billion in the U.S. and $200 billion globally. Despite facing competition from Eli Lilly, Novo Nordisk's first-mover advantage, expertise in metabolic diseases, and substantial research validating the efficacy and safety of its drugs position it favorably for retaining a high market share. The company is projected to grow revenues at a mid-teens rate and earnings at a high-teens rate over the next five years, driven by GLP-1 drugs, with its shares valued at ~30x forward earnings. To fund the addition of Novo Nordisk, the position in CSL, an Australian leader in plasma-derived pharmaceuticals and vaccinations, was trimmed. Though CSL, with its recent acquisition of Vifor Pharma, continues to present a growth opportunity in plasma-derived products and rare diseases sector, it shows a moderately slower growth compared to Novo Nordisk with similar valuation, making it a suitable choice to reallocate funds for purchasing Novo shares.

Read the full article here. Read time: 9 min

HEDGE FUND

🥈 Marion Road Capital new holding: WK Kellogg

WK Kellogg Co is an American food manufacturing company, split from Kellogg's on October 2, 2023 and was headquartered in Battle Creek, Michigan. It was formed in October 2023 when Kellogg's spun off its North American cereal business.

Ticker: $KLG | Price: $10.18 | Price Target: N/A | Timeframe: N/A

🥣 Cereal | 🏷️ Undervalued | 📈 Bullish Idea

The author has taken a position in WK Kellogg (KLG), the North American entity spun-out from Kellogg, amidst prevalent pessimism, exacerbated by a critical Wall Street Journal article on the declining cereal industry and concerns over unhealthy food products like GLP-1s. KLG, underperforming within the big three including Post and General Mills, faced production setbacks in 2021 due to a plant fire and a strike, losing market share. The spin, being only ~5% of the parent company's value, led to stock dumping by legacy shareholders. However, KLG boasts iconic brands like Frosted Flakes and Special K, with a historical revenue of about $2.8bn, though with modest EBITDA margins due to its part in a larger entity. By eliminating internal silos and investing in manufacturing upgrades, management aims for a 5% margin improvement, albeit still below Post’s 15%-20% range. With current earnings at $0.75, the stock stands at 13x, but a 3% margin improvement could elevate earnings to $1.50, reducing the multiple to under 7x, favorable against Post and General Mills. Despite KLG’s challenges, the author finds the risk-return appealing.

Read the full article here. Read time: 3 min

BLOG POST

🥉 [DIVIDEND] Ardagh Metal Packaging (AMBP US – $ 1.6bn)

Ardagh Metal Packaging creates packaging for numerous market sectors including, among others, beverage cans, food, beers, wine and spirits

Ticker: $AMBP | Price: $2.80 | Price Target: N/A | Timeframe: N/A

🏭 Packaging | 💰 15% Dividend | 📈 Bullish Idea

Levered aluminum can producer, listed in 2021 via a SPAC. The share price has been under pressure recently, providing a potentially interesting entry point. Ardagh operates in a very consolidated industry (roughly 3 companies control most of the market). The company is close to completing its large capex plan, and is projecting positive free cash flow as of next year. This alone will allow to increase focus on deleveraging (though probably initially via increasing ebitda / cash given well-termed out debt up to 2027). Operating leverage in pretty high in this business, so if volumes start heading back in the right direction, free cash flow could expand significantly. The company is already trading at ~15% dividend yield, with all the intentions to continue to pay out its dividend. Very compelling asymmetrical risk / reward investment.

Read the full article here. Read time: 9 min

POLL - FEATURED TRADES
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Which featured trade idea was your favorite?

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Yesterday’s Poll Results (link):

🟩🟩🟩⬜️⬜️ Paypal ($PYPL) [55%]

🟨🟨⬜️⬜️⬜️ Seneca Foods ($SENEA) [25%]

🟥⬜️⬜️⬜️⬜️ NetEase ($NTES) [20%]

📱bzaha*** ($PYPL): 11% forward earnings yield at double digit growth, for a marquee brand, in an industry with examples of companies generating great long term returns for shareholders. With just the earnings yield you exceed the returns of dumping cash in SPY, AND you get to keep the upside of double digit growth.

Keep reading until the end of the email for the bonus stock ideas!

STOCK MARKET NEWS

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DAILY QUIZ
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BONUS STOCK IDEAS

The Bonus Stock Ideas section tends to include more unique trade ideas: short ideas, OTC stocks, foreign stocks, special situations, etc. These are for more adventurous/advanced investors.

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BLOG POST

[SHORT REPORT] Augmedix (AUGX): Using Asians in call-centers but advertising as an 'AI Company'

Augmedix provides automated medical documentation and data services to large healthcare systems and physician practices, supporting medical offices, clinics, hospitals, emergency departments and telemedicine nationwide.

Ticker: $AUGX | Price: $4.92 | Price Target: $2.50 (-50%) | Timeframe: N/A

🤖 AI | 🩺 Healthcare Services | 📉 Bearish Idea

The author believes Augmedix is misleading investors by falsely promoting itself as an AI company when in reality it still heavily relies on outsourced human workers. The author shows Augmedix has been hiring many scribers and medical documentation specialists, mostly in Bangladesh. Despite claiming these workers just "support" the AI, the author argues they are doing the bulk of the actual medical transcription work. The author also points out problems like poor English skills among the outsourced workers, showing Augmedix's claimed natural language processing abilities are exaggerated. Augmedix touts its NoteBuilder platform as AI-powered, but the author provides testimony indicating human workers fill most of it out. The author also notes Augmedix's founder admitted it uses an off-the-shelf Google API, not custom AI. With little evidence Augmedix has meaningful proprietary AI, just hype about it, the author believes its 230% YTD stock increase is totally unjustified. The author sees Augmedix as an "AI shitco" tricking investors and predicts a 50-60% decline even after its bubble pops.

Read the full article here. Read time: 14 min

HEDGE FUND

[SHORT REPORT] NUSCALE POWER ($SMR): A FAKE CUSTOMER AND A MAJOR CONTRACT IN PERIL CAST DOUBT ON NUSCALE’S VIABILITY

NuScale Power Corporation is a publicly traded American company that designs and markets small modular reactors (SMRs). It is headquartered in Portland, Oregon. A 50 MWe version of the design was certified by the US Nuclear Regulatory Commission (NRC) in January 2023. NuScale has agreements to build reactors in Idaho in 2029 and 2030.

Ticker: $SMR | Price: $3.56 | Price Target: N/A | Timeframe: N/A

⚡️ Energy | ☢️ Nuclear | 📉 Bearish Idea

NuScale Power, a developer of small modular nuclear reactors (SMRs), faces commercial and financial struggles that challenge its viability. Their recently announced $37bn contract with blockchain datacenter service supplier Standard Power appears unrealistic given Standard Power’s inadequate means and questionable management. NuScale's more credible contract with the Carbon Free Power Project (CFPP) for the Utah Associated Municipal Power Systems (UAMPS) is in jeopardy due to constantly rising energía prices and a looming January 2024 deadline to raise project commitments to 80% or face termination. NuScale’s cash runway of around 15 months and probable shareholder dilution, alongside former CFO Chris Colbert’s recent stake sell-off, signal financial instability. NuScale's $1.2bn valuation, primarily backed by parent company Fluor Enterprises, seems precarious as Fluor plans to reduce its stake. The much-hyped contract with Standard Power, which propelled a 20% stock surge, looks more like a desperate bid to boost investor confidence rather than a strategic advancement. The company's reliance on Department of Energy (DOE) support presents a double-edged sword - even if the support continues, it mandates private sector cost-sharing, diluting existing shareholder value. The DOE's non-exclusive license to NuScale’s intellectual property could potentially transfer to a more established player if NuScale falters on performance, leaving its equity of little to no value. The report concludes with a short position on NuScale, doubting its ability to overcome these hurdles.

Read the full article here. Read time: 12 min

HEDGE FUND

Alluvial Fund New Position: Monarch Cement Company

The Monarch Cement Company manufactures and sells portland cement in the United States. The company also provides masonry cement, ready-mixed concrete, concrete products, and sundry building materials. It primarily serves contractors, ready-mixed concrete plants, concrete products plants, building materials dealers, and governmental agencies.

Ticker: OTC:$MCEM | Price: $134 | Price Target: N/A | Timeframe: N/A

🏗️ Cement | 🏷️ Undervalued | 📈 Bullish Idea

The author appreciates family-run businesses in unglamorous sectors, like Monarch Cement Company, founded in 1908 and now led by the founder's grandson, Walter H. Wulf, Jr. Monarch, with over a million tons of annual cement production capacity, serves Kansas, Missouri, and Iowa, maintaining a robust profitability and growth trajectory. Drawing a parallel to a prior successful investment in Boston Sand & Gravel, the author sees a valuable opportunity in Monarch, especially during its record year driven by high cement prices and construction demand. Despite its strong performance, Monarch's shares are undervalued, trading at 5.5x the author's estimated 2023 EBITDA and <10x net income, with no debt, significant cash reserves, healthy dividends, and regular share repurchases. Notably, Monarch trades at a 40% discount compared to other public cement producers, hinting at a substantial premium if sold, although a sale isn't anticipated soon. The author is content investing in Monarch, a prosperous, undervalued firm with potential for continued growth.

Read the full article here. Read time: 8 min

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