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Short: MPW, PSEC, EWCZ, AAPL, PFE, ABR Long: DKNG, XYL, GTBIF, WYNN, GIL, BYON, SMCI, DIDIY, CP, RTO, CELH, CAVA, AHR, ADYEY, TTD |
This week we removed Longs Huntington Ingalls Industries (HII), TJX Companies (TJX), New Oriental Education & Tech Grp (EDU), First Watch Restaurant Group (FWRG), and Philip Morris International (PM) from Investing Ideas.
Below are updates on our 21 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
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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 company announced a partnership recently with the New York Racing Association (NYRA) establishing DraftKings as an official betting partner of the Saratoga Race Course and the Belmont Stakes Racing Festival. DKNG will also be the presenting sponsor of the Travers.
XYL
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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) - New regulation released this week from the EPA has established legally enforceable limits for PFAs in drinking water. The EPA estimates that between 4,100 and 6,700 public water systems serving up to 105 million people will be required to take action to reduce PFAS above the regulatory standards. As a result, the new rules bring sweeping implications for water utilities that must reduce PFAS levels and meet new public disclosure requirements. An innovative new mobile treatment system from Xylem is enabling utilities to comply with these new standards.
GTBIF
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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) - This week, the head of the FDA said that there is "no reason" to "delay" making marijuana a Schedule III drug, downgrading it from Schedule I. This would be beneficial to the entire cannabis industry, as deregulation not only helps the access companies have by reducing hurdles, but it acts to reduce the stigma surrounding cannabis use.
RTO
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THESIS SUMMARY: We recommend being bullish on Rentokil Initial (RTO) due to its growth prospects and strong financials. |
WEEKEND UPDATE: Rentokil Initial (RTO) - Recently, the company 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
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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) - Manhattan Community Board 4 (MCB4) has questions about Related Cos.’ plans to develop the next phase of Hudson Yards on the West Side of Manhattan, including a proposed casino hotel that would be operated by Wynn Resorts. In a recent letter, the board said it’s “mystified” as to why the real estate developer’s $12 billion plan for Western Yards features office space and the casino proposal when a 2009 pact between the board, the city, and Related called for the property to be primarily residential with 5,762 housing units. The newest plan calls for three towers — two of which would be zoned commercial and one that would have just over 1,500 residential units. One of the towers would be three million square feet and bear the Wynn name.
GIL
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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 rumored Bangladesh minimum wage change has been announced, taking the min to ~$91 from ~$52 (current exchange rates). This will be another cost pressure for the apparel retail supply chain that applies GM pressure as the companies will likely have a problem passing along costs further into price. GIL recently opened a new facility in Bangladesh, creating speculation of margin risk. The company downplayed any headwind here on the conference call last fall. The minimum wage change poses low risk to GIL as the labor component is very low in the main manufacturing facilities, while sewing is where labor is more relevant and the company could look to move sewing capacity to most cost-effective regions. Plus, if the competitive set faces the same headwind, the price might just tick up some to offset. We’re buyers here as we build to $70+ in value over a TAIL duration.
BYON
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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) - Bloomberg reported earlier this week that sales at Beyond, measured by Bloomberg’s credit card panel, were down significantly in Q1. We would argue that this is wrong for a few reasons. First, we have heard directly from clients that there is only one credit card panel that works for BYON (and it is not Bloomberg). Second, earlier in February BYON guided to a slightly positive 1Q, which would mean there would have to be an extreme negative divergence in the data from that point forward, which we do not believe is likely. Third, when we checked Bloomberg’s second measure data, it appeared that it was only recording sales from Overstock.com, which was shut off until 3/28, and which also means that BB was not tracking sales from the Bed, Bath, & Beyond. Overall, there seems to be some significant issues with the Bloomberg report itself. We still have strong confidence in BYON moving forward.
SMCI
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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 announced this week that they are launching a new line of X14 servers with future support for the Intel Xeon 6 processor. This is a big step in the shared Intel platform, allowing for unified architecture and further expansion of their broad range of offerings. Click here to learn more about the servers.
DIDIY
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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) - According to the company, during Qingming Festival, ride-hailing orders surged 45% YoY (up 43% vs 2019 levels), despite hard comps (+60%); this is higher than we were expecting which means we're hiking our Didi China transactions growth estimate for Q2 2024 from 22% to 28%; we think the anticipation of a high growth figure helped Didi's shares on Friday (up 10%).
CP
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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 await the company's earnings report on April 24th.
CELH
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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) - Celsius announced plans to partner with Suntory for sales and distribution in France beginning in Q4 with a broader launch in 2025. The company has launched in Canada late in Q1. Celsius has also announced launches in the U.K. & Ireland, Australia & New Zealand for this year. France will be its first non-English speaking country. Celsius is looking to replicate its growth through the health and fitness channel internationally. That approach may is more measured, but the company has been announcing new countries at a fast pace.
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
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THESIS SUMMARY: AHR's promising first-quarter performance, conservative yet potential-filled SSNOI growth projections, strategic deleveraging post-IPO, and significant NAV upside, AHR presents a compelling bull case. Read full AHR stock report, "American Healthcare REIT, Inc. (AHR): Cheapest Option to Participate in “RIDEA” Upside" |
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
WEEKEND UPDATE: The Trade Desk, Inc. (TTD) - This company is a tech company specializing in programmatic advertising. It operates as a demand-side platform (DSP), giving advertisers the tools to buy ad space across various websites, apps, and digital channels in real-time. Their platform uses data-driven insights to target specific audiences, ensuring that the right ads reach the right people at the right time.
CVX
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THESIS SUMMARY: We are bullish on CVX, buoyed by a strong balance sheet, a top-class position in the US Permian shale basin, strategic acquisitions, and a steadfast commitment to growth in both traditional energy businesses. Read full CVX stock report, "Chevron Corporation (CVX): Traditional and New Energy Mix Facilitating Growth" |
WEEKEND UPDATE: Chevron Corporation (CVX) - We have a long bias on Chevron going into Quad 2 inflation, driven by a solid growth portfolio anchored by the Permian and Tengiz. Chevron is well-positioned within its peer group, but to catch up to ExxonMobil (XOM), it will need to complete its proposed $53 billion acquisition of Hess (HES). Exxon and CNOOC are challenging the deal in Guyana, far and away the most important of Hess's assets. We estimate it's worth $41 billion at $80 per barrel Brent and six production units (FPSOs), leaving plenty of upside at current oil prices.
MPW
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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) - We are coming up on ~2 years following this incredible story. It has been one WILD ride and, while not over yet, it is nearing the end. One of the things that we have learned is that situations like this are deliberately layered, complex and have several concurrent subplots happening at once. We have put together a compendium of sorts of a subset of some of what we think to be the most important aspects of this story. Our hope is that it can serve as a reference, but also show that MPW is no accident. It is a recurring, deliberate, carefully constructed "scheme" with similar themes applied to different tenants over time.
PSEC
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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
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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) - We saw an acceleration in traffic last week at EWCZ, coming off a big deceleration the prior week. This is primarily due to the Easter shift, so the acceleration in visits is actually far less significant than what the data shows. We do not expect the uptick to hold.
AAPL
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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) - The company sent out alerts to customers in 92 countries that they may have been the subject of "mercenary spyware attacks." The notification informed the user they were likely being targeted specifically “because of who you are or what you do,” and urged them to take it “seriously.” 150 countries have iPhone users that have received threat notifications since 2021.
PFE
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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) - Pfizer’s subsidiary Wyeth has reached a $39 million settlement to resolve allegations of anticompetitive behavior in connection with its antidepressant drug Effexor XR. The settlement, revealed in a filing to a New Jersey federal court by plaintiffs’ lawyers, comes after over 12 years of legal battles accusing Wyeth of colluding with rival Teva to delay the release of a cheaper generic version of the drug.
ABR
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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.
