YB new stock pitches (Fri, Jul 24)

Strattec Security (STRT), an automotive supplier that designs and manufactures door handles, power access, keys, locks, and latches primarily for GM, Ford, and Stellantis (65% US sales), is a new position for Plural Investing at ~$70 (now $82) with a three-year price target of $200. Run by the Stratton family from inception until July 2024—with Harold Stratton as CEO until 2012 then Chairman until October 2024—the company was inefficiently managed until value firm GAMCO acquired a 25% stake in 2023 and wrote to the board, ultimately forcing out Stratton, the CEO, and most of the board. New independent CEO Jen Slater, a career auto executive who turned around two prior businesses, joined in July 2024 and has already raised EBIT margins from 1.5% to 5.0% (guiding to 7-10%), grown FCF from single-digit millions to $30mm annually, and lifted net cash from $12mm to $107mm partly via working capital release. If she hits her targets, the company could generate ~$50mm FCF and hold over $200mm net cash in three years against a current $345mm market cap. Further upside is expected from higher prices, reduced supplier/tariff costs, manufacturing automation, a less siloed culture, and winning non-US OEM contracts, while the strong balance sheet (cash growing $30mm/year, plus another $30-40mm expected from working capital reductions and a facility sale) mitigates auto-industry downside. The company recently bought back $7mm of stock and announced another $40mm buyback (~14% of shares). The stock trades at 11x EV/FCF, expected to fall to 3x; assuming a 9% EBIT margin and $16.5/shr in FCF within three years, a 12x P/FCF multiple supports the $200 price target versus $82 today.

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Veeva Systems (VEEV) is a life science SaaS company with one of the widest moats in software, driven by two nearly unbreachable factors: a regulatory barrier (its software complies with strict FDA/government regulations, and switching would require costly revalidation, staff retraining, and risk dangerous compliance delays pharma/biotech firms avoid at all costs) and deeply embedded, life-science-tailored workflows (unlike more generic software like Salesforce) that would be enormously costly and error-prone to rip out. While its life science focus limits its addressable market, its dominant niche position makes it one of the software names most resistant to AI disruption—potentially even benefiting from AI trends. Despite this, the market has sold the stock down to less than 22x forward earnings, one of its lowest valuation levels in the past decade. Technically, VEEV has cleared its 50-day moving average after consolidating since March and is poised to challenge its 200-day moving average, with strong buying support in the $150-$160 range after bouncing off multiple lows. Trading under $200 per share, VEEV—alongside Service Now (~$100) and SAP (~$150)—is viewed as an attractive buying opportunity for long-term investors with a 12-24 month horizon, though these stocks have not yet decisively broken out of their 200-day moving averages, warranting close monitoring.

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MTY Food Group (MTY.TO, new ~5% position) is a Montreal-based Canadian franchisor of over 90 brands (Thai Express, TacoTime, Papa Murphy's) that is 90%+ franchised with over 60% of revenue from the US, trading at an all-time low ~6.5x EBITDA versus peers at roughly twice that, a 15-17% free cash flow yield, and sub-2x net debt/EBITDA—compelling for a stable, market-leading business. Once a growth-compounder favorite, the stock has fallen out of favor as consumer macro headwinds hit both Canada and the US, and is down ~14% since a weak Q2 (EBITDA miss plus the announced closure of 68 money-losing corporate stores, mainly Papa Murphy's, responsible for ~$10M in losses) and ~25% off its 2026 highs; the negative quarter is largely baked in and the CEO cited the best growth pipeline of his career. The key catalyst is an active strategic review (initiated late November 2024, with reports of a possible sale), for which TD published a $70 sum-of-parts takeout value, though TD has since transferred coverage and cut its target to $38, awaiting 'macro and strategic clarity.' The buyback (~6% of market cap repurchased in 2024-25) is paused during the review but would serve as a valuation backstop if resumed, and the dividend yield has crept up to 4.5% (hiked annually since inception outside of Covid). CEO Stanley Ma owns 13%, creating potential for a substantial issuer bid, special dividends, or dividend hikes depending on the review outcome. The bull case rests on the cheap trough valuation and high FCF yield being attractive regardless of a deal, with review optionality as a topper; risks include no guarantee of a positive review outcome, ongoing consumer weakness, and lower trading liquidity, though the author sees limited further downside and a favorable risk-reward. A comparison is drawn to the recent UTZ take-private at a 91% premium and to Nomad Foods (which the author also owns), noting MTY lacks Nomad's elevated leverage problem.

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