Investing Ideas Newsletter

Short: MPW, PSEC, EWCZ, AAPL, PFE, ABR Long: DKNG, XYL, GTBIF, WYNN, GIL, BYON, SMCI, DIDIY, CP, RTO, CELH, CAVA, ADYEY, TTD, CVX

This week we removed Long American Healthcare REIT (AHR) 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

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) -  There is an opportunity to buy more on the pullback with the stock down. We think the NBA betting scandal shows that the legal market is working and getting rid of the bad actors out there. Market share is tracking stable to up across key markets and growth for the quarter accelerated in GGR terms. Q2 is shaping up really well with download growth accelerating. On the legalization front, Missouri is moving closer and closer towards legalizing sports betting.

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) - 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

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) - Today is 4/20, happy holidays! The Minnesota House voted on Thursday this week to implement pre-approvals for dispensaries, starting as early as this summer. New Hampshire is also seemingly moving towards legalization, as the House took up bills that could change the state's existing medical marijuana system.

RTO

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

WEEKEND UPDATE: Rentokil Initial (RTO) - The company released a Q1 update this week, citing growth in North America. Their CEO said they, "remain confident in delivering on their guidance of 2-4% organic revenue growth." The firm expects to see better performance in 2H24, with 1Q revenue improving only +0.9%.

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) - Wynn China and Wynn is a long way from getting any sort of credit for its prowess in the US and Macau. Market narratives around Macau supply and street mismodeling of the competitive impact seem to offer a unique entry point in Wynn, the premier US & Macau gaming operator. We're currently assessing the catalyst path.

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 company announced a business update as the New CEO Vince Tyra has had 90 days the seat.  The update and plan has 1Q revenue guided ahead to $695mm vs street $681mm with reiterated FY guidance, which is for mid to high teens EPS growth.  The Tyra plan includes Medium term targets (2025 to 2028) about in line with the street on margins, but ahead on revenue growth. That is MSD revenue growth, 18% to 21% operating margins. HSD to low DD EPS growth. Our model is ahead of that, mostly on topline growth potential as the company ramps international growth and wins share in core NA markets. Company board vote coming up on May 28^th and Browning West already put out its dissatisfaction report on the update from Tyra.  Recall the company is also looking for bidders to potentially sell itself.  Lots could happen in the next couple of months, for now the fundamentals are tracking well and we think the stock has upside to $45 to $50 over 6 to 12 months. $70+ over a TAIL duration. 

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 disclosed this week that it sold the Wamsutta IP/brand (the linen brand that it acquired in the Bed, Bath, & Beyond IP deal) to Indo Count Global for $10.25mm (almost half of what it bought Bed, Bath & Beyond for). This is a great price for an asset that is not essential for the growth plan moving forward, especially with the context that it cuts the Bed/Bath IP/Customer list purchase price in half (was acquired for ~$21mm). We think Lemonis has now executed two prudent/savvy moves in acquiring Zulily (for <$5mm) and selling Wamsutta. A little extra capital never hurts. Now the company needs to deliver the revenues with the acquired awareness and customer lists.

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 announced they will report their 3Q results on April 30, but did not announce preliminary results. It fell about 20% on Friday, but we are still bullish on the stock. Its connection to NVDA in terms of server inventory is a backbone we see maintaining the valuation.

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) - 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%.

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 await the company's earnings report on April 24th.

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) - Lately, this stock has been weak. We care about market share, but think that it needs some context. Our scanner data showed Celsius up 71% compared to up 75% the previous 4-week period. We look at the whole TAM for energy drinks, which is more important than looking at just market share. 

In lighter news, Celsius hosted a Coachella party in order to drive brand awareness and expand their customer base. With the help of influencers, this strategy is sure to drive an increase in TAM share takeover.

CAVA

WEEKEND UPDATE: CAVA Group (CAVA) - The company's stock fell this week amid a treacherous market environment. We continue to be bullish on the stock. It was recently named one of the fastest-growing retail brands in the DMV area by Yelp, reinforcing the CEO's comments from December indicating the company has room to grow in the QSR market. 

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

THESIS SUMMARY: The Trade Desk operates in a large and expanding global digital advertising market, gaining traction with increasing shares from programmatic advertising. The company is well-positioned to benefit from ongoing industry consolidation, aiming to capture more market share as the DSP industry continues to evolve. Read full TTD stock report, "The Trade Desk (TTD): Benefiting from Network Effect Expansion"

WEEKEND UPDATE: The Trade Desk, Inc. (TTD) - Investment in Connected TV (CTV) is incrementally increasing, and digital channels are performing well compared to traditional channels, which are still weak. This benefits TTD as well as other companies in the sector.

CVX

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

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

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) - Even though traffic trends have gotten less bad the last few weeks, we think visits are at risk of slowdown over the upcoming quarters. This is at the same time as the company is slowing unit growth, both of which will cause revenue growth to slow. Lets not forget that this company also has a levered balance sheet. The stock is around $11.50, down about 30% from the rip in January, but we still see downside and fair price is sub $10.

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) - The stock continues to slide, down ~6% this week. On Friday the company announced they were pulling WhatsApp and Threads from their China app store. There is also swirling scrutiny from political figures, notably Elizabeth Warren, on the "monopolization" associated with iMessage. Warren says green texts are "ruining relationships" due to non-iPhone users being excluded from things such as group chats, among other iMessage specific features. We are lowering our revenue esimates for AAPL by 2-3%.

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 company's cost cuts that began last year are still expanding. They announced the closure of the Centers for Therapeutics Innovation (CTI). Some notable medicines have come out of the CTI program, including one that was eventually purchased for $7.1 billion last year. The $3.5 billion cost cutting trudges on into 2024.

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.