Top stock ideas (Fri, Jan 19)

Connor Van Ooyen
January 19, 2024

YBR Portfolio // About // Sponsor YBR // YBR Premium

👋 Good Morning!

This is the Yellowbrick Road where I share the best stock ideas from billion-dollar hedge funds, professional analysts, millionaire investors, and more!

Welcome to the 107 new readers who joined yesterday!

Our AI read and summarized 111 stock ideas, 1291 news articles, and 88 insider trades and found:

Etsy has over 100% upside (featured stock idea)
$DR.TO has 70% upside and a 3.5% dividend, $BELFB has increased 5x but is still undervalued, and Red Sea issues could be good for $CHRW (bonus stock ideas)
Plug Power falls 25% (news)
An insider at Coinbase sells another $13M (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

FEATURED STOCK IDEA

ANALYST REPORT

Etsy: We Remain Optimistic About Prospects After Painful but Necessary Cuts

Etsy, Inc. operates as an online marketplace for buyers and sellers of handmade items, vintage goods, and craft supplies, offering a wide range of products such as jewelry, stationery, clothing, home goods, and art.

Ticker: ETSY | Price: $67.86 | Price Target: $145 (+114%) | Market Cap: $8B | Timeframe: N/A

📦 E-commerce Marketplace | 📈 Bullish Idea

Wide-moat Etsy recently announced an 11% workforce reduction, a move that follows two years of stagnant gross merchandise volume (GMV) amid economic challenges. Despite this, the company's earnings prospects look promising with an expected GMV growth of 6% in 2024 and future acceleration. This workforce reduction should save over $40 million annually, after one-time severance costs of $25-30 million, and is anticipated to help Etsy reach mid-teens operating margins by 2024. Etsy's competitive strategy has proven effective, leveraging its differentiated focus on non-commoditized inventories like craft products, vintage clothing, and used musical instruments. The company has maintained a sizeable active buyer base of 95 million, with the potential for mid-single-digit growth in per-buyer spend over time. Etsy's international expansion, particularly in its six key markets, supports a long-term GMV growth strategy. Economies of scale and a unique product suite differentiate Etsy's marketplace, which now enjoys a well-established network effect with 7-8 million active sellers. Despite intense industry competition, Etsy's wide moat suggests a 20+ year horizon for continued excess returns. Maintaining a $145 fair value estimate, Etsy appears undervalued, especially after a recent share price decline following the layoff announcement. With a robust competitive position and a strong outlook for sustainable growth, Etsy is seen as a promising long-term investment, despite its sensitivity to broader economic and e-commerce dynamics and factors such as developer talent acquisition and data security. Etsy is expected to continue prudent investment in platform development and strategic acquisitions, reflecting a balanced approach to capital allocation.

Read the full article here (paid). Read time: 15 min

+3 POINTS - WEEKLY TOURNAMENT

How do you rate the featured stock idea?

Yesterday’s Featured Stock Idea

Pershing Square Holdings ($PSHZF)

🟩🟩🟩⬜️⬜️ - Buy (38%)
🟥🟥⬜️⬜️⬜️ - Pass (32%)
🟨⬜️⬜️⬜️⬜️ - Watchlist (30%)

✅ alpo**** (buy) - Discounted CEF. Ackman, although a terrible human being, is a decent fund mgr.
❌ thoff**** (pass) - Below the 200 day and falling as well falling RS
❌ emoj**** (pass) - It is too dependent on one person

There are 3 more stock ideas after “Today’s Sponsor”

TODAY’S SPONSOR

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BONUS STOCK IDEAS

BLOG POST

Medical Facilities Corp. ($DR.TO) Initial Screen

Medical Facilities Corporation, traded under the ticker DR.TO on the Toronto Stock Exchange, is a Canadian company that owns controlling interests in specialty surgical hospitals and an ambulatory surgery center in the United States. They focus on providing high-quality surgical procedures in non-urban markets and also offer outpatient and primary care services.

Ticker: DR.TO | Price: 9.14 | Price Target: 15.71 (+71%) | Market Cap 225M | Timeframe: N/A

🩺 Surgical Hospitals | 💰 3.5% dividend | 🇨🇦 Canada | 📈 Bullish Idea

Medical Facilities Corporation (DR.TO) partners with physicians to own a portfolio of surgical facilities in the U.S., including four specialty surgical hospitals (SSHs) in Arkansas, Oklahoma, and South Dakota, as well as an ambulatory surgery center (ASC) in California. MFC has struggled with its performance over the last decade, seeing its share price decline by over 50%, which can be traced back to issues that surfaced in Q1 2019. Early on, MFC used a mixed security model and heavy debt to finance acquisitions. The company faced challenges with its payor mix at UMASH, leading to unsustainable dividends and ultimately a reduction in dividends and a $22 million goodwill impairment charge. The COVID pandemic further stressed MFC's finances, but a strategic shift occurred with the divestiture of UMASH and other non-core assets, suspending acquisitions, reducing overhead costs, and buying back shares aggressively. Management changes included appointing Jason Redman as the CEO who implemented cost-cutting measures, such as switching auditors from KPMG to Grant Thornton, which are expected to improve cashflows by $5 million. The company is realigning its corporate strategy, guided partly by feedback from Converium Capital, and aims to return capital to shareholders by divesting non-core assets and focusing on cash generation. MFC's facilities, led by BHSH, are highly acclaimed and potentially attractive acquisition targets due to their quality and focus on higher-margin, privately insured patients. Despite historical challenges, the changes under the new leadership have set MFC on a strategy focused on value realization. If MFC's assets can be sold, substantial per-share value could be unlocked, positioning MFC for a significant turnaround with a projected 71% upside potential, despite potential risks related to physician-owned hospital regulations and competition.

Read the full article here. Read time: 18 min

BLOG POST

Portfolio Spotlight: Bel Fuse - Up 5x but still good value

Bel Fuse Inc. is an American company that designs, manufactures, and markets a broad array of products that power, protect, and connect electronic circuits. These products include magnetics, modules, circuit protection devices, connectors, and cable assemblies for the global computer, telecommunications, transportation, military, and consumer electronics markets.

Ticker: BELFB | Price: $63.82 | Price Target: N/A | Market Cap: $802M | Timeframe: N/A

🏭 Electronic Circuit Manufacturing | 🏷️ Undervalued | 📈 Bullish Idea

Bel Fuse (BELFB), an electronic components manufacturer, has seen significant improvement in its underlying fundamentals, with its stock price increase driven not by multiple expansion but by EBITDA growth. While revenue has grown at less than a 4% CAGR since 2016, margin expansions have seen the company's gross and EBITDA margins improve. The new CFO, Farouq Tuweiq, redirected the company's focus from revenue to profitability, which has resulted in a sustainable 35% gross margin. Despite these positive changes, Bel Fuse still trades at a discount to peers, with an EV/EBITDA of 7.3, compared to peers at 12x-14x. The market has not yet recognized this turnaround, potentially due to governance concerns with its dual-class share structure and key man risk with the new CFO. Additionally, there are risks associated with manufacturing in China. With a modest net cash position and the potential for a stock buyback to provide further shareholder value, Bel Fuse presents an investment opportunity in a company poised for improved capital allocation and profitability.

Read the full article here. Read time: 4 min

TWITTER

Red Sea issues could be good for $CHRW

C.H. Robinson Worldwide, Inc. is an American logistics company offering freight transportation, logistics, and supply chain management services. The company provides third-party logistics (3PL) and supply chain management solutions to a diverse range of customers globally.

Ticker: CHRW | Price: $85.57 | Price Target: N/A | Market Cap: $10B | Timeframe: short-term

🚛 Freight/Logistics | 🚨 Event Driven | 📈 Bullish Idea

C.H. Robinson Worldwide ($CHRW) could capitalize on the increasing reliance on air freight due to the enduring Red Sea shipping crisis. Articles have detailed a rise in air freight usage as companies like Target and Tesla face production delays, with expectations that the situation will escalate around the Chinese New Year in early February. $CHRW, the only pure play air freight company highlighted in a Reuters article, has recently received positive analyst coverage from Stifel and Susquehanna and is set to report earnings on January 31, which could include uplifting guidance. The scenario presents a trading opportunity, particularly in options pricing that could capture a potential premium as air freight gains market focus. On a speculative note, $AIRT is on the radar due to its low float and susceptibility to hype from trading communities. However, the enticement of Forward Air Corporation ($FWRD) is tempered by an ongoing lawsuit that could deter investors even if the sector sees overall momentum. The pitch reflects an anticipation that air freight stocks may soon attract considerable attention in the financial markets.

Read the full article here. Read time: 2 min

+3 POINTS - WEEKLY TOURNAMENT

Which bonus stock idea was the most compelling to you?

Yesterday’s Poll Results:

🟩🟩🟩⬜️⬜️ Occidental Petroleum ($OXY) [68%]

🟨🟨⬜️⬜️⬜️ ClearPoint Neuro ($CLPT) [18%]

🟥⬜️⬜️⬜️⬜️ Pro-Dex ($PDEX) [14%]

Your comments:

🛢️ loril*** ($OXY): It will be a long time before we eliminate fossil fuels and it is in the Berkshire Hathaway portfolio

MARKET OVERVIEW

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Are you short-term bullish or bearish on the market?

Yesterday’s Poll Results: 45% bullish

The market turned around a little bit yesterday. Three of the indexes were green, the Fear v Greed index jumped up 8 points, and the news sentiment jumped way up to 0.609 which is way above the 7-day average. Yellowbrick Road Readers are still less than 50% bullish, but a few points more bullish than the day before.

STOCK MARKET NEWS

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TSMC Q4 profit falls 19%, beats market expectations - Reuters

Birkenstock shares slump as shoe company warns on profit outlook during first earnings since IPO - CNBC

Plug Power Sinks More Than 25% in 2 Days: Buy, Sell, or Hold the Stock? - The Motley Fool

Humana Stock Plunges More Than 10% to Two-Year Low on Medicare Medical Cost Warning - Investopedia

Spot bitcoin ETFs draw nearly $2 billion in first three days of trading - Reuters

FEATURED INSIDER TRADE

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10% Owner at Coinbase Global, Inc. ($COIN)

The 10% Owner sold 97,836 shares at $134.24/share ($13.13M total) which decreased their holdings by 2.0%. The current price is $133.86 (-0.3%). (trade link)

Note: Part of a 10b5-1 plan. They’ve been selling a ton of stock over the last 2 months.

QUIZ

+3 POINTS - WEEKLY TOURNAMENT

This company, known for its smartphones, was originally named 'Research In Motion' (RIM). What is it now called?

Yesterday’s Question: Which famous fast-food chain's original mascot was a character named "Speedee"?

Answer: McDonalds

LINKS YOU’LL LOVE

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Benjamin Graham: Avoid Self-Destructive Behavior

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