Dear Hedgeye Nation,
As Hedgeye CEO Keith McCullough likes to say, “I prefer to let my team’s data-driven and apolitical #process drive my decisions.”
We took that to heart today when we hosted THE PITCH: 6 Hedgeye Analysts. 6 Stock Ideas. 60 Minutes.
Take an inside look at how a research analyst’s high-conviction stock idea becomes a portfolio manager’s winning position as Keith McCullough runs 6 Hedgeye analysts through the analytical wringer as they discuss Designer Brands Inc (DBI), SunOpta (STKL), GoodRX (GDRX), and much more.
Below we have transcribed key excerpts from the conversation. You can watch the entire hour-long interview below.
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Retail analyst Brian McGough
I want to talk about Designer Brands Inc (DBI). This is the former DSW; it's an underfollowed and very misunderstood name that has earnings power of $2.50-$3.00 over a TAIL duration. The streets currently coming in at about $1.90, so I think you have a huge earnings revision cycle here ahead of you.
It’s a forgotten name by the sell side. It’s hated by the sell side actually. There is only one bull on it and his price target is 8% below the current share price.
This name is not without its hair. We have to get through a reopening. At that point we are going to see a big earnings revision cycle as people start to actually realize that at $11 where the stock is right now, that now this name is trading at just 3x underlying earnings and a free cash flow yield of 35%.
This thing is cheaper than cheap, but it’s cheap with a number of catalysts. . . This is a name that I really think over a TAIL duration gets you paid.
Watch the full thesis from 02:17-11:46
Consumables analyst Howard Penney
Good morning everyone! I want to talk about one of my favorite plays in one of our emerging categories within the consumables space called food technology. So we’re going to talk about SunOpta (STKL).
Three reasons why we like the stock long today:
- It’s a plant based food secular grower
- It’s a business in transition
- The Oatly IPO will bring attention and multiple expansion for SunOpta
SunOpta is one of the strongest players in the growing plant based food category, with demand in the category driven by consumers dietary changes, perceived health benefits, environmental reasons, lactose-intolerance, and frankly changing taste preferences.
As a supplier into this category, SunOpta is less well know than it’s customers, but nonetheless they do supply some really well known brands, with Starbucks (SBUX) being one of their largest customers.They are investing to expand their capacity significantly over the next three years, and we don’t see any problem in them filling that capacity given the strong growth in the industry.
Watch the full thesis from 12:35-20:54
Healthcare analyst Tom Tobin
This is a name that we have talked about before. It’s not exactly totally new, but I think that the timing of it has gotten much more attractive here as we have sort of progressed through our first talking points about it.
We basically started with this story initially as a short. It looked like GoodRX (GDRX) is this coupon business for drugs that lives in this funny little space in how drugs are reimbursed. The medical economy is a strange little place, and advantages and markets can evaporate or persist for a really long time for no particularly good reason.
But as we did the work on the short side we actually came away feeling that this funny little part of the market is actually incredibly stable.Then it fit a couple of other themes such as pent up demand, and rebounding care that is going to start materially for healthcare in the next couple weeks as the vaccine deploys.
Watch the full thesis from 21:23-29:24