YB new stock pitches (Tue, Feb 10)

Gate City took a new position in JAKKS Pacific (JAKK), a toy company that develops, markets, and sells children's toys and costumes with licenses for well-known brands including Disney, Nintendo, and Sonic the Hedgehog, after the stock declined sharply during Q3 2025. The company imports the vast majority of its products from China, and erratic tariff implementation in 2025 significantly disrupted operations, causing EBITDA to fall to $23 million in 2025 from $61 million in 2024, though the company is expected to remain profitable. Key catalysts include additional clarity surrounding tariff policy and lower absolute tariff rates as tailwinds for 2026 results, the upcoming release of The Super Mario Galaxy Movie in April 2026, and Frozen 3 in November 2027. With a market capitalization of $210 million, $26 million in net cash, and an enterprise value of $184 million, the company has a price target of $27.64, representing potential upside of 49%.

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Alluvial Fund purchased shares of Sylvamo Corporation (SLVM), an uncoated freesheet paper manufacturer spun off from International Paper in 2021, viewing it as a fundamentally sound company with strong profitability and free cash flow generation history facing short-term headwinds. The company's challenges include an expiring long-term supply agreement with former parent International Paper as they convert production from freesheet to cardboard, declining paper pricing, and weak European demand weighing down 2025-2026 results. However, Sylvamo is investing in its South Carolina Eastover and Sumter mills to add 60,000 short tons of annual capacity with an expected 30%+ internal rate of return, while industry supply reductions from International Paper's conversion and Pixelle's Chillicothe mill closure should support pricing recovery. The company expects to return to $300 million in annual free cash flow by 2027, with shares anticipated to respond positively as cash flow inflects higher, though a potential earlier catalyst emerged when the top shareholder recently withdrew its two board directors and voided the cooperation agreement preventing additional share purchases, possibly indicating a potential transaction.

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SK Square (402340.KS), a Seoul-based Korean holding company with a $47 billion market cap that spun out of SK Telecom in 2021, trades at a 47% NAV discount compared to peers' 15-45% discounts despite 96% of its asset value comprising shares in SK Hynix, the second largest and most liquid KOSPI constituent. The company holds a 20% stake in SK Hynix, which trades at 6.5x 2026 EPS (15% earnings yield) and has solidified its leadership in high-bandwidth memory (HBM) as the exclusive HBM supplier for Microsoft's AI accelerator while securing roughly two-thirds of NVIDIA's anticipated HBM4 demand at higher margins than prior generations. Management targets reducing the NAV discount to 30% or lower by 2028 through systematic share buybacks using debt collateralized with its SK Hynix stake, enhanced capital allocation, and strengthened governance including tying NAV discount outcomes to management compensation. The buyback strategy effectively allows purchasing SK Hynix at a 47% discount, equivalent to 3.5x earnings and a 29% earnings yield, with the potential to more than double SK Square's stock price without underlying asset appreciation, supported by tightening DRAM supply, AI-driven demand growth, and SK Hynix's planned US ADR listing to broaden international access.

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