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Short: MPW, PSEC, EWCZ, AAPL, PFE, ABR, URBN, BIRK, MCD, HSY Long: DKNG, XYL, GTBIF, GIL, BYON, DIDIY, CELH, CAVA, ADYEY, TTD, CVX |
Editor's Note: Advanced Drainage Systems (WMS) was inadvertently left off the Investing Ideas newsletter. This will be corrected in the next edition.
This week we removed Longs WYNN, SMCI, RTO, and CP. We added Shorts URBN, BIRK, MCD, and HSY.
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 this week that Lori Kalani is in as the Chief Responsible Gaming Officer reporting into DraftKings’ chief executive officer, Jason Robins. Kalani becomes DraftKings’ first Chief Responsible Gaming Officer committed to the continued elevation and integration of the company’s player safety and protection activities and initiatives across all facets of its platforms and player communities.
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 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) - Congressional lawmakers are telling the Drug Enforcement Administration (DEA) to “promptly remove marijuana from Schedule I,” while recognizing that the agency may be “navigating internal disagreement” on the issue. Descheduling marijuana would be a big step towards further legalization and adoption by states nationwide.
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 company this week made massive board changes in advance of the shareholder meeting to vote for new board members. The changes include supporting 2 of the Browning West (activist that is supporting the ousted CEO) suggested directors. Perhaps this is an olive branch to Browning? Or perhaps the board is just trying to look like the more rational side of the debate. Browning West isn’t backing down as of yet. Within the board changes is the statement “to ensure the previously announced sale process is conducted in a manner that will benefit all shareholders of Gildan” suggesting the company is getting serious about selling the company. We like GIL Long as we think you either get a quick payday with a deal to sell the company at $45 to $50, or you get the fundamental growth story playing out over the coming years that can take the stock to $60 to $70 with a board and leadership team highly focused on driving shareholder value.
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) - The company saw a price target cut by old wall this week. There has been a lot of noise around sales trends in the high frequency data of late. With the changeover is sites, we’re not sure any of those sources are truly accurate, but we’ll ultimately find out what sales look like when the company reports earnings on May 6th. This quarter will not prove or disprove the bull call here, its kind of irrelevant vs where we think the company is going, but it was the first guide under Marcus Lemonis, and the company promised growth, so anything less than about +1% YY in revenue would be a disappointment and a black eye. Given the sales commentary from the last call that doesn’t seem likely, but is possible. We think as the company executes is near term growth plans and accelerates revenue growth the stock will grind higher.
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%.
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) - 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.
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
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THESIS SUMMARY: The company, a leading global payments platform known for its transparent fees and high transaction rates, is poised for strong growth through 2026, driven by a favorable macroeconomic environment, strategic investments, and a robust financial foundation with significant net revenue growth and high EBITDA margins. Read full ADYEY stock report, "Adyen N.V. (ADYEY): Get Paid with the Future of Payments" |
WEEKEND UPDATE: Adyen N.V. (ADYEY) - The recent selloff of Adyen's stock following its in-line earnings report appears to be an overreaction, especially given the challenging market conditions that emphasize its take rate compression from a shift in volume towards larger enterprise merchants. Despite this, Adyen's strong core offerings continue to drive significant volume growth, with notable momentum in PoS and SMB payments through its Platforms. This indicates that Adyen's market potential extends well beyond online enterprise payments. Despite its premium pricing, which is 2-3 times higher than its peers, Adyen is gaining market share due to its superior authorization rates. Looking ahead to 2024, we expect easing top-line pressures, improved operating leverage following its recent hiring cycle, and continued strategic execution as seen in its first quarter update.
TTD
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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) - Publishers can now increase their audience by using Bonbon's rewarded single sign-on (SSO) service, which has recently integrated with The Trade Desk's OpenPass SSO. Bonbon offers users incentives like discounts and merchandise for registering and engaging with content. This integration allows publishers to convert collected email addresses into anonymized, hashed IDs using The Trade Desk's UID2, enhancing first-party data collection for targeted advertising as a substitute for third-party cookies and other identifiers
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) - The company beat estimates in their earnings report released this week, matching our estimates and beating estimates from the street. CVX's Tengiz major project is still on schedule. The company is also moving ahead with legal procedures relating to the Hess acquisition, but it is still up in the air if Chevron will win Hess' remaining assets ex-Guyana.
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 ~$6.5 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) - The longer-term risk of MPW eventually becoming a bankruptcy is extraordinarily high. It MUST sell equity to recapitalize itself, including cutting the remaining cash portion of the dividend to the maximum amount possible. MPW is "shrinking to attempt to save itself," which buys time but materially impairs MPW on the other side after selling the highest-quality remaining cash flow.
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 has issued approximately $81.1 million in non-traded preferred securities from January to April 2024, mainly to repay unsecured notes due that year. This is on top of an earlier $66 million "baby bond" issuance. The funds are reportedly being used to cover quarterly dividends, substantial external manager fees (approximately $250-300 million annually), and finance tenant lease draws to NP REIT. With around 75% of PSEC's net investment income being non-cash, the firm faces a growing cash flow deficit, managed by issuing securities to retail investors. These securities could potentially be force-converted into common shares, increasing financial flexibility.
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) - Personal income and expenditures were reported this week, and the savings rate made and 18 month low at 3.2%, well below the historical norm. That coming oddly enough while the incentive to save is as high as we have see in a long time with savings account interest rates as high as 5% out there. This likely means on average the consumer is out there is feeling discretionary income pressure. EWCZ serves generally middle to lower end of high income customers that will look to find ways to save money as discretionary dollars get squeezed by inflation. An easy way to do that is eliminate or substitute this discretionary service that is hair removal at EWCZ. Home hair removal with razors, wax, etc is much lower cost, and we think we’ll continue to see comp pressure until the consumer discretionary income setup materially improves.
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 reports earnings next week. AAPL also issued a special event taking place on May 7th, but there are no further details on what the subject matter may be. AAPL also rejected Spotify's recent app update that would give EU users pricing information for cheaper subscriptions. Verizon also issued another price increase for Apple Watch with a cellular plan.
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) - This week the company announced that it is enacting a $0.42 second-quarter 2024 dividend. But, in more interesting news for the Short side of the trade, GlaxoSmithKline is suing Pfizer and BioNTech over their Covid-19 vaccine technology. It states that their vaccines violate the company's patent rights.
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.
URBN
WEEKEND UPDATE: Urban Outfitters (URBN) - We’re bearish URBN on our apparel 'deflation spreads' call, this is largely characterized by consumer prices for apparel rolling over (due to inventories building at the same time deflationary forces like SHEIN are more desperate for growth and are increasingly driving down price) at the same time import costs get less favorable from a return of commodity inflation and freight increases. We're just coming off a period that is characterized by massive inflation, while brands like Anthropologie and Free People (URBN) benefitted from significant brand heat and pricing power with fewer promotions. This took gross margin materially higher – which is simply unsustainable. As the industry forces play out, margins and earnings will fall and the stock will head lower.
BIRK
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THESIS SUMMARY: The company's historical strength is set for a downturn amid operational, financial, and market challenges. Read full stock report, "Birkenstock (BIRK): Broken-Stock" |
WEEKEND UPDATE: Birkenstock (BIRK) - We actually like the Birkenstock brand. It kind of reminds us of Ugg but 15 years ago. Started off as a highly focused product and extended the brand into other seasons, reaching new consumers at different price points. It's high margin, high return, and has above average operating asset turns due to the 'capital light' nature of only selling full sizes (imagine only having to satisfy 14 sizes instead of someone who makes half sizes like Ugg at 28). But that doesn't mean that a) growth is sustainable at 20% (especially with units only up 6% when it is hotter than hot), or b) it should trade at a high teens EBITDA multiple if growth is slowing. Catterton's price of $6bn ($30) was initially right. The bankers pulled a fast one on the Street, and owners are left holding the bag. Lockup has expired, and this stock could see $30 over 9-12 months as it hits tough comps and growth slows meaningfully in 2H.
MCD
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THESIS SUMMARY: The company is facing economic pressures due to inflation on top of shifting consumer preferences, causing them to modify pricing strategies among other changes being made. Read full stock report, "McDonald's (MCD): McSlowing" |
WEEKEND UPDATE: McDonald's (MCD) - Below is a Real-Time Alert sent to subscribers this week.
Going to 2-Dots on this one...
Coaching Notes:
1. You, of course, get unlimited dots in your portfolios!
2. I purposefully handcuffed myself with only being able to touch a position 3x (3-Dots) in RTA (and I rarely go to 3)...
3. That way I'm more accountable to how accurate my initial signals are in real-time ...
It's made me a better player. I hope you're learning how to #GetBetter, acting incrementally, against the color on your screens too,
KM
