Stock Thoughts
An Investment in Knowledge Pays the Best Interest
Benjamin Franklin
Bath and Body Works Has Long Term Earnings Potential
• 2.2% Dividend Yield
• Loyal customer base, with loyalty members making up 80% of sales.
• 85% of the supply chain originated in North America, mitigating tariff risk.
• Produces 55% of its end products in-house, with 40% of products on offer being seasonal only.
• Peer leader in sales per square foot with $1,074/sqft in sales.
• Expanding into ‘adjacent’ markets like products marketed at men and products marketed to Gen Z to boost new-customer growth.
Tyson Foods Farms Free Cash Despite Cyclical Downturn
• 3.14% Dividend Yield
• 13 consecutive years of dividend increases, most recently increasing by 2% in November 2024.
• Despite overlapping downcycles in pork and beef markets, Tyson generated $1.5 billion in free cash flow.
• Shifting more production to high margin value-added products like pre-made food and pre-seasoned meat across all segments.
• Targeting leverage ratio of net debt to EBITDA of under 2.0x, currently 2.6x with most debt maturing past 2027.
StoneCo’s Elevated Take-Rate Yields $350 Million Buyback
• Recently announced $350 million repurchase agreement, representing more than 10% of shares.
• Despite pressure from low-cost payment architectures, STNE has been able to maintain a high take-rate thanks to value-added services.
• Management indicated it may sell off the software arm to run a more lean and transparent business.
• Obtained banking license in early 2024, allowing it access to cheaper funding and increases the stickiness of the business model.
• Brazil has a fragmented payments industry with ample cross-selling opportunities.
Despite Neuroscience Setback AbbVie has Strong Recovery Ahead
• 3.95% Dividend Yield.
• Stock dropped 17.3% on the failure of Emraclidine in Phase 2 Trials, a drug only projected to make up ~7% of revenues.
• Aggressively expanding oncology offerings, acquiring ADC (antibody drug conjugates, non-chemo cancer drugs) expert ImmunoGen.
• Expects to replace Humira revenue in 2025 with two new immunology drugs and grow to be more than $27 billion in annual revenues.
• Shifting focus in neuroscience to Alzheimer’s and Parkinson’s, areas with few effective on-market treatments.
Fidelity National Financial has Strong and Safe Dividend Despite Housing Market
• 3.3% Dividend Yield recently announced 4% dividend increase.
• Expects robust housing recovery in 2026, betting on a similar timeline for commercial real estate.
• #1 market share in the US for title insurance, in both agency and direct sales.
• F&G has secular tailwind in life and annuity from aging population.
• Despite downturn in housing market, FNF grew revenues by 8% over the first 9 months of 2024.
Total Energies Has Strong Free Cash Backed By High Yielding Growth Profile
• 5.3% Dividend Yield with 5% dividend growth.
• Strong long-term production profile, expecting a 4% CAGR output increase to 2030 with breakeven below $30/boe (barrel of oil equivalent).
• Long-term focus on LNGs (Liquified Natural Gas), expecting to grow export capacity by more than 50% by 2030, with 6 Mt/y (million tons per year) in long-term supply contracts signed with Asian importers.
• Trades at an attractive valuation at just 7.8x earnings.
• Committed to $2 billion in buybacks each quarter of 2025.
Global Payments Slims Down with SMB Focus
• Committed to repurchasing 2.3% of shares within the next quarter, on top of a modest 1.0% dividend.
• Strong presence in the SMB (Small-medium business) space, consolidating its 16 brands into one coherent entity.
• #1 commercial card processor in the US, processing more than 35 billion transactions annually across 830 million accounts.
• 70% attachment rate for new offerings to existing customers.
TDK’s Tech Surge Sparks Free Cash Potential
• TDK is leader in small solid state batteries and announced supply agreement with Apple
• Growth areas in wearables, phones, IoT (Internet of Things) and EVs (Electric Vehicles)
• Dominant market share in several areas, including in smartphone battery components, holding the #1 market share of 50-60%.
• Strong manufacturing and materials science expertise, first to bring silicon anode batteries to market in 2023.
• Targeting late-stage development products for M&A.
• Aggressive capital efficiency plan, potentially divesting business units that do not meet the 10% ROIC watermark.
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.
