Stock Thoughts
An Investment in Knowledge Pays the Best Interest
Benjamin Franklin
Oshkosh’s Stable Dividend Driven by Long-Term Contract Wins
• 1.8% dividend yield.
• Secular tailwind from municipal underspending and defense rearmament.
• Revenue forecasted to grow 10.8% in 2024, driven by increased demand in the vocational segment.
• Expanding access business into Europe, trying to get ahead of tariffs.
Glass House Brands Offers Opportunity at Scale
• Largest producer of Cannabis in California, with approximately 1.5 million square feet of space for Cannabis and Hemp, producing over 500k lbs per year.
• Owns 5.5 million square feet of cultivation facilities, ready to hyper-sale once federal legalization or rescheduling occurs.
• Moving Cannabis across state lines could soon be legal with the DEA announcing its intention to potentially reschedule Cannabis from I to III, with an expected date in 2025.
• Some of the lowest production costs in the US, with ~$130/lb in cost expected for the full year 2024 with 50% gross margin.
• Improving competitive conditions in California as less efficient competitors withdraw form the market; both wholesale and retail markets are shrinking.
Quest Diagnostics Has Massive Secular Tailwind and Strong Base
• 2.0% Yield.
• Strong secular volume tailwind from aging population, with Medicare Advantage holders having a higher average revenue-per-test.
• AI (Artificial Intelligence) in pathology testing should drive high margin growth.
• Tailwind from more bespoke testing, with genetic testing seeing a market-wide spending growth of 8% and 5% volume growth according to Avalon.
• Increasing leverage to 2.5-3.0x debt to EBITDA to enable more freedom in aggressive acquisitions.
• Strong M&A profile, purchasing Canadian provider LifeLabs for $1 billion, which will generate $710 million in additional annual revenues by 2025.
Weyerhaeuser Offers Industry Leading Asset Portfolio
• 2.84% Yield.
• Industry-leading 90% of revenue comes from working timberland rather than leasing it for harvesting rights (stumpage)
• Largest timberland holdings in North America with more than 10.5 million acres.
• Long-term tailwinds from historic pent-up demand and lows in new housing.
• Timber assets generally appreciate with inflation and tree growth.
UPS’s Huge Free Cash Backs its Leading 5.0% Dividend
• 5.0% Yield.
• Offering services to enhance margin including more small-business mix and specialized medical logistics services.
• Consolidating 200 sorting centers, with the new automated counterparts offering a reported 30% efficiency improvement.
• Expects to generate $5.8 billion in free cash in 2024, adding to its already massive $6.3 billion cash position.
• Industry-leading capital efficiency, with a return on invested capital median of 27% for the last 3 years.
FedEx Presents Opportunity After Sell Off
• FedEx’s DRIVE and Network 2.0 programs aim to streamline operations, saving $6 billion annually by 2028 without sacrificing top line growth.
• Despite a recent 9% stock price drop, FedEx offers a 4.0% buyback yield and 2.1% dividend yield, making it attractive for long-term investors.
• The expiration of the USPS airmail contract poses short-term challenges but could improve margins through better fleet utilization and cost management.
• FedEx maintains strong financials with $5.9 billion in cash and a net debt to EBITDA of 1.9x, ensuring stability amid economic uncertainties.
Potato Pros Lamb Weston Invest in Volume
• 2.2% Yield.
• LW holds #1 market share in North America, and #2 for the rest of the world for frozen-potato products.
• Dominance in the frozen-potato product market, being the provider for French-fries for customers such as McDonalds, Chic Fil A, Arby’s and Sonic.
• Transitioning to a volume-focused growth strategy rather than pricing-focused.
• Expects headwinds in restaurant traffic to begin to alleviate in the middle of 2025.
Albertsons-Kroger Deal Offers a Potential Premium
• 2.7% Yield.
• Kroger agreed to purchase Albertsons for $24.6 billion in October 2022.
• If approved, Albertsons shareholders will receive $27.25 per share, a 48.3% premium to the current stock price.
• Albertsons holds 6.4% of total grocery market share in 2023, while Kroger holds 10.1%.
• $600 million claw back provision to be paid to Albertsons if the merger does not go through, recouping its costs.
Dividend Aristocrat Target Waits for Consumer Rebound
• 2.94% Yield.
• Expanding margins despite sales slump, increasing gross margin by 160bps.
• Deleveraged balance sheet down to 1.8x net debt to EBITDA, down substantially from 2022 highs.
• Approaching holiday season will buoy results until rate cuts begin to impact consumer spending habits back toward discretionary goods.
• Resumed share buybacks, authorized outstanding buybacks are 13.6% of outstanding shares.
• Stock is a hold post August 21st earnings release as the stock has popped 22.5% since its August 5th lows.
PotlatchDeltic’s Strong Roots Amidst Headwinds
• 4.2% Dividend Yield
• Trading at substantial discount to our $53 per share estimate of asset value.
• Timberland is good inflation hedge.
• Share repurchases demonstrate management’s belief in the underlying asset values.
• Strong real estate performance has offset the weak performance in the wood products segment.
• Lumber market appears to have bottomed out with expectations of a recovery in the spring.
PepsiCo Occupies Sweet Spot With Dividend Growth
• 3.1% Dividend Yield
• More than 500 brands globally, with 23 flagships earning more than $1 billion in revenue.
• Consumer staples giant, owning Quaker Foods, Frito-Lay, and Pepsi.
• Pepsi is trading at a discount compared to peers and its own historical valuation.
• Elevated capex for improving resilience in the supply chain and efficiency improvements.
• Expects long-term revenue growth between 4-6%, with high single digit earnings growth.
Volkswagen’s High Yield Backed By Undervalued Brand Portfolio
• 8.9% Dividend Yield.
• Powerful brands including Audi, Lamborghini, Bentley, and majority ownership in Porsche.
• New EV JVs to reduce capital costs, with Rivian for global EVs and Xpeng for Chinese-made EVs.
• Cost savings program targeting $11 billion in total savings by 2026.
• 11% market share, second in the world with 9.4 million vehicles delivered in 2023.
• Low valuation relative to peers, trading at just 3.1x earnings.