YB new stock pitches (Fri, May 22)

Stitch Fix ($SFIX) presents an attractive setup trading at trough valuations of 0.15x EV/sales, 0.3x EV/gross profit, and 4.5x EBITDA on fiscal year guidance, with 50% of its market capitalization consisting of net cash. The company has demonstrated improving fundamentals with revenue accelerating for four consecutive quarters, inflecting web traffic, and management recently restarting a large buyback program. A significant catalyst for the business is the increasing adoption of GLP-1 weight loss drugs, as people losing weight will need complete closet rebuilds and Stitch Fix's personalized styling service provides an ideal solution for consumers confused about how to rebuild their wardrobes. Despite the strong setup and improving trends, the stock trades at extremely depressed multiples, though investors should note there is substantial stock-based compensation in the EBITDA figure.

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Frequency Electronics, Inc. (FEIM) is a new position representing a 65-year-old leader in precision time and frequency devices using quartz and rubidium oscillation for system location, navigation when GPS is unavailable, and secure wireless communication. Revenue breaks down to approximately 55% military, 40% government satellites, and 5% commercial/industrial, with current revenue running at $67 million and backlog at $83 million trending toward $100 million. Key growth drivers include missile defense systems (Patriot and THAAD), the Proliferated Space Warfighter Architecture satellite constellation, electronic warfare (ultra-low phase noise and fast-switching synthesizers for detecting and jamming communications), counter-electronic warfare alternative navigation, and early-stage quantum sensing for missile detection and computing. Activist fund Edenbrook Capital has been involved since 2016, declassifying the board to majority independent, replacing the CEO, installing expense discipline, issuing special dividends, and maintaining most of their original position while serving as lead Independent Director. Comparable companies Microchip Technology and SiTime trade at 9x and 22x 2027 revenue respectively, and applying an 8x multiple to $100 million revenue yields an $81 price target, representing 65% upside from current levels.

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The investor added a starter position in Honeywell International Inc. (HON), a diversified industrial conglomerate aggressively simplifying its portfolio through divestitures including last year's spin-off of specialty chemicals and materials operations Solstice Advanced Materials, the upcoming spin-off of its aerospace division as Honeywell Aerospace (HONA) expected to begin trading in approximately two months, and the recent sale of its low-margin Warehouse & Workflow Solutions business. HONA is a crucial systems provider for commercial and defense aircraft with an attractive earnings profile: 14% of revenue from commercial OEM operations selling mission-critical propulsion, avionics, and auxiliary power units with high switching costs that create captive customers for decades, 46% from an annuity-like aftermarket business of high-margin service and spare parts over the 30-year lifecycle of airframes, and 40% from defense where orders grew at a double-digit clip in the most recent quarter driven by dominant F35 positioning and growing leadership in drone-on-drone warfare. GE Aerospace, a pure-play peer, currently trades at 26x this year's EBITDA, and if HONA trades at a modest discount to GE while the remaining automation business trades in-line with peers like Emerson or Rockwell, substantial upside remains in the stock. Additionally, HON owns a majority stake in Quantinuum, a leading quantum computing company valued at $10 billion, which confidentially filed for an IPO in April and could serve as another catalyst for value realization.

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