YB new stock pitches (Wed, Nov 26)

Legacy Housing Corporation (LEGH) — Man, this really deserves a full write-up. This manufactured housing provider is a high-conviction position for me (~2.5%). Management has been building a debt-free financing portfolio for years; similar to what I wrote about KMX, you’re not just buying an operator but a massive portfolio of loans. The owners got fed up with management and the market sold off, which I think is terrific news for shareholders. It now trades below book value, and the owners have indicated willingness to buy back shares.

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Becton, Dickinson and Company (BDX), a $21 billion revenue medical device giant with leading market positions, 54% gross margins, and stable demand for consumable medical supplies, is executing a reverse Morris trust transaction with Waters Corporation to spin off its $3.3 billion Biosciences & Diagnostics Solutions businesses by Q1 2026, providing shareholders with approximately $18.8 billion in total consideration ($64/share) through 0.13 Waters shares per BDX share plus $4 billion cash to the company. The divestiture represents an attractive 5.6x revenue multiple compared to BDX's current 3.5x EV/revenue valuation, while the pro forma 'New BD' will trade at less than 10x 2026 EPS despite being an almost-great business with mid-single digit growth prospects and margin expansion opportunities. The transaction removes growth headwinds from the volatile life science instruments segment, which experienced -4.0% and -0.7% organic revenue declines in fiscal 2025 due to COVID boom-bust cycles, weak China demand, and reduced research funding, dragging overall BD growth from 3.9% to 2.9%. BD plans to use at least half of the $4 billion cash proceeds for share repurchases alongside continued buybacks from $1-2 billion annual free cash flow generation, with management committed to aggressive repurchases while undervalued, an upcoming analyst day in 2026, and dissipating transitory headwinds supporting a fair value target of approximately $300 per share.

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Allison Transmission (ALSN) is acquiring Dana Inc.'s Off-Highway business for $2.73 billion, which will add approximately $288 million in incremental annual free cash flow and is funded through $500 million in notes, a $1.2 billion term loan facility, and cash on hand, with a $2 billion committed bridge facility eliminating financing risk. All regulatory and antitrust approvals have been obtained, the deal requires no shareholder approval, and closing is expected in late 2025 with an outside date of December 11, 2025, essentially eliminating the $120 million break fee risk to ALSN. The company currently trades at approximately 7.1x pro forma free cash flow versus a peer median of 20.8x, despite having superior operating margins of 20.6% versus peer median of 16.55% and pre-tax ROTA of 26% versus peer median of 23.3%. A re-rating to 8-12x FCF multiples would yield 12-70% upside, with the stock currently at $84.32 having potential targets of $95 at 8x FCF, $118 at 10x FCF, $142 at 12x FCF, and $178 at 15x FCF. Key catalysts include the notes offering closing around November 21, 2025, deal closing in late 2025, and the first combined financials in Q4 2025/Q1 2026 serving as a re-rating catalyst. The main risk is that the market may continue to discount ALSN as a cyclical deep-value play or require multiple quarters of combined results before re-rating, though downside appears limited given the stock has already fallen from pre-announcement levels around $102.

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