Weekly Snack #6
New Equity Idea Generation, Twitter Posts, and General Reasearch of the Week
Welcome to Weekly Snacks! This newsletter is home to a weekly compilation of new investment ideas, Twitter posts/threads, and general research to help all investors generate ideas that they may have otherwise not been exposed to.
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Investment Pitches
TL;DR:
I love reading Petition because they do great work on companies that are really struggling or still in a position of struggle. They recently wrote a post on Big Lots (BIG) and why management decisions have really made it look like it’s going to continue circling the drain. From poor timing of buybacks, a leveraged balance sheet, deteriorating sales and margins, and sale-lease backs that don’t seem sustainable, the author breaks down why this one should have an eye kept on.
TL;DR:
A very short read (with a video linked from 2020) but Hurdle Rate talks about Orchard Funding Group (ORCH) who specializes in insurance premium and professional fee funding. The author briefly highlights the growth of their loan book and profits and its dividend yield. Trading at just 5x earnings, the author mentions how a conservative play like this one can meet their “hurdle rate” of 15% with a margin of safety.
TL;DR:
While many of us know that SOTPs are nice valuation exercises, many don’t live on to recognize the potential value of the parts of the business. Despite this, 310 Value believes that Brookfield Corp (BN) is worth much more than what the company is currently trading at. The author shows their quick math output of the scenario and highlights each component of their thesis from; target carried interest, insurance, direct investments, and more. Potential upside to be over 100% based on their calculations.
TL;DR:
So this one is a downloadable PDF and is also a case study on Academy Sports and Outdoors (ASO) by Bonhoeffer Fund L.P. Despite being a case study, the read was great and provided what I believe to be high quality commentary with financial calculations behind it. The fund believes that the price of the company is grossly undervalued and could deliver a 46% IRR over the next 5 years (currently down 15% YTD). Catalysts include higher sales growth, margins, and expansion into local markets while also bearing risks such as less accretive stock buybacks and weaker SSS growth. It’s only 7-pages but still worth a read.
TL;DR:
Overlooked Alpha is one of my reads that I am a paid subscriber to. This past week they highlighted and interesting take on a company I’ve personally shorted post-IPO, Robinhood (HOOD). Vince and Joe make the case that the perceived image of HOOD being a gambling app (what I believe too) has sank the stock but that the company has a large cash position to make interesting bets on the future. Protecting the downside are an army of buy-and-hold investors and a low tangible price to book, however, the company still relies a lot on options trading which has dramatically slowed since the GME days. It will be interesting to see how this one plays out since they do have over $5B in dry powder to use on the BS.
Tweets of the Week
General Research
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Until next week,
Paul Cerro
excellent "investment pitches" picks.
$big is a sad one to watch, while Brookfield is an intriguing SOTP story worth diving into to me, and, just for fun, I put my SOTP pick for a head-to-head comparison with Brookfield :-)
https://underhood.substack.com/p/buy-iac-to-get-an-airbnb-like-ipo