YB new stock pitches (Fri, Jul 25)

Centene Corporation (CNC) is a compelling long at $28 with a $13.7B market cap, trading at a historic valuation low despite being the largest player in both Medicaid and ACA marketplaces. The company recently faced a $1.8B reduction in ACA risk adjustment revenue ($2.75 EPS impact) and rising medical loss ratios from mispriced 2025 ACA plans and Medicaid cost trends, forcing it to withdraw its $7.25 2025 EPS guidance. However, these issues are transitory, with ACA repricing for 2026 already showing 20%+ increases, particularly in CNC's strong federally facilitated marketplace states where it has more latitude for repricing. The Medicaid segment, representing $80B+ in revenue with 20%+ market share, is currently operating at a loss industry-wide for the first time in over 20 years, but states are legally required to pay actuarially sound rates, and a reset of CNC's Medicaid MLR to 90% would add $2B+ in gross margin ($1.60-$2.00 in incremental EPS). With additional potential from improving Medicare Advantage and PDP margins, 2027 EPS could reach $6+ (4.4x current price), supporting a price target of $55 (9x 2027 EPS) for 100% upside.

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Trio Technology International Group Co., Ltd. (6862.TW) is an independent manufacturer of inductors—passive components that store energy in magnetic fields to control current and filter noise—for major tech companies including Nvidia (since 2009), AMD (since 2011), and Apple. Operating in a highly fragmented $8.3 billion global market where the largest player (TDK) holds just 7.83% share, Trio generated $74.8 million in 2024 revenue. The company's competitive edge comes from its independence, ability to deliver short lead times and rapid prototyping, and development of smaller form factors for AI servers that can withstand high current while improving heat dissipation—resulting in higher ASPs and unit sales. Despite impressive revenue growth (38% last year, 23% this year) with strong margins, the stock has fallen 55% and now trades below its IPO price, prompting the chairman to purchase 1.64 million shares since October.

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H&R Block (HRB) presents an appealing investment opportunity with 9% short interest and Q4 likely to be 50% better year-over-year due to tax benefits. The bear case has weakened considerably as the IRS Free File program has shut down, tax changes in FY26 will increase itemizers with a $40k SALT cap, and the company experienced a good tax season. Trading at just 10x FCF versus higher peer multiples, HRB returns 100% of free cash flow to shareholders through dividends and buybacks, with approximately $600 million in upcoming repurchases (enough to retire about 8% of outstanding shares at $56/share). The company spent $430 million on buybacks last year, primarily in August, September, and November (outside tax season). Despite financials being up 25% year-over-year, HRB remains flat and down 13% from Q3 earnings, creating potential for a short squeeze following Q4 earnings, similar to what occurred last year. CEO Jeff Jones has indicated Q4 will be very good, with Q3 pre-tax earnings already up 5.7% with 5% fewer shares outstanding, making this 'boring compounder' an attractive investment at half the market's EPS multiple.

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