Investing Ideas Newsletter

Short: MPW, PSEC, EWCZ, AAPL, PFE, ABR Long: DKNG, HII, XYL, GTBIF, WYNN, GIL, TJX, EDU, FWRG, BYON, SMCI, DIDIY, CP, PM, RTO, CELH, CAVA, AHR, ADYEY, TTD

This week we added Celsius Holdings (CELH), CAVA Group, (CAVA), American Healthcare REIT (AHR), Adyen N.V. (ADYEY), and Trade Desk (TTD) to the Long side of Investing Ideas.

Below are updates on our 26 current high-conviction Long and Short ideas. We will send a separate email with Hedgeye CEO Keith McCullough's refreshed levels for each ticker.

DKNG

THESIS SUMMARY: Investors should be bullish on DraftKings (DKNG) due to its impressive growth metrics, market dominance in online gaming and sports betting, and a clear pathway for future expansion and profitability in a rapidly evolving industry. Read full DKNG stock report, "DraftKings (DKNG): A Standout Investment in the Booming Online Gaming Market."

WEEKEND UPDATE: DraftKings (DKNG) -  The Louisiana Gaming Control Board (LGCB) has decided to suspend college player prop bets starting August 1, 2024, aligning with NCAA's concerns over game integrity and athlete welfare. This move follows similar actions by states like Maryland, Ohio, and Vermont, with North Carolina and Michigan considering bans. Despite the NCAA's call for a nationwide ban impacting sentiments, college prop bets constitute a minor part of total online sports betting (OSB) gross gaming revenue (GGR), with less than 6% coming from all types of college betting. Hence, this shift is seen as having minimal impact on the broader sports betting industry's fundamentals

HII

THESIS SUMMARY: We recommend investors be bullish on Huntington Ingalls Industries (HII) due to the looming government investment in an update of the country's Naval fleet.

WEEKEND UPDATE: Huntington Ingalls Industries (HII) - The company boasts one of only two shipyards in the country that are capable of building nuclear-powered submarines. While competitor General Dynamics (GD) can only build subs, HII builds both subs and nuclear powered aircraft carriers. The Navy is working on clearing the budget to start work on next-generation attack submarines built by the two companies. The final design of the ships has not been confirmed, but the plan has been brought to Congress to begin design and assembly within the next several years.

 

XYL

THESIS SUMMARY: Xylem Inc. (XYL) is poised for growth as a leader in global water infrastructure, benefiting from increased awareness, legislative support, and strategic positioning in sustainable water management amidst rising demand for water treatment and infrastructure upgrade. Read full stock report, "The Rising Tide of Water Tech: How Xylem Inc. (XYL) is Pioneering the Future."

WEEKEND UPDATE: Xylem (XYL) - The U.S. Environmental Protection Agency (EPA) has issued a fourth Toxic Substances Control Act (TSCA) which requires testing on per- and polyfluoroalkyl substances (PFAS). Xylem's water infrastructure will come into greater demand as more emphasis is put into removing these particles from the water, as the current deteriorating water infrastructure is not keeping up with modern health standards for purification of the nation's water supply. XYL remains a Long.

GTBIF

THESIS SUMMARY: We recommend being bullish on Green Thumb Industries (GTBIF) due to its strong financial results, strategic expansions, and favorable regulatory trends. Read full stock report, "Green Thumb Industries (GTBIF): A Stock That is Going to Get High."

WEEKEND UPDATE: Green Thumb Industries (GTBIF) - Senate Majority Leader Chuck Schumer this week reiterated his intent to pass legislation to “safeguard cannabis banking” as part of a “busy agenda” that he hopes to achieve in the “weeks and months ahead,” though he again stressed the need for bipartisan cooperation.

RTO

THESIS SUMMARY: We recommend being bullish on Rentokil Initial (RTO) due to its growth prospects and strong financials.

WEEKEND UPDATE: Rentokil Initial (RTO) - This week, it was announced that the company has acquired HiCare Services Private Limited, India's second-largest pest control service. With a nationwide presence across 30 branches, HiCare boasts over 1,000 employees who provide a range of pest control services, including commercial, residential, and termite treatments. Rentokil Initial, with over 15 years of operations in India, enhances its footprint through this acquisition.

WYNN

THESIS SUMMARY: Wynn Resorts (WYNN) is poised for significant growth in both the Asian and Las Vegas markets, underpinned by its strong performance in Macau, strategic growth initiatives, and resilience in the face of industry challenges, making it a standout investment for exposure to recovery and expansion in key gaming markets. Read full stock report, "Wynn Resorts (WYNN): Top Shelf Operator."

WEEKEND UPDATE: Wynn Resorts (WYNN) - Recently, architectural renderings for a project named Hudson Yards West in New York City were revealed. If Wynn obtains a casino license from the New York Gaming Facility Location Board, it plans to occupy one of the large skyscrapers planned for the site. However, the proposal has faced some resistance, leading to skepticism about its approval.

GIL

THESIS SUMMARY: We are bullish Gildan Activewear (GIL) due to its emergence as the world's lowest cost producer of basic apparel, its dominance in the screenprint market, and promising growth prospects fueled by strategic facility expansions and robust financial performance, positioning it for significant medium to long-term shareholder value creation. Read full stock report, "Gildan Activewear (GIL): Low-Cost Leader."

WEEKEND UPDATE: Gildan Activewear (GIL) - The Globe and Mail reported yesterday that the GIL board is seeking acquisition offers by April 10^th. This comes roughly two weeks after the news broke that the company has received its first unsolicited (nonbinding) offers/interest from an unknown bidder. In the report, Globe and Mail notes that “analysts” have identified at least three potential takeover candidates that are “circling Gildan” in Bain Capital, Sycamore Partners, and Clayton Dubilier & Rice. A deal makes sense given public markets are undervaluing the cash flow generation opportunity of this company due to past strategic failures from management.  We think a deal could go as high as $50, and without a deal we think the stock is headed higher than that over 1-2 years on the TAIL fundamental growth. 

TJX

THESIS SUMMARY: TJX Companies (TJX) is poised for potential outperformance, driven by its resilience, strategic adaptability, and a favorable buying environment for off-price retail, supported by a commitment to reaching pre-tax margins of 10.6% within three years and a landscape that underpins significant growth prospects. Read full stock report, "TJX Companies (TJX): Capitalizing on Value-Conscious Shoppers."

WEEKEND UPDATE: TJX Companies (TJX) - Gas prices have been on the rise lately. The increase on average equates to almost $7 more per tank for a 15-gallon car since the start of the year. For the middle- and low-income consumer filling up their tanks twice a week, increased prices limit their discretionary spending capacity. These consumers will be on the hunt for a good deal, needing to stretch their dollars further, which sends them to the TJX store banners. Pressure on the consumer wallet equals share opportunity for TJX. We think the company is going to beat the quarter and raise guidance on improved trends in the quarter. The stock currently trades at a 23x PE, which we argue should be closer to 25x, but we see close to 50% upside from here.

EDU

THESIS SUMMARY: Amid a bullish shift on Chinese stocks, New Oriental Education (EDU) stands out as a resilient and high-growth investment opportunity, benefiting from accelerating Chinese exports, strategic adaptability to regulatory changes, and a favorable economic backdrop. Read full stock report, "New Oriental Education (EDU): Passing the Test with Flying Colors."

WEEKEND UPDATE: New Oriental Education (EDU) - As the significance of test scores in China continues to grow along with emphasis on securing access to prestigious universities and promising career opportunities post-graduation. Private education sectors continue to reap benefits of the increased importance. Recently, the government has been promoting vocational education to meet the global demand for skilled labor. Private education institutions have quickly adapted to this initiative, capitalizing on the heightened demand. We await the company's earnings on April 24th.

BYON

THESIS SUMMARY: The company is undergoing a transformative growth phase through strategic initiatives like omnichannel expansion, influencer marketing, and the acquisition of Zulily, positioning it as a significantly undervalued player in the online home retail sector with a promising financial outlook. Read full stock report, "Beyond Inc. (BYON): This Stock Should be a 3-Bagger"

WEEKEND UPDATE: Beyond Inc. (BYON) - The company traded down this week on with an Old Wall upgrade of W, perhaps fueling a pair of a Long W / Short BYON trade, as well as a negative estimate revision from a sell side analyst (who simply modeled estimates too high originally).  We’re taking the other side of the trade as we think BYON’s new strategic direction and investments in marketing its platform will gain share and apply pressure to the competitive set while Wayfair has to try deliver both growth and margin performance in the face of that rising competitive intensity. Over a 5yr duration we think this could be close to $100 stock.

FWRG

THESIS SUMMARY: The company stands out as an attractive investment in the small-cap restaurant sector, boasting a strong performance track record, strategic growth initiatives, and an optimistic future outlook driven by its commitment to fresh, quality dining and ambitious expansion plans. Read full stock report, "Sunny Side Up: The Bright Future of First Watch Restaurant Group (FWRG)"

WEEKEND UPDATE: First Watch Restaurant Group (FWRG) - The company announced that it will be opening a new location in Monmouth, New Jersey but did not provide an exact opening date. First Watch continues their nationwide expansion, and we remain Long.

SMCI

THESIS SUMMARY: The company is positioned for significant growth in the AI-driven server industry, leveraging strategic partnerships, technological innovations, and a unique market stance to potentially exceed $25-30 billion in annual revenues, benefiting from the high demand for advanced computing infrastructure amidst the AI and high-performance computing boom. Read full DKNG stock report, "Super Micro Computer Inc. (SMCI): Profit from The AI Boom"

WEEKEND UPDATE: Super Micro Computer Inc. (SMCI) - The company's CEO Charles Liang catapulted onto the Forbes list of the world's billionaires due to SMCI share price growing twelvefold in a short period of time. The company's market cap has vaulted from $6 billion to $60 billion in about a year. We believe there is still room for growth here.

DIDIY

THESIS SUMMARY: The company is poised for substantial growth in the global mobility and ride-hailing market, leveraging its dominant position in China, strategic expansion into international markets, advancements in autonomous driving, and overcoming regulatory challenges, making it an attractive investment with a bullish outlook. Read full DKNG stock report, "DiDi Global (DIDIY): Chinese Uber Set to Explode"

WEEKEND UPDATE: DiDi Global (DIDIY) - The company's market share of ride-hailing order volume in China for February 2024 rose to its highest level since February 2022 with an estimated year-over-year growth of 34% in Q1 2024 transactions. Despite mixed Q4 2023 results, including a revenue beat and an EBITA miss, a $2.1bn investment revenue from selling its smart auto business to XPEV contributed to Didi's highest quarterly profit in history. The company trades at an attractive valuation compared to Uber, showcasing faster growth. Q4 highlights include a gross transaction value (GTV) beat, improved take rates, record transaction volumes in China, and sequential improvements in international price per transaction and gross margins, despite a year-over-year decline. We remain Long DIDIY.

CP

THESIS SUMMARY: The company is a standout performer in the North American rail industry, with its unique network reach, operational excellence, and strategic capacity investments positioning it for strong revenue growth, margin improvement, and superior returns amid shifting trade routes and nearshoring trends.

WEEKEND UPDATE: Canadian Pacific Railway (CP) - The company, following its strategic merger with Kansas City Southern (KSU), now branded as CPKC, is a standout in the North American rail industry. CPKC's network is positioned to capture NAFTA volumes, growing as concerns over China's manufacturing dominance curtail activity. This merger not only solidifies CP's growth prospects but also its lightly regulated oligopoly status within the industry. With exceptional investment opportunities ahead, CP is poised to outperform the broader rail sector, offering a compelling case amid global supply chain adjustments. We are Long CP.

PM

THESIS SUMMARY: The company is shifting towards smoke-free nicotine delivery products like Zyn and IQOS, capitalizing on consumer demand for reduced-risk alternatives and positioning for robust revenue growth and a potential 25% CAGR in shareholder returns as it moves away from traditional cigarettes amid secular decline and navigates regulatory challenges. Read full DKNG stock report, "Philip Morris International (PM): Smoking the Competition in Alternative Nicotine"

WEEKEND UPDATE: Philip Morris (PM) - The company is set to launch its flagship heated tobacco device, IQOS, in Texas as a US entry point for the product. This is the top selling heated tobacco device globally and is at the core of PM's strategy to shift focus away from traditional tobacco consumption into new re-imagined, and possibly healthier methods. We remain Long PM.

CELH

THESIS SUMMARY: Celsius Holdings is pioneering the "better-for-you" energy drink sector, leveraging its strategic partnership with PepsiCo and aggressive global expansion plans to fuel growth and market penetration. Read full CELH stock report, "Celsius Holdings (CELH): A Thirst for Growth in the "Better-For-You" Energy Drink Sector"

WEEKEND UPDATE: Celsius Holdings (CELH) - The company announced plans to expand its sales and distribution to France beginning in 4Q of this year. This ties directly into our growth thesis relying on international expansion. We remain bullish on Celsius.

CAVA

WEEKEND UPDATE: CAVA Group (CAVA) - In a genius marketing plea, Cava has launched a nationwide contest for customers to submit their favorite bowls using TikTok in order to spread organic brand awareness. This not only will bring on new customers, it will likely entice existing customers to visit Cava more frequently in search of their favorite bowl.

AHR

WEEKEND UPDATE: American Healthcare REIT (AHR) - This company is a unique REIT IPO with a market cap of approximately $1.7 billion, emerges from the Griffin "coaching tree" as a multi-asset class healthcare real estate platform. The company boasts a SHOP/Integrated Seniors Housing Campus (ISHC) portfolio with significant operational upside potential, indicating possible Return on Capital (RoC) acceleration. With a NAV at about $18-19, AHR is currently trading at $13-14 / share, signifying strong potential upside at over 20%.

ADYEY

WEEKEND UPDATE: Adyen N.V. (ADYEY) - The company announced a partnership with PayMe by HSBC, a prominent mobile payment service in Hong Kong. This collaboration enables Adyen's merchants to offer PayMe as a payment option for online purchases to their customers in Hong Kong. PayMe by HSBC, a locally developed payment application, is widely accepted at over 65,000 physical and online stores throughout Hong Kong. It serves a diverse range of businesses, from startups and local SMEs to some of the largest daily necessity retailers in the city. The app boasts a rapidly expanding user base of over three million.

TTD

Trade Desk (TTD) was added to Investing Ideas this week. 

Below is a Real-Time Alert from CEO Keith McCullough:

Here's another NEW analyst Long Idea that I've been waiting on, patiently... Coaching Notes: 1. With a certain type of hedge fund in short-term-panic mode again into another Macro Tourist event day (Jobs Report tomorrow) and dealer SPX Gamma flipping back to negative... 2. We get what we want = Buying Opportunities  3. Freedman has this as 1 of his 2 "cars" (stocks) in our new Top Stock Picks product, KM

 MPW

THESIS SUMMARY: The company is not a traditional triple-net REIT, rather an investor in hospital systems ("WholeCos" using the company's own words). In the process MPW removes the arbitrage from a traditional PorpCo-OpCo arbitrage. These investments are structured as loans + equity investments to the operator tenants, which are in many cases distressed and owe significant rent payments back to MPW as landlord. The arrangement is circular and depends on MPW's ability to raise attractively-priced external capital. The equity is very possibly completely worthless, as we think the assets are worth no more than ~$7 billion (updated) to true "arm's length" third-party buyers vs. pro forma net debt of ~$10.5 billion at share.

WEEKEND UPDATE: Medical Properties Trust (MPW) - This week Senator Warren called a meeting to discuss the impact of private equity on hospitals. Of course, Steward CEO Ralph de la Torre did not show up to the hearing, and was roasted by the government officials present. The issue has gone beyond financial wrongdoings, and is not impacting the lives of patients. The company is responsible for real human suffering in their under-funded hospitals, and this national tragedy is now gaining the recognition it deserves in order to extract the truth.

Watch the full clip from The Call @ Hedgeye HERE.

PSEC

THESIS SUMMARY: We are short Prospect Capital (PSEC) due to its unsustainable economic model, reliance on external capital through risky non-traded preferred stock issuances, and a significant overvaluation of its equity, exacerbated by its problematic investment in NP REIT, hinting at potential dividend cuts and a stark decline in value. Read full stock report, "Prospect Capital (PSEC): Breaking Down This "House of Cards."

WEEKEND UPDATE: Prospect Capital (PSEC) - The company disclosed that is has accelerated issuance of InterNote "baby bonds" which has generated about $54.7 million during the first fiscal quarter. This is the largest issuance amount since 1Q22. Meanwhile, non-traded preferred issuance has been declining consistently over the last four quarters. We continue to believe that PSEC is actually selling these non-traded securities to cover the dividends due to cash flow shortfalls.

EWCZ

THESIS SUMMARY: We are Short European Wax Center (EWCZ) due to future negative comparable store sales (comps), an uncertain pricing strategy, high franchise costs, and an increasingly leveraged financial structure. Read full stock report, "European Wax Center (EWCZ): A Profitable Opportunity From a "Failed IPO."

WEEKEND UPDATE: European Wax Center (EWCZ) - The EWCZ credit card data over the last few weeks has shown some improvement, but still negative. Although this isn’t necessarily a pure-play beauty products name, we did hear from Ulta this week that it’s seeing some weakness in spending, so beauty consumers are pulling back. We think both comps and revenue will continue to decelerate as the consumer is under pressure coupled with slowing unit growth. Knowing what we know today, we aren’t buyers of this stock until it is closer to $5.

AAPL

THESIS SUMMARY: Despite Apple's (AAPL) status as a global leader in market capitalization and innovation, the company is poised for potential underperformance due to economic uncertainties and a recession risk that render its high valuation increasingly unsustainable, suggesting a likely decline in its share price. Read full stock report, "Apple (AAPL): Why You Should Short This Tech Giant."

WEEKEND UPDATE: Apple Inc. (AAPL) - California state agency data reveals that Apple has laid off over 600 employees, marking the company's first significant job cuts since the pandemic. It's worth noting that the actual extent of these layoffs might be broader, given that Apple is only mandated to report job reductions occurring within California. 

PFE

THESIS SUMMARY: Pfizer (PFE), once hailed for its pivotal role in COVID-19 vaccine and treatment development, now confronts a bearish future due to concerns over vaccine efficacy, regulatory challenges, changing market dynamics, and financial impacts, potentially leading to a significant decline. Read full stock report, "Pfizer (PFE): Bad for America and Your Portfolio."

WEEKEND UPDATE: Pfizer (PFE) - The US Federal Trade Commission (FTC) has issued warning letters to numerous companies, including major names like Pfizer, Baxter International, and Thermo Fisher Scientific. These warnings indicate that their acquisitions might still face legal challenges even after passing the FTC’s deadline for antitrust review. The FTC has yet to take action to unwind any mergers following these warnings.

ABR

THESIS SUMMARY: Arbor Realty Trust (ABR) faces potential downside risk due to its aggressive balance sheet expansion, structural vulnerabilities in its loan portfolio with high LTV ratios and aggressive origination practices, and a reliance on short-term debt refinancing amidst adverse market conditions, which may lead to significant refinancing needs, potential loan impairments, and exacerbated book value erosion.

WEEKEND UPDATE: Arbor Realty Trust (ABR) - We see downside to ~$10/share at least. Another possible "donut," so short it. The underlying loan collateral and average borrower/sponsor is on the extreme low-end of the quality spectrum. This is the second most compelling short in our view, but we think should be a small position.