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Top stock ideas (Thu, Feb 1)
Connor Van Ooyen
February 01, 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 103 new readers who joined yesterday!
Our AI read and summarized 135 stock ideas, 1621 news articles, and 143 insider trades and found:
A fund buys $GWOX and gives it 129% upside (featured stock idea)
AT&T has a 6% yield and 40%+ upside, a Canadian fintech with almost 200% upside, and a fund’s new position in $XPEL (bonus stock ideas)
Mortgage demand down 9.4% (news)
6 insiders buy the same stock (insider trade)
and much more…
Thanks for reading! Have a great day.
Connor
* If you missed yesterday’s email, don’t forget to read it here
FEATURED STOCK IDEA
FUND LETTER
Smoak Capital holding: Goodheart-Willcox ($GWOX)
The Goodheart-Willcox Company, Inc. publishes print and digital textbooks. It also produces online courses and other instructional resources for middle school, high school, higher education, and professional training
Ticker: GWOX | Price: $331 | Price Target: $760 (+129%)
Market Cap: $38M | Timeframe: N/A
✏️ Educational Products | 📈 Bullish Idea
Goodheart-Willcox (OTC:GWOX), a niche educational products provider, has transformed from a business with 10-15% operating margins into a digital revenue powerhouse amid the pandemic, serving Career & Technical, Health, and Physical Education. Almost 40% of its revenues are now digital, growing at 35%+ annually, with operating margins reaching 30%. The company has adapted to the demand for technology in schools, supplying high-margin digital content (90%+ gross margins) that complements traditional textbooks without cannibalization. While its reported Net Income under GAAP doesn't fully capture the company's performance due to the long-term nature of its digital licenses, GWOX has amassed approximately $85M in cash (over half its market cap) with potential excess due to low capital requirements and sustainable profitability. In stark contrast to the industry norm (notably HMHC selling for 12x FCF, deemed low by its holders), GWOX trades at just 3x EV/FCF with a 6-7% yield, implying a significant undervaluation with a potential target value upwards of $760/sh. This undervaluation persists despite the company's successful pivot and capitalization on the shift towards digital learning, mirroring the opportunity HMHC shareholders sought before its sale to Veritas.
Read the full article here. Read time: 3 min
+3 POINTS - WEEKLY TOURNAMENT
How do you rate the featured stock idea? |
Yesterday’s Featured Stock Idea
Globalstar ($GSAT)
🟩🟩🟩⬜️⬜️ - Buy (46%)
🟥🟥⬜️⬜️⬜️ - Pass (29%)
🟨⬜️⬜️⬜️⬜️ - Watchlist (25%)
✅ emoj*** and alpo*** - With the partnership with Apple, Dr. Jacobs, and the growing market of affordable satellite communications, this will be a long-term success investment.
There are 3 more stock ideas after “Today’s Sponsor”
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BONUS STOCK IDEAS
BLOG POST
AT&T: Forget The +6% Yield, Huge 50% Turnaround Opportunity (Strong Buy Reiteration)
AT&T Inc. is an American multinational conglomerate holding company that provides telecommunications, media, and technology services globally. The company operates through three segments: Communications, WarnerMedia, and Latin America, delivering wireless services, broadband and other internet services, video entertainment, and news and entertainment content.
Ticker: T | Price: $17.69 | Price Target: 25.15 (+42%)
Market Cap: $123B | Timeframe: 5 years
📞 Telecommunications | 💰 6.4% Dividend | 📈 Bullish Idea
Brandon Bell maintains a strong buy rating on AT&T (NYSE:T) despite reducing the fair stock price to $25.15 due to the latest financial figures, a decline from the previous $30.8 and $33.1 estimates. AT&T showcases strategic defenses against competitors, notable operations in Canada and Mexico ripe for expansion, and a focused cost-cutting strategy while still managing risks like the shift from Pay-TV to streaming and a saturated telecom market. Recent financials reveal a marginal revenue increase with significant boosts in operating and net income, and dedicated efforts in reducing long-term debt are on track. With free cash flow remaining strong at $22.9 billion TTM, increased by 9.5% from Q2 2023, and an 18.7% margin after dividends, AT&T appears financially robust. The valuation analysis predicts a 51.2% upside, hinting at the possibility of AT&T becoming a leaner yet still dominant industry player, provided it continues prudent cost and debt management. Risks remain, such as reverting to detrimental financial behaviors or market uncertainties, including the impact of dividend elimination. However, AT&T's path to recovery looks promising, with disciplined strategies aimed at long-term success, even as Bell suggests a potential benefit from further dividend cuts to free up capital.
Read the full article here. Read time: 7 min
BLOG POST
Hourglass Investing new position - Payfare $PAY.TO
Payfare Inc. (ticker: PAY.TO) is a financial technology company that provides instant payment and digital banking solutions designed for today's workforce, including gig economy workers, enabling them to get immediate access to their earnings and financial services through a mobile banking app.
Ticker: PAY.TO | Price: 7.34 | Price Target: 21 (+186%)
Market Cap: 347M | Timeframe: 5 years
💸 Fintech | 🇨🇦 Canada | 📈 Bullish Idea
Payfare (PAY.TO), a Canadian fintech company providing instant cash access solutions to gig economy workers, has shown impressive growth since its 2021 IPO, reversing its financial performance to become profitable with positive EBITDA and efficient capital metrics, including a 5.2% ROIC and a 19.6% ROE. Operating without debt, Payfare boasts a strong cash flow and cash position, fueling its growth and enabling a share buyback program. The company massively benefits from the expansion of the gig economy, strategic partnerships like those with Visa, and is continuously attracting more customers, notably gig platforms such as Uber and Lyft. Despite robust fundamentals and a revenue increase of 63% TTM, Payfare remains undervalued at 1.5x enterprise value to revenues with a P/E of 29x considering its market cap of approximately $350m CAD. With conservative projections of a 40% revenue CAGR through to 2029, expanding net income margins to 12.5%, and minimal shareholder dilution, Payfare’s stock has the potential to soar, reaching a price of $72/share, translating into over a 10-fold increase. Even at half this growth rate and lower margins, the share price could hit $21, offering a 25% CAGR over five years. As such, Payfare presents a compelling investment opportunity with significant growth potential due to its essential services in the burgeoning gig economy, effective growth strategy, and recent performance turnaround.
Read the full article here. Read time: 3 min
FUND LETTER
Arauca Capital holding - Xpel Inc ($XPEL)
XPEL, Inc. (ticker: XPEL) is a global company that specializes in the manufacture and distribution of high-performance protective films and coatings, including automotive paint protection film, surface protection film, automotive and architectural window films, and ceramic coatings. They are known for offering products that protect against scratches, chips, and stains, as well as providing installation services.
Ticker: XPEL | Price: $53.61 | Price Target: N/A
Market Cap: $1.5B | Timeframe: N/A
🚗 Auto Protective Film | 📈 Bullish Idea
Xpel Inc (XPEL) has historically boasted excellent management and execution but was recently hit by short-seller reports, primarily due to Tesla's decision to offer in-house paint protection film (PPF) services and the supposed impact of Entrotech's joint venture with PPG on XPEL’s business. These reports contributed to a 40% decline in XPEL's share price, presenting a chance to increase our position, now constituting 4% of NAV. Critics challenged XPEL's claim that Tesla sales represent only 5% of revenue, based on a suspect survey suggesting a 30% reliance, but this was skewed by focusing only on American installers, despite international sales. Additionally, XPEL terminated its exclusivity with Entrotech from a position of strength, having diversified its suppliers. XPEL's CEO affirmed no existing technology to integrate PPF into paint, contradicting the short seller's insinuations. This dip, driven by unfounded perceptions rather than fact, allowed us to acquire XPEL at an attractive valuation.
Read the full article here. Read time: 2 min
+3 POINTS - WEEKLY TOURNAMENT
Which bonus stock idea was the most compelling to you? |
Yesterday’s Poll Results:
🟩🟩🟩⬜️⬜️ Hammond Manufacturing ($HMM-A.TO) [45%]
🟨🟨⬜️⬜️⬜️ Inter Parfums ($IPAR) [28%]
🟥⬜️⬜️⬜️⬜️ African Oil ($AOI.TO) [27%]
Your comments:
🧪 shoppi*** ($IPAR): Huge upside in a niche market that is poised to grow in high single digits. The fact that the company is capital-light and has pretty minimal execution and distribution risks makes it a compelling opportunity.
MARKET OVERVIEW
Are you short-term bullish or bearish on the market? |
Yesterday’s Poll Results: 68% bullish
Well, the Fed decided to rain on the bullish parade. Yellowbrick Road readers remained very bullish, but most of those votes came in before the Fed meeting. Powell mentioned that a rate cut in March is unlikely which caused a sell-off across all of the indexes to end the day. The Fear v Greed index also fell 10 points and is now closer to “Neutral” than “Extreme Greed”. The news sentiment also took a dive and is well below the 7-day average.
STOCK MARKET NEWS
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Fed Chief Jerome Powell says a March rate cut is not likely - CNBC
Novo Nordisk beats earnings expectations as Wegovy, Ozempic demand soars - CNBC
Starbucks' earnings report was weak — but Wall Street expected worse - CNBC
Qualcomm earnings beat estimates as smartphone chip sales suggest recovery - CNBC
Byron Allen submits $30 bln offer for Paramount Global, including debt - Reuters
Mastercard Q4 Earnings Gets Consumer Spending Boost - Investopedia
H&M shares tumble 8% after weaker sales and surprise CEO exit - CNBC
Apple sells out of Vision Pro headsets after getting 200K pre-orders - New York Post
Adidas predicts 2024 leap in operating profit after Kanye West break-up - Reuters
FEATURED INSIDER TRADE
The insider trade is brought to you by CEO Watcher (another free, weekly email I write). It’s the only newsletter that tracks insider returns to find the best ones. Subscribe here
Chief Financial Officer at COLUMBIA BANKING SYSTEM, INC. ($COLB)
The Chief Financial Officer purchased 2,500 shares at $20.71/share ($51,775.00 total) which increased their holdings by 1.6%. The current price is $21.11 (+1.9%). Their median purchase size is $51,775.00 and this is their 1st largest purchase out of 1 all time. (trade link)
Historic Returns
N/A. This is their first purchase, but 5 other insiders also purchased the stock as well
QUIZ
+3 POINTS - WEEKLY TOURNAMENT
If you like this quiz section, then you are probably like me and love to learn! One way I learn is by using Shortform. They are a website/app that creates summaries/guides for 1000s of nonfiction books and connects ideas between books. Whenever I have a free 10 minutes, I just open the app and learn something new from a book about finance, business, history, etc.
I’ve been lucky enough to partner with them and offer you a free trial and a 20% discount if you use my link: https://shortform.com/yellowbrickroad
This month’s quiz questions will help you learn about the legendary rise and fall of Long-Term Capital Management which Roger Lowenstein chronicles in his awesome book: When Genius Failed.
An in-depth guide/summary of this book is available on Shortform (20% off using my link!).
Before founding Long-Term Capital Management, John Meriwether worked at which prestigious investment bank, known for being the leading underwriter of corporate bonds and the largest dealer of Treasury Securities in the United States? |
LINKS YOU’LL LOVE
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🏆 This Week’s Leaderboard
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*Flower Power Disclaimer:
The preceding post was written and/or published as a collaboration between The Yellowbrick Road’s in-house sponsored content team. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. The Yellowbrick Road may receive monetary compensation from the issuer, or its agency, for publicizing the offering of the issuer’s securities. This content is for informational purposes only and is not intended to be investing advice. This is a paid ad. Please see 17b disclosure linked in the campaign page for more information.
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