Top stock ideas (Thu, Jan 11)

Author

Connor Van Ooyen
January 11, 2024

👋 Good Morning!

Welcome to the 131 new readers who joined yesterday!

Our AI read and summarized 167 stock ideas, 1034 news articles, and 188 insider trades and found:

  • Applovin has 100% upside (featured stock idea)

  • An analyst report on Zscaler, a short report on Arbor Realty Trust, and an analyst report on Alibaba (bonus stock ideas)

  • Coinbase threatened by bitcoin ETFs (news)

  • A Senior Vice President at Darden sold $628k (insider trade)

  • and much more…

CPI report comes out today. I wonder how the market will react.

Thanks for reading! Have a great day.

Connor

* If you missed yesterday’s email, don’t forget to read it here

FEATURED STOCK IDEA

BLOG POST

Applovin, deep value adtech to double again?

Applovin is an adtech software company focused on mobile gaming, operating in a $90 billion market predicted to grow at 7% annually. Its software includes a mediation platform called Max, and an app discovery platform powered by Axon AI, leveraging data to optimize advertising and app promotion within the mobile gaming space.

Ticker: APP | Price: $40.53 | Price Target: $82 (+102%) | Timeframe: N/A

📢 Adtech | 📈 Bullish Idea

Adtech, a complex yet lucrative sector with key players like Google, Facebook, and The Trade Desk, allows advertisers to reach consumers digitally via programmatic buying that has largely replaced traditional ad space purchasing. As an example, Applovin, a mobile gaming adtech software business, stands out in the rapidly growing $90 billion industry, despite challenges from Apple's privacy policies. Applovin's platform integrates two main software modules: Max, a mediation platform taking a 20% revenue cut from publishers, and an app discovery platform leveraging Axon AI, making money from the spread between ad acquisition cost and client revenue. With the mobile gaming side contributing less to EBITDA, Applovin is shifting focus entirely to software, potentially exiting the gaming content business. Despite competition, notably from IronSource merging with Unity, Applovin's scale offers it an advantageous position. Financially, Applovin's software grows impressively, guided to hit a $1.7 billion EBITDA run rate, trading at 9x EBITDA despite higher GAAP multiples due to non-cash charges. Large share buybacks counter the dilutive effect of rising stock-based compensation. Applovin's future hinges on maintaining solid earnings growth and market re-evaluation of its sustainable software business model, which could potentially double investor returns if executed well.

Read the full article here. Read time: 10 min

+3 POINTS - WEEKLY TOURNAMENT

How do you rate the featured stock idea?

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Yesterday’s Featured Stock Idea

Acres Commercial Realty Corp ($ACR)

🟩🟩⬜️⬜️⬜️ - Buy (33%)
🟥⬜️⬜️⬜️⬜️ - Pass (31%)
🟨🟨🟨⬜️⬜️ - Watchlist (36%)

  • ❌ tday**** (pass) - Sorry, commercial real estate? Not anytime soon!

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

TODAY’S SPONSOR

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BONUS STOCK IDEAS

ANALYST REPORT

Zscaler, Inc. (ZS - Outperform)

Zscaler, Inc. is a mid-cap leader in cloud-native network security. Its scalable cloud-based architecture is designed to disrupt various network and security markets, emphasizing zero trust principles and minimizing attack surfaces. Zscaler is at the forefront of extending Zero Trust leadership within the cybersecurity space and is continually developing its offerings, including Data Loss Prevention and advanced AI capabilities like Risk360 and Breach Predictor.

Ticker: ZS | Price: $225.40 | Price Target: $255 (+13%) | Timeframe: 2024

🔒 Cybersecurity | 💻 SaaS | 📈 Bullish Idea

Zscaler, Inc. (ticker: ZS), a mid-cap leader in cloud-native network security, is well-positioned to capitalize on the burgeoning need for Zero Trust architecture due to rising cloud, SaaS, mobile, IoT, and 5G adoption. With its scalable cloud-based platform, Zscaler is set to disrupt several network and security markets and extend its Zero Trust leadership beyond 2024, supported by strong drivers such as SASE/ZTNA budget growth and operational leverage that could sustain a Rule-of-50 performance. Noteworthy is its traction in Data Loss Prevention (DLP) through its unified policy engine. Our bull thesis for a 2024 timeframe emphasizes Zscaler’s exposure to stable CIO budgets, a record pipeline, aggressive growth strategies in GTM and R&D, and significant AI advancements like Risk360 and Breach Predictor, which may enhance its Gartner single-vendor SASE Magic Quadrant positioning. We project a potential 30% growth without accounting for new product contributions and a price target of $255, anchored by a DC analysis and a CY25E EV/Sales multiple of ~12.6x, a slight premium over the median for high-growth SaaS peers due to its strong market position and offerings. Risks include intense industry competition, a history of losses/minimal non-GAAP profitability, and broad macroeconomic risks.

Read the full article here. Read time: 2 min

BLOG POST

[SHORT] Arbor Realty Trust (NYSE:ABR)

Arbor Realty Trust (ticker: ABR) is an American real estate investment trust (REIT) that specializes in providing loan origination and servicing for multifamily, seniors housing, healthcare, and other diverse commercial real estate assets.

Ticker: ABR | Price: $15.14 | Price Target: N/A | Timeframe: N/A

🏡 REIT | 📉 Bearish Idea

Arbor Realty Trust (NYSE: ABR) is a mortgage REIT possessing a precarious $13 billion portfolio of high-LTV, floating-rate multifamily bridge loans predicated on peak asset prices and zero-percent base rates, which I regard as the market's most vulnerable major debt pool amidst rising rates and declining property values. As debt service surpasses property income, creating cash flow negative situations for borrowers now underwater on equity, delinquencies have soared, as reported by Trepp, particularly in CLOs. Arbor's financial maneuvering is under pressure; it nears covenant thresholds on its $7 billion CLOs and may face stricter bank margin calls impacting its many lines of credit. Despite management raising dividends and a ‘buy-back’ program, Arbor risks imminent credit losses that could annihilate equity value if loss rates approximate 20%. I foresee three potential triggers that could compel market repricing: heightened loss provisions, dividend cuts, or enforced margin calls. Though slight risk mitigators exist—such as benefit from potential rate cuts, relatively better liquidity, and dividend coverage compared to peers—the bearish case is strong, recommending short positions in ABR stock and specific put options (ABR July-19-2024 $12.50 Puts at $1.25 ask).

Read the full article here. Read time: 3 min

ANALYST REPORT

Tiger Securities maintains $120 price target on $BABA

Alibaba Group Holding Limited (ticker: BABA) is a Chinese multinational technology company specializing in e-commerce, retail, internet, and technology. The company operates various online marketplaces, including the massive Alibaba.com and Taobao platforms, serving millions of merchants and consumers worldwide.

Ticker: BABA | Price: $72.01 | Price Target: $120 (+66%) | Timeframe: N/A

💻 Internet Conglomerate | 🇨🇳 China | 📈 Bullish Idea

Tiger Securities on $BABA 1/9/24. Just crazy. Our $120 (unchanged) price target is based on our sum-of-the-parts valuation. In detail, the $311B fair-value estimate includes: 1) 15x '24E EBITA for Taobao & Tmall at $131B; 2) $34B for AliCound based on 2.3x F24E revenue; 3) $46B for other business lines; 4) $17B for minority interest; 5) $26B stake in Ant Group, based on a valuation of $78B; 6) $34B for long-term investment and investment securities; 7) $51B for current net cash; and 8) negative $29B for the holding company discount. This valuation implies 1.6x F24E sales, 8x EBITDA and 14x PE, a discount to global large cap tech peers on country risk and lower growth prospective. $120 implies 8x EBITDA, meaning we are trading <5x EBITDA now.

Read the full article here. Read time: 1 min

+3 POINTS - WEEKLY TOURNAMENT

Which bonus stock idea was the most compelling to you?

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Yesterday’s Poll Results:

🟩🟩🟩⬜️⬜️ S&P Biotech Index ($XBI) [42%]

🟨🟨⬜️⬜️⬜️ China Internet ETF ($KWEB) [31%]

🟥⬜️⬜️⬜️⬜️ Sprout Social ($SPT) [27%]

Your comments:

  • 🧪 alpot*** ($XBI): This has dropped through the floor. The potential reward far outweighs the risk.

  • 🇨🇳 chrisk*** ($KWEB): Have done well with this in the past. Web makes too much sense - very tech-savvy country, pent-up demand after endless Covid lockdown, established consumption and growth built on existing tech

MARKET OVERVIEW

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

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Yesterday’s Poll Results: 55% bullish

Kind of an up-and-down day yesterday. It looked quite hot at the start of the day but things cooled off towards the end. All of the indexes ended the day green except for the small-cap index, the fear v greed index moved up 1 point and back into Extreme Greed, the news sentiment was a tiny bit higher than the 7-day average, and Yellowbrick Road readers were 6 points less bullish than the previous day.

STOCK MARKET NEWS

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Walmart unveils new GenAI search tech for shoppers at CES - Reuters

EV maker VinFast launches pickup truck concept, plans to sell mini-EV globally - Reuters 

Thursday's inflation report could challenge the market outlook for big Fed rate cuts - CNBC 

Mortgage demand jumps nearly 10% to start the year, even as interest rates tick up again - CNBC 

Amazon to lay off employees in Prime Video, Studios divisions - Reuters 

SpaceX and T-Mobile send first texts via Starlink satellites - CNBC 

Coinbase threatened by bitcoin ETFs after almost 400% surge in stock last year - CNBC 

FEATURED INSIDER TRADE

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SVP, Corporate Controller at DARDEN RESTAURANTS INC ($DRI)

The SVP, Corporate Controller sold 3,836 shares at $163.80/share ($628K total) which decreased their holdings by 35.5%. The current price is $161.60 (-1.3%). (trade link)

Historic Returns
1m returns: -8% weighted | -11% median | 0% win rate (0/6)
3m returns: -2% weighted | -10% median | 33% win rate (2/6)
6m returns: -12% weighted | -13% median | 17% win rate (1/6)
1y returns: -11% weighted | -19% median | 20% win rate (1/5)

Note: Selling options that vested in 2020

QUIZ

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Which of the following people was NOT a co-founder of Pixar?

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Yesterday’s Question: Which South Korean company started as a grocery trading store in 1938 and is now a major global conglomerate?

Answer: Samsung

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