🤖📈 Top Trade Ideas for June 27
Including an undervalued bank with a hefty dividend, a short of Coinbase, and more
👋 Hello!
Our AI read and summarized 181 articles today from all over the internet to find the best trade ideas to help you make more money in the stock market.
What you’ll find in this email:
🏦 An undervalued bank with a hefty dividend
🐻 The bearish v bullish case for Shell
📱 [Premium] Investment manager goes short on Coinbase
🤖📈🚗📱 Much more…
Amazon: Weighing The Long-Term Generative AI Opportunity Against Near-Term Headwinds (link)
Ticker: $AMZN | Current Price: $128.54 | Price Target: $169 (+32%)
🤖 AI | ☁️ Cloud | 📈 Long Idea
The article discusses the potential for Amazon's AWS to benefit from the rise of generative AI solutions and LLM solutions. Despite being slightly behind Azure and GCP, AWS is able to compete meaningfully due to its large market share, high switching cost, commoditization of LLMs, and AI chip advantage. The author predicts that AWS will see acceleration in the second half of 2023, particularly in the fourth quarter when its generative AI products and solutions like Bedrock will be rolled out generally. Near-term concerns around AWS continue to be about cloud spend optimization, but the author believes this is temporary and industry-wide. The retail segment is holding up well despite macroeconomic headwinds and driving near-term operating margin upside for the overall business until AWS demand stabilizes. The author is bullish on Amazon's retail segment and expects significant margin expansion from North America Retail going forward as efficiency has improved. The author's 1-year price target for Amazon is $169, meaning that there is a 35% upside potential
Shell: Don't Fear Declining Oil Prices (link)
Ticker: $SHEL | Current Price: $60.14 | Price Target: $144 (+140%)
🛢️ Oil/Gas | ⚡️ Energy | 📈 Long Idea
The author of the text disagrees with bearish theses on Shell and believes that the company has ample oil reserves, a promising renewables business, and favorable economics that have led to total returns of 11% per annum since 1984. Shell is moving away from being a cyclical commodity company and is involved in LNG, oil & gas, chemicals, biofuels, EV charging, retail stores, carbon capture, green hydrogen, and electric utilities. The author believes that Shell's normalized earnings power is around $21 billion, and the company deserves a higher multiple. Shell is a global leader in electric vehicle charging and has a competitive advantage with its world-leading network of gas stations. Increasing sums of money are flowing into Shell's renewables segment, and the company plans to spend $10-15 billion on low-carbon energy solutions between now and 2025. Shell plans to increase the Q2 dividend by 15%, buy back $5 billion of stock by year-end, and distribute 30-40% of operating cash flow year-in and year-out, making it a shareholder-friendly company. The author projects total returns of 13% per annum for Shell in the decade ahead, with a year 10 price target of $144. The author maintains a "Strong Buy" rating on Shell.
M&T Bank: 4.5% Yield, Solid Deposit Franchise, 18% Discount To BV (link)
Ticker: $MTB | Current Price: $118 | Price Target: N/A
🏦 Banking | 💰 Dividend | 🏷️ Undervalued | 📈 Long Idea
M&T Bank is a well-run regional financial institution with an expansive branch footprint in the Mid-Atlantic and Northeastern regions. The bank has suffered from increased risk-aversion in the regional banking market in the first-quarter, which creates an opportunity for investors. M&T Bank is a promising rebound candidate in the regional banking market, largely because the bank has not seen atypical deposit outflows in the first-quarter, has very limited exposure to office real estate, and the bank’s large discount to book value implies downside protection. M&T Bank declared a stable dividend for the second-quarter in May which means investors are getting paid a 4.5% yield. The bank has suffered a 22-39% decline in market cap year-to-date and is trading at a price-to-book ratio of 0.82X, which is the second-lowest in the industry group. M&T Bank is an attractive investment for investors looking for a decent dividend yield with appreciation potential if regional banking market conditions improve.
Weekend Thoughts: Coinbase $COIN is a Short (link)
Ticker: $COIN | Current Price: $63.27 | Price Target: N/A
🪙 Crypto |🚨 Event Driven | ✉️ Investor Letter | 📉 Short Idea
The author questions Coinbase's market cap of around $12.5 billion, given the company is facing significant headwinds and a serious SEC lawsuit that could put them out of business. Coinbase's defense is focused on getting clarity for the industry and arguing that the SEC was not fair to them. The author is skeptical of crypto and believes banning it could be financially beneficial, but also believes people should be free to do what they want with their money. Coinbase's Q1'23 adjusted EBITDA was $283m, but this figure is heavily adjusted and includes charges such as crypto impairments, stock compensation, and restructuring charges. Roughly a third of Coinbase's revenue comes from interest income, which is effectively free money for them. However, if other brokers start offering interest on deposits, Coinbase may lose this revenue stream. The SEC case against Coinbase is a bearish factor, while the potential for Congress to bail them out by changing laws is a bullish factor. However, in a world where crypto is legal and competition is high, Coinbase may be overvalued and subscale.
Bath & Body Works, Inc.: Product Innovation Helps Demand for Lineup to Remain Robust (link)
Ticker: $BBWI | Current Price: $36.43 | Price Target: $78 (+114%)
🛍️ Consumer Retail |💄 Cosmetics | 📝 Research Report | 📈 Long Idea
Bath & Body Works (BBW) has a strong competitive edge in the bath and shower and candle air freshener industries, with a strong brand intangible asset and a leadership position. The company has a robust pipeline of opportunities to reach new consumers and stimulate higher sales conversion, including expansion into new categories like shaving and facial care, and expanding penetration in categories like haircare and men's care. The $71 billion bath, body, and beauty industry, $11 billion home fragrance market, and $5 billion soap and sanitizer market still offer upside over the long term. BBW is set to remodel numerous locations to improve productivity, and is rolling out a new customer loyalty app nationally. Growth opportunities exist in white-space categories including the clean, natural organic space, skincare, haircare, and men's products. BBW's sales should be able to modestly outpace market growth ahead, supporting continued brand equity, and the company is set to generate ROICs excluding goodwill that average 56%, well above numerous other consumer companies. BBW's ability to raise prices strategically and maximize cost savings brought a 13% operating margin, in line with 2019's comparable period, and the company lifted its full-year adjusted EPS outlook to $2.68-$3.08. BBW is seeking to achieve $10 billion in sales by 2029 through new store formats, updated loyalty programs, and new categories like skincare and haircare. However, BBW faces risks from consumer preference for natural products over mass-produced ones, and activist noise could distract from operational efforts at the organization.
Progress Software: An Outlier In The Infrastructure Software Industry (link)
Ticker: $PRGS | Current Price: $54.24 | Price Target: $88.72 (+64%)
💻 Enterprise SaaS | 🏷️ Undervalued | ✏️ Blog Post | 📈 Long Idea
Progress Software Corporation is a promising investment opportunity due to its profitable business model, strategic M&A activity, established portfolio of sticky infrastructure software products, and attractive current valuation multiples. The company has an extensive user base, with its software products being utilized by over 3.5 million developers and 100,000 enterprise customers. A significant characteristic of Progress Software's business model is its emphasis on recurring revenue, which primarily comes from maintenance contracts and the adoption of subscription-based models. Inorganic growth is integral to Progress Software's business model through an active M&A strategy. The company has demonstrated solid growth and profitability, with revenue growing by 14% YoY in Q1 2023 and a CAGR of 14.4% since 2018. Progress Software is undervalued compared to its peers, with a forward EBITDA multiple of 13.93x compared to the peer group median of 49.31x. However, the company primarily relies on inorganic growth through acquisitions, which necessitates stringent financial discipline and operational acumen to realize cost synergies. The company is significantly dependent on OpenEdge products, which account for 42% of revenues in 2022. Increased competition or competitors offering products at more competitive prices could impact customer retention.
Megatrend-Oriented Growth Supports Ryder System (link)
Ticker: $R | Current Price: $83 | Price Target: $104 (+25%)
🚛 Trucking | 🏗️ Industrials | 🏷️ Undervalued | 💰 Dividend | ✏️ Blog Post | 📈 Long Idea
Ryder System is a transportation and logistics company that offers fleet management, supply chain management, transportation management, leasing, and commercial fulfillment services. The company has updated its micro strategy to favor outsourcing processes, ensure effective pricing strategy, and sustain a strong and continuously deleveraging balance sheet in response to the current macro environment and its present financial situation. Ryder maintains a threefold strategic model focused on de-risking on operational and financial fronts, perpetual improvements to shareholder return capabilities, and positioning for long-term growth through opportunistic M&A, constant reinvestment and growth across the integrated supply chain and dedicated transportation solutions. Despite high debt levels and potential competitive intensity, Ryder has experienced superior growth compared to the Supply Chain & Logistics Index ETF and the S&P500 in the TTM period. Ryder is most comparable to similarly sized trucking-oriented firms such as Schneider National, Werner Enterprises, ArcBest, and XPO. Ryder's value proposition is further buoyed by its quality 3.02% dividend, on the back of a relatively low payout ratio of 15.54%. According to a discounted cash flow valuation, Ryder is undervalued by 21% at its current price of $82.02, with a fair value of $104.28. Ryder has positioned itself for potential onshoring and nearshoring trends, with significant increases in cross-border revenues. The company sustains an advantage in border-related trade activity through pre-existing relationships and integrated North American activities. Ryder's revenue diversification strategy splits revenues between Supply Chain Solutions, Dedicated Transportation Solutions, and Fleet Management, with significant end-market diversity. Analysts largely project a positive outlook for Ryder, with an average 1Y price increase of 20.35%. Risks and challenges include potential demand compression from recessionary pressures and supply chain difficulty and onshoring concerns. Ryder seeks to leverage broad-based trends across logistics and trade, employing a nearshoring-centric, integrated offering for maximal shareholder returns.
Topgolf Callaway: Management Is Betting Big For A Reason (link)
Ticker: $MODG | Current Price: $19.36 | Price Target: $32.33 (+67%)
⛳️ Golf | ⬆️ Growth | ✏️ Blog Post | 📈 Long Idea
Topgolf Callaway Brands Corp. is taking on more debt to build out Topgolf facilities, which is not typical during a high-interest period where monetary policy may push the economy into recession. The market is wary of this heavy investment, and a bad recession could crush both growth and Topgolf facility returns, leaving the company highly leveraged in a period where consumers are pulling back spending on leisure. However, Topgolf management is confident in the high returns on facility investments and modern golf demand trends. The target estimate for cash-on-cash returns is the most important metric, recently updated from 40-50% to 50-60%. If the 50-60% target is met, these facilities will be considered great investments and create shareholder value. Building Topgolf-type facilities is a long process with high costs and difficulty, creating a barrier to entry for competitors. Topgolf benefits from experience working with city officials to gain approval for construction, making the process efficient. Topgolf's willingness to put up cash and take on debt shows confidence in their target returns, discouraging new entrants and leading to higher costs of capital. Topgolf's push for investment despite economic uncertainty is similar to Amazon's infrastructure competitive advantage. The growth of off-course golf may see more of a reaction than on-course golf in the case of a mild recession, and a severe recession could be catastrophic for the business due to leverage. If long term guidance for Topgolf facility unit economics and total adjusted EBITDA are met, returns should be quite high.