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Our “Undercovered” Dozen series highlights stocks that are underrepresented on our platform to provide new sources of ideation.
This time we will look at ideas that were released between July 19th and 25th.
Let’s take a look at what these under-covered ideas mean to you, then join the conversation below and share your thoughts: Are any of these ideas worth following up on?
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“Long as a single thread” may be the answer to a question that can’t be answered concretely. The question of how much Hawaiian Electric Industries (HE) must pay in compensation to victims of the Maui wildfires that occurred in early August 2023 is a bit like that. Figures as high as $5.5 billion to $6 billion have been floating around. The recent announcement of a proposed settlement that would significantly reduce Hawaiian Electric’s liability has sent the company’s stock soaring.
The thread gauge of what Hawaiian Electric is likely to pay is now a little clearer. The question on everyone’s mind is, does the increase in the stock price represent a fair price based on this latest information? While I’m not prepared to predict what the stock price will do going forward, I would like to offer some commentary and predictions about what may happen going forward and how it may affect Hawaiian Electric’s stock price.
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July 19 was a really great day for shareholders of Serve Robotics Inc. (SERV). The robotics company’s shares closed up 187.1% after news of an investment by semiconductor giant NVIDIA (NVDA) broke. At first glance, this kind of move might seem like an indication that there’s something very valuable about Serve Robotics that could justify a significant upside. And it’s true that the company is making quite a bit of progress toward its goal of deploying food delivery robots. But considering where the company’s stock price is after this step-up, and how much further progress the company needs to make to justify its valuation, this seems more like a selling opportunity than a buying opportunity for the company’s shareholders.
Serve Robotics’ food delivery robots have great potential, but their financials show significant losses and cash flow issues, plus the possibility of significant shareholder dilution just by entering the market, so there may be better opportunities out there.
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Falling underlying commodity prices have hurt many lithium companies, providing investors in Lithium Americas (Argentina) Corp. (LAAC) with the opportunity to acquire two world-class assets at a deep discount. As market sentiment worsened, investment in lithium projects halted, leaving the industry slowly slipping into supply shortages and pushing for prices to recover.
Even in this “weak” lithium market, LAAC is well positioned to generate significant returns as it sits at the low end of the production cost curve. With key partner Ganfeng (OTCPK:GNENY) and production ramps already underway, LAAC has already significantly de-risked itself and is on its way to becoming a major lithium producer. Unless lithium prices recover, LAAC stock has room to rise >100% in the near term, and 700% if lithium prices reach $35,000 per ton.
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Summit Midstream Partners LP (SMLP) has had a busy few months. Following the sale of its Marcellus Basin assets, the company has completely restructured its debt, thereby reducing interest expense and increasing future cash flows. With reduced debt and extended maturities, and increased cash flows, the company believes it will be able to pay outstanding preferred dividends and then resume common dividends. Also, yesterday (Thursday, July 18th), the company’s shareholders voted to convert from an MLP to a c-corp, which will expand its shareholder base. The dividends and a broader base from which to purchase shares, plus a cheap valuation, should lead to significant appreciation of the units (which will soon convert to shares).
With a new capital structure, low interest rates, and the potential for higher multiples as a C corporation, SMLP’s stock could double over the next 12 months.
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American Airlines (AAL) founded Sabre Corporation (SABR) in the 1960s to give travel agents access to airline price and availability data. Approximately 70% of Sabre’s revenue comes from its Global Distribution System (“GDS”), a software that sits between travel agents and airlines and allows travel agents to view flight inventory, prices and availability. GDS business has historically been strong as contracts are 3-5 years long and customers typically renew.
The GDS market is also oligopolistic, with Sabre, Amadeus, and Travelport controlling nearly the entire market. Sabre has the strongest presence in the United States, and Amadeus has the strongest presence in Europe. Travel buyers often choose the GDS with the most flights in their area, so each GDS has a competitive advantage in their own region.
That said, Sabre’s Global Distribution System business, which accounts for 70% of its revenue, is threatened by the introduction of new distribution capabilities. The airline industry has long hated GDS, and some airlines have tried to push Sabre out of the value chain. Sabre has adapted by offering NDC-enabled GDS bookings, but these are considered less profitable than regular GDS bookings.
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This week, the spin-off of the Russian business and some international operations from Yandex NV (YNDX) was completed, allowing Yandex to focus on developing its remaining businesses, primarily the cloud business of Nebius AI. Yandex NV also plans to change its name to Nebius Group. YNDX shareholders will vote on these and many other issues at the annual general meeting on August 15. The full list of voting questions can be found in this press release. Since trading of the company’s shares on NASDAQ is still suspended and it is unclear how quickly trading will resume, let’s take a look at how much the company’s remaining businesses are worth. Given the fact that there is not much public data on Yandex NV’s operations and that the businesses left by Yandex NV are very diverse, in my opinion the best solution for the company’s valuation is a sum of the parts valuation. Let’s take a closer look.
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Branicks Group AG (OTCPK:DDCCF) is one of Germany’s largest real estate asset managers, with assets under management reaching €13.1 billion in 2024, comprised of 351 properties split between industrial and commercial office, as well as an investment management business with €9.4 billion in assets under management.
The German real estate industry is experiencing its toughest market conditions in over a decade, with Brannix experiencing its worst performance among its peers as a result of declining asset valuations and rising debt levels. However, I believe there is value within the asset portfolio that can be realised through divestitures as part of a strategic debt reduction plan. Diversification into renewable energy assets poses further risks to this recovery story as the company seeks to reduce its exposure to office properties and capture some of the growth in renewable energy.
Branicks offers attractive valuation at 14% of net asset value, however, given the current risks there are better opportunities elsewhere in Germany’s listed real estate sector.
Five others worth mentioning
CommScope: Poor sales are not the answer Click to enlarge
CommScope Holding Company (COMM) is a troubled network infrastructure provider struggling with high debt and declining performance. These challenges have been ongoing for years, and a rising interest rate environment and a weak 2023 have nearly pushed the company into a debt spiral. The company has now sold a significant portion of its business to Amphenol, and its relative leverage ratios are only expected to increase, and the situation remains very uncertain.
Medium-sized financial investment: Too much uncertainty for long-term investment Click to enlarge
Last year, I took a Neutral view on MidCap Financial Investment Corporation (MFIC) due to the possibility of interest rate cuts and rising corporate default rates. Despite these concerns, MFIC slightly outperformed the overall BDC market, driven by the “risk-on” mode in the sector. After analyzing MFIC’s fundamentals, including the potential upside of the merger, I still don’t feel comfortable enough to take a long position here.
Southwest Airlines recovery faces difficulties Click to enlarge
Southwest Airlines (LUV) has faced challenges in recent years, including revised earnings guidance and Elliott Investment Management’s purchase of a large stake in the company. The company is transitioning to a new revenue management system that is impacting its earnings performance, and it is also dealing with delivery delays for Boeing’s MAX 7 aircraft. While Southwest has a strong track record and balance sheet, there is uncertainty around earnings growth.
Cannabis Reclassification and the Green Thumb Industry: A Powerful Combination Click to Enlarge
July 22 is the end of the public comment period on the cannabis rescheduling, which could take effect as soon as September 22. With the 2024 national elections and Democratic support for pro-cannabis legislation, the rescheduling could move forward quickly. Green Thumb Industries, Inc. (OTCQX:GTBIF) stands out as a top performer in the cannabis industry due to its consistently positive earnings, strong cash flow, and responsible financing strategy.
Agenus: More Than Just New Click to Enlarge
Agenus Inc. (AGEN) is a small biotechnology company focused on developing cancer drugs with a history of underperforming stock prices and financial difficulties. The company’s pipeline’s key assets are botencilimab and balstilimab, which have shown limited efficacy in preclinical and clinical trials. A recent FDA meeting and Phase 2 metastatic colorectal cancer trial data dampened enthusiasm for the accelerated approval application, causing AGEN’s stock price to plummet by 60%.
Data by YCharts
Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.