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Today's top stock ideas (Tues, Nov 28)
Connor Van Ooyen
November 28, 2023
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👋 Good Morning!
Welcome to the 111 new readers who joined yesterday!
Our AI read and summarized 121 stock ideas, 1034 news articles, and 107 insider trades and found:
An event-driven play with 115% upside (featured stock idea)
Flying taxi company gets approval (news)
Two insiders at Abercrombie sell a ton of their holdings (insider trade)
and much more…
Thanks for reading! Have a great day.
Connor
* If you missed yesterday’s email, don’t forget to read it here
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FEATURED STOCK IDEA
Event-driven pitch on $NR
Newpark Resources, Inc. provides products, rentals, and services primarily to the oil and natural gas exploration and production (E&P) industry. It operates through two segments, Fluids Systems and Industrial Solutions.
Ticker: NR | Price: $7.23 | Price Target: $10.90-$15.44 (+51%/+115%) | Timeframe: N/A
🏗️ Worksite Services | 🚨 Event Driven | 📈 Bullish Idea
Newpark Resources offers temporary worksite access services/products through its Industrial Solutions segment and provides drilling, completion, and stimulation fluids for the O&G industry through its Fluid Systems segment. Recently, the company initiated a strategic review for its Fluid Systems business, with options including selling the entire segment or winding down its working capital. A potential divestiture of the low-margin, cyclical and capital-intensive segment would transform Newpark Resources into a capital-light and high-margin power infrastructure rental and services business. Assuming that the sale of the Fluid Systems segment can generate cash proceeds in the range of $180m-$220m (in line with the segment's working capital), the Industrial Solutions business currently carries a modest valuation of 5 times its 2025E EBITDA (after corporate overheads). This is significantly below segment’s peers that are valued at 9-11x. Applying the same valuation to NR’s Industrial Solutions segment would imply a share price target of $10.90-$15.44/share (50%+ upside). NR's stock appears to be mispriced due to its lack of sell-side coverage and the market's perception of it primarily as an oil and gas services company.
Read the full article here. Read time: 2 min
POLL - FEATURED STOCK IDEA
+3 POINTS - WEEKLY TOURNAMENT
How do you rate the featured stock idea? |
Yesterday’s Rating (link):
Danaher ($DHR)
🟩🟩🟩⬜️⬜️ - Buy (37%)
🟨🟨⬜️⬜️⬜️ - Pass (31%)
🟨🟨⬜️⬜️⬜️ - Watchlist (32%)
* There are more stock ideas later in the email!
MARKET OVERVIEW
Are you short-term bullish or bearish on the market? |
Yesterday: 68%
The indexes were down slightly, the news sentiment was 0.207 v the weekly average of 0.316, and the CNN Fear v Greed index stayed exactly the same, but Yellowbrick Road readers got 7 points more bullish.
A few readers pointed out that the markets are now up for 4 weeks and likely to continue through the holiday season. tnwo**** agrees that the market is currently bullish, but is worried about how the general public and companies that were used to spending tons of money while interest rates were low (and accumulating cheap debt) will adjust over the long term now that money is more expensive.
STOCK MARKET NEWS
Today’s news is brought to you by Morning Brew. The daily business newsletter 4M+ readers rely on. Subscribe here or learn more.
Treasury auction $54 billion in two-year notes with 4.8% yield - CNBC Television
* If you want all of the day’s most important stock market news, sign up for my free, daily email called Market Mornings.
QUIZ
+3 POINTS - WEEKLY TOURNAMENT
Which famous investor is known for the 'All Weather' portfolio strategy? |
Yesterday’s Question (link): Which American investor and businessman is known as the 'junk bond king' and was a significant figure in the leveraged buyout boom of the 1980s?
Answer: Michael Milken. In the late 1980s, he made $1B in income over 4 years while working at Drexel Burnham Lambert, which was a record for personal income. But then he pleaded guilty to securities and reporting violations, was fined $600M, and went to prison. As emoj*** pointed out, he had the ethics of a “used car salesman” (though my dad was a used car salesman and much more ethical than Milken!).
INSIDER TRADES
The insider trades are brought to you by CEO Watcher (another free, weekly email I write). It’s the only newsletter that tracks insider returns to find the best ones.
A director at Abercrombie & Fitch ($ANF) sold 83% of their holdings ($980k) (link)
An EVP at Abercrombie & Fitch ($ANF) sold 42% of their holdings ($714k) (link)
The CEO of UFP Technologies ($UFPT) sold 20% of their holdings ($3.1M) (link)
An EVP at Perrigo ($PRGO) increased their holdings by 41% ($172k) (link)
A director at Dentsply Sirona ($XRAY) increased their holdings by 21% ($314k) (link)
LINKS YOU’LL LOVE
+15 POINTS - WEEKLY TOURNAMENT
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SECRET QUESTION
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If you read this far, reply to this email with your answer to gain points for the weekly tournament. (Or if you’d rather not answer but still want the points, you can just reply and say hi!)
Secret Question: What was the best investment advice you've ever received? Mine was probably to just continue investing most of your money in an S&P 500 fund and let compounding do its job. The market has always gone up over time (so far).
BONUS STOCK IDEAS
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BLOG POST
The Solvay Spin-off
Solvay SA provides advanced materials and specialty chemicals worldwide. It operates through four segments: Materials, Chemicals, Solutions, and Corporate & Business Services.
Ticker: SOLB.BR | Price: EUR 103.45 | Price Target: 100% upside | Timeframe: N/A
🧪 Chemicals | 🚨 Event Driven | 📈 Bullish Idea
The upcoming split of Solvay into two entities, Solvay and Syensqo, on December 11, offers a compelling investment opportunity. Solvay will focus on commoditized chemicals while Syensqo will specialize in chemicals linked to electrification, sustainability, and aging population trends. Syensqo, comprising the Materials division (75% of EBITDA, ~32% margin) and the Consumer & Resources division (20% margins), is expected to become a growth company. Despite challenges in 2024, Syensqo’s exposure to growing markets, combined with a strong innovation pipeline and effective management, positions it for success. Management’s 2028 targets suggest a 5-7% annual revenue growth, EBITDA margin expansion, and over €3.2 billion in free cash flow generation. Syensqo is estimated to produce approximately €550m in free cash flow in 2024 on €1.7bn EBITDA. Given the current market valuation of Solvay at 5x EV/EBITDA, Syensqo offers significant upside potential, potentially trading at less than 6x 2024e EV/EBITDA, compared to peers’ 12-17x. This presents a promising entry point in a cash-generative company with strong growth prospects.
Read the full article here. Read time: 3 min
HEDGE FUND
Horos Asset Management’s largest new position: Nordic Paper
Nordic Paper Holding AB (publ) engages in the production and sale of natural greaseproof and kraft paper in Sweden, Italy, Germany, rest of Europe, the United States, and internationally.
Ticker: NPAPER.ST | Price: SEK 40.75 | Price Target: N/A | Timeframe: N/A
📜 Paper Products | 🇸🇪 Sweden | 📈 Bullish Idea
Nordic Paper, a Swedish paper producer specializing in kraft and natural greaseproof paper, was recently added to the portfolio. It serves over 800 customers across 70 countries, with 95% of its production exported, primarily to Europe. The company's focus on the food industry, which accounts for the bulk of its sales, notably reduces business cyclicality. Nordic Paper, which went public in 2020, was previously owned by Sutriv Holding, controlled by Shanying International, a Chinese paper production company. Despite uncertainties about Shanying International's future intentions for its stake in Nordic Paper, the lack of operational synergies and Shanying’s shaky financial situation suggest a potential divestment. The investment appeal in Nordic Paper lies in its attractive valuation: at current prices and assuming normalized operating margins, it trades at approximately 6x its three-year forward free cash flow. This valuation offers a solid buffer against potential short-term economic downturns.
Read the full article here. Read time: 15 min
HEDGE FUND
Donville Kent new holding: Reitmans
Reitmans (Canada) Limited primarily engages in the retail sale of women's specialty apparel in Canada under the Reitmans, Penningtons, and RW&CO brand names. The company also offers apparel for men. It serves customers through retail and e-commerce channels
Ticker: RET.V | Price: CAD 2.95 | Price Target: N/A | Timeframe: N/A
🛍️ Retail | 👗 Apparel | 🇨🇦 Canada | 📈 Bullish Idea
Reitmans (RET & RET/A) recently experienced a stock sell-off post-quarterly report due to challenging year-over-year comparisons, but this view overlooks the company's solid performance aligned with expectations. Key observations include $20m in performance-based compensation costs in 2023, not present in the previous year, and robust operating cash flow of $37m with a $27m increase in total cash. Despite recession concerns, Reitmans, as a value brand, has historically demonstrated resilience in downturns, such as maintaining stable sales and profits during the 2008-2009 recession. Applying their 2009 earnings per store to the current store count, the stock trades at 3x earnings. Now with a more streamlined operation, higher online sales, and a strong balance sheet, Reitmans appears undervalued. With a market cap of $127m and $100m in cash, the valuation suggests over 500% upside potential, not accounting for assets like the fully-owned office building and distribution center. Comparatively, Reitmans outperforms peers in gross profit, operating margins, and net margins. We have also considered the recent Chico’s women’s clothing takeout by Sycamore Partners at an 11x PE multiple. The company's suboptimal treatment of minority shareholders and outdated board management, highlighted in a letter to the board, suggests potential for significant value unlocking through shareholder-friendly actions and share structure consolidation. Our continued investment in both classes of Reitmans shares reflects the company's compelling value proposition in the current market environment.
Read the full article here. Read time: 11 min
+3 POINTS - WEEKLY TOURNAMENT
Which bonus stock idea was the most compelling to you? |
Yesterday’s Poll Results (link):
🟨🟨⬜️⬜️⬜️ Clarkson (OTC: $CKNHF) [36%]
🟨🟨⬜️⬜️⬜️ [SHORT] Golden Heaven Group ($GDHG) [35%]
🟥⬜️⬜️⬜️⬜️ Judges Scientific ($JDG.L) [29%]
WEEKLY TOURNAMENT
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🏆 This Week’s Leaderboard
buc**** (45 points)
drsta*** (45 points)
jame**** (45 points)
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