YB new stock pitches (Wed, Oct 8)

Corpay (CPAY), formerly known as Fleetcor, is a payments company with three main business lines: a fast-growing corporate payments division that helps companies manage accounts payable and cross-border transactions, a fuel card business that allows companies to oversee gas and electric charging spending, and a lodging business targeting hotel payments for emergency stays, flight delays, and business travel. The company has regularly bought and divested units while maintaining 8.5% annual sales growth and 7% earnings CAGR over the past five years, and trades at less than 15x 2025 cash earnings. A key advantage is that CPAY serves as an oil hedge, with revenues rising when gas prices increase, providing oil exposure without directly investing in oil & gas companies. Despite being complex to understand, the company's solid growth track record, attractive valuation, and growth runway have earned it a portfolio position, with the investment idea originally sourced from Thomas Lott's Cash Flow Compounders service.

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RS Technologies (3445.T), a Japanese semiconductor equipment company established in 2010, is the global leader in wafer reclaim with a 33% market share and is rapidly expanding into prime wafer production, particularly in China. The company has achieved exceptional growth with revenue increasing from 25 billion yen in 2020 to 60 billion yen in 2025 and profits growing from 2.8 billion yen to 9.4 billion yen, while maintaining a 6 billion yen net cash balance. Management guides for 100 billion yen revenue and 12.7 billion yen profits by 2027, meaning the stock trades at just 1x 2027 sales despite the semiconductor equipment industry typically trading at 15-20x earnings multiples. The company operates major facilities in Japan (Sanbongi Factory), Taiwan (270,000 wafers/month capacity expanding to 370,000), and China through subsidiaries including Shandong GRITEK for prime wafers and SGRS for reclaimed wafers, with plans to invest 12.8 billion yen to increase global capacity from 320,000 to 440,000 wafers monthly and expand Chinese reclaimed wafer production from 50,000 to 200,000 wafers monthly by 2027. The company has also diversified into energy storage (VRFB battery electrolytes) and automotive optical modules through acquisitions. Most remarkably, RS Technologies' 40% stake in its Chinese subsidiary (688432.SH) listed on the STAR market is valued at 142 billion yen versus the parent company's entire market cap of just 99 billion yen, creating an extreme valuation disconnect where investors essentially get either the global operations or Chinese operations for free, with applying typical 15-20x earnings multiples to 2027 guidance suggesting a fair valuation of 190.5-254 billion yen compared to the current 99 billion yen market cap.

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Mestek Inc. (MCCK) is a $347 million market cap OTC company that owns over 45 specialty manufacturers of HVAC and metal forming equipment businesses acquired over 60-70 years, with HVAC making up over 80% of sales and principally selling into North America. The company generated $400 million in revenue and $34 million in operating earnings last year, with relatively stable operating earnings over the past 10 years despite being tied to the cyclical construction industry, and no losses during COVID. The CEO, who owns 75% of the company, has used cash flows to trade commodities like platinum futures, generating approximately $189 million in pre-tax commodity income over the past decade and $62 million in commodity gains year-to-date with platinum up 50%. With cash, short-term investments, and the commodity portfolio totaling $327 million (94% of market cap), the enterprise value is only $90 million, creating substantial downside protection and a trailing EV/EBIT ratio of 2.6x, while the company has already achieved $21 million in EBIT in the first six months of 2025. Comparable companies trade at high teens EV/EBIT multiples, and a recent transaction saw Worthington Enterprises purchase Elgen Manufacturing, a smaller New Jersey HVAC manufacturer, for 7x EV/EBITDA, which when applied to Mestek's 2025 estimated EBITDA results in an $85 stock price target representing 85% upside. Additional value exists from LIFO inventory accounting that underreports inventory and over-reports COGS, while the CEO prefers acquiring businesses over paying dividends, though risks include potential commodity portfolio losses.

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