🤖📈 Top Trade Ideas for June 26
Including the price target for Duolingo being raised, the bearish v bullish case for TSM, and more...
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Our AI read and summarized 175 articles today from all over the internet to find the best trade ideas to help you make more money in the stock market.
Here’s what you’ll read today:
📱 Duolingo price target raised
🐻 The bearish v bullish case for TSM
🤖📈🚗📱 Much more…
Duolingo: Reiterate Buy Rating With Higher Price Target
Ticker: $DUOL | Current Price: $140 | Price Target: $189 (+35%)
📱 Mobile App | 💸 Consumer Subscription | ⬆️ Upgrade | ✏️ Blog Post | 📈 Long Idea
Duolingo is a dominant player in the language-learning industry due to its use of user data to train AI models and tailor lessons to individual students. The digital learning industry is expected to grow significantly. The author is bullish on Duolingo and its current valuation, with a target price of $102 that has already been surpassed with the current price of $140. Duolingo has successfully updated and improved its platform, with the upcoming release of Duolingo Max offering new features for an affordable price of $14 per month. Duolingo's international expansion efforts have seen positive trends and subscriber growth in every region. The author believes that DUOL's current valuation is sustainable and sees further upside to the stock with a price target of $189. However, the online language-learning market is highly competitive, and DUOL must constantly improve its platform to maintain its market dominance. The author reiterates a buy rating on DUOL due to its dominant position in the language-learning industry, fueled by its vast user data and AI-driven personalized lessons.
Taiwan Semiconductor: Nvidia's Dirt-Cheap Proxy
Ticker: $TSM | Current Price: $102 | Price Target: N/A
🇹🇼 Taiwan |⚡️ Semiconductor | 🤖 AI | ✏️ Blog Post | 📈 Long Idea
Taiwan Semiconductor Manufacturing Company Limited (TSM) is a major supplier to most big chip companies, manufacturing about 59% of all computer chips used worldwide. TSM has a new growth driver in the form of Nvidia's AI chips, and the author is upgrading their rating to 'strong buy.' TSM is likely to benefit from Nvidia's increase in AI chip orders, which could drive a revenue beat in its upcoming release. TSM is more favorably valued than Nvidia, with lower multiples for earnings, sales, book value, operating cash flow, and free cash flow. While TSM's revenue is expected to decline in Q2, Nvidia's AI chip orders could make up a larger percentage of TSM's business this year. However, there are risks and challenges to the long thesis on this stock, including a potential invasion of Taiwan and competition from Intel. Despite these risks, TSM is one of the best ways to play the AI phenomenon today, with a positively modest valuation and positive revenue growth last quarter.
🥉 Bullish On Adobe's Unique Positioning In The Enterprise Market
Ticker: $ADBE | Current Price: $484 | Price Target: $566 (+17%)
🤖 AI | ☁️ Cloud | 💻 SaaS | ✏️ Blog Post | 📈 Long Idea
The author is bullish on Adobe, citing its comprehensive and integrated end-to-end offering, generative AI services, trusted reputation, and investment in AI as strengths. Adobe's Q2 2023 performance exceeded expectations, and its rapid innovation and release of AI-enabled creative tools are seen as long-term growth drivers. The Document Cloud unit is expected to experience mid-to-high teens sales growth for at least the next three years, and the Experience Cloud segment represents a significant expansion opportunity. Adobe's emphasis on trust, model ownership, adherence to copyright laws, and proper content attribution is seen as a significant differentiator. The potential saturation of Adobe's existing offerings and competition from various software vendors are seen as potential risks. The author believes Adobe has an organic solution for future growth through its generative AI platform called "Firefly." The stock is viewed as a buy with an end of fiscal year price target of $566 based on a 12x EV/CY24 Sales.
🐻 Bearish v 🐂 Bullish
Company: Taiwan Semiconductor ($TSM)
Bullish Reasons:
Leadership in Advanced Process Technologies: TSM continues to lead in advanced process technologies, including 5nm and 3nm processes, which are critical for the next generation of semiconductors.
Strong Revenue Growth: TSM's revenue increased by 25.4% YoY in Q1 2023, indicating strong demand for its products and services.
Strong Gross Margin: TSM reported a gross margin of 51.5% in Q1 2023, which is a strong indicator of its profitability.
Bearish Reasons:
Geopolitical Risks: TSM faces geopolitical risks, including potential disruptions due to tensions between the US and China.
Dependence on a Few Customers: TSM's top five customers accounted for 54% of its total revenue in Q1 2023, indicating a high level of customer concentration risk.
Cost Pressures from Geographic Diversification: TSMC's new approach to diversifying production geographically may add cost pressures with little added resilience to stability. This could potentially impact the company's bottom line.
Yum China Holdings: China Reopening Translates to Record Revenue and Profit
Ticker: $YUMC | Current Price: $56.28 | Price Target: $84 (+49%)
🥤 Food and Beverage | 🧑🍳 Restaurant | 📝 Research Report | 📈 Long Idea
Yum China has accelerated store openings during the COVID-19 pandemic, adding over 3,700 locations from 2020 to 2022, which is expected to deliver significant incremental revenue and be accretive to overall margins. Yum China plans to speed up new unit openings in lower-tier cities, where there are still many expansion opportunities, and gain a share in the fragmented, USD 700 billion Chinese restaurant market. Yum China is set to benefit from rising fast food penetration in China, driven by longer working hours, rising disposable income, and smaller family sizes, as well as its strong brand recognition and unrivaled supply chain. Yum China has various top-line drivers, including value platforms, menu innovations, new restaurant formats, enhanced digital marketing efforts, unrivaled delivery capabilities, and nascent brand expansion potential in Lavazza, Taco Bell, and Huang Ji Huang. Yum China has committed a five-year budget of USD 1 billion-USD 1.5 billion to technology and digital development, which is expected to result in cost savings and operating margin expansion over the long term. Yum China's average unit volume, pretax cash payback periods, and cash-on-cash returns for new KFC China units exceed the economics of most chains in the region, and there are several top-line growth drivers despite COVID-19 disruptions. Yum China has a wide economic moat rating based on its well-known brand name, consistent menu innovations, digital capabilities, and cost advantages from its supply chain infrastructure, which have resulted in historic adjusted returns on invested capital averaging at 36% over the past six years. Yum China's AI-powered menu has boosted average per-order spending by 1% in 2019, equivalent to about USD 840 million worth of sales. Yum China's cost advantage will be supported by continued store expansion into lower-tier cities. Yum China plans to accelerate unit openings with new restaurant formats in lower-tier cities, resulting in operational efficiencies and future margin expansion. Yum China is expected to see above-20% revenue growth and double-digit operating margins in 2023, with compounded annual net unit opening growth of 11% over the next five years. Yum China has a sound balance sheet and fair investment, with potential for higher returns if investments in new restaurant concepts lift company-level margins. Yum China aims to retain a conservative balance sheet over the next few years.
TerraVest INDUSTRIES Case Study by Bonhoeffer Capital Management
Ticker: $TRRVF | Current Price: $21.04 | Price Target: $37 (+75%)
🏭 Manufacturing | 🛢️ Oil/Gas | ✉️ Investor Letter | 📈 Long Idea
TerraVest is a materials fabrication and service firm that provides components and services for oil and gas extraction, transportation, distribution, and commercial and residential usage. The company strategically acquires businesses primarily through debt financing, and has acquired fourteen firms over the past seven years. TerraVest's target acquisition markets include not only their core markets, but also firms in adjacent markets such as green energy containment and transportation, chemical tanks, septic tanks, air filtration and purification, and other metal fabricating applications. The company has identified core business areas in wellhead processing equipment and services, fuel containment, and HVAC equipment, and has divested non-core businesses. TerraVest has a market share leading position in the residential and light commercial oil storage tank and dispenser market, and also provides bulk LPG transport trailers, LPG delivery trucks, and furnaces and boilers. The company competes in a fragmented market primarily against private businesses and divisions of larger companies. TerraVest's valuation is expected to be driven by its growth rate, and the company's current valuation implies an earnings/FCF increase of 0.5% in perpetuity using the Graham formula. The primary risks include slower-than-expected acquisition growth, lower-than-expected growth in end markets, and lack of new investment opportunities, while the primary catalysts include higher-than-expected acquisition growth and faster growth in end markets.
Micron Technology Deserves A Seat At The Table
Ticker: $MU | Current Price: $65 | Price Target: $117 (+80%)
⚡️ Semiconductor | 🤖 AI | ✏️ Blog Post | 📈 Long Idea
Micron Technology has been affected by the semiconductor industry's cyclical tailspin, but the rising tide of artificial intelligence could lift Micron's stock. The author believes Micron stock is worth buying and holding for at least 2 years. Micron derives 72% of its revenues from DRAM and 25% from NAND, and operates in 4 end user segments. All four segments took a severe beating in the first half of FY2023, and total revenues are expected to crater by 49% in FY2023. The embedded business unit is the only segment expected to decline less severely, and management expects growth to continue with increasing memory content in autos. The semiconductor industry has potential for growth in the future, with strong growth drivers in sectors like automotive, data storage, and wireless connectivity industries. Micron's revenues are not expected to reach $30Bn again until FY2025. Micron is the largest U.S. supplier of memory chips worldwide and will benefit the most from a shift in supply chain geographies. Micron is the largest and in some cases the only supplier of Nvidia Corporation's products, and its GDDR6X is essential for many AI or high-speed applications. Micron's biggest threat is geopolitics, specifically the tension between the US and China regarding semiconductors. The author recommends buying Micron stock between $60 and $66 and plans to hold Micron for two to three years to the likely peak in 2025-2026, hoping to get a total return of 80 to 100%.
Telephone and Data Systems: Drilldown On Deep Value And Risk
Ticker: $TDS | Current Price: $7.28 | Price Target: $9.80 (+35%)
📞 Telecommunications | 🏷️ Undervalued | ✏️ Blog Post | 📈 Long Idea
Telephone and Data Systems, Inc. (TDS) has been posting risky figures lately, including unprofitability, rising debt, and unsustainable dividends. However, TDS has a history of consistent revenue growth and a large asset base, which may present a potential opportunity for deep value seekers. TDS is not currently profitable, and the 10% yielding dividends are eating into what little free cash flow the firm is generating. Short-term liabilities outweigh short-term assets significantly, and inventory is piling up. Short-term borrowings are growing rapidly and outsizing the current portion of long-term debt liabilities, which is a potential red flag for unsustainable financial management. TDS still has significant cushioning in net-tangible assets on a per-share basis, but these numbers are not adjusted for \"fire sale\" values. TDS is attractively priced compared to sector valuation averages, but the obligation structure is moving in a negative direction. A return to profitability would offer investors outsized returns, but rising debt costs, inflation, and a potential US recession may hinder the firm's plan to return to profitability. The firm's plan may rely too heavily on positive economic assumptions and not enough on internal changes. TDS is a risky investment, but may be suitable for those with an appetite for upside risk.
PENN Entertainment: A Deep Value Jackpot
Ticker: $PENN | Current Price: $23 | Price Target: $68.90 (+200%)
🎰 Sports Gambling | 🎥 Entertainment/Media | ✏️ Blog Post | 📈 Long Idea
PENN Entertainment is undervalued by 55-66% and has significant potential for future profitability. The company is one of the largest players in the commercial gaming industry in the U.S. and has a differentiated portfolio of traditional and online gambling, betting, and leisure products. Recent acquisitions have increased PENN's presence in the online betting marketplace, and the company has launched a loyalty program to increase member satisfaction levels and create switching costs for consumers. PENN's wide approach allows them to target multiple different gaming categories and create organic cross-selling across these various businesses. The company's sports betting, iCasino, and media businesses are significant future moatiness and revenue drivers. PENN's Q1 of FY23 has been hugely positive, with actual revenue beating analyst expectations and net income margins increasing. The company currently trades at a discount relative to its worth, and The Value Corner's Intrinsic Valuation Calculation suggests that PENN is undervalued. However, PENN faces risks from both the cyclical market environment and ESG-related threats in the gaming industry. The author rates PENN as a \"Strong Buy\" due to the significant undervaluation of shares and the potential for greater profitability in the future.