Growth Stock Thoughts
An Investment in Knowledge Pays the Best Interest
Benjamin Franklin
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.
ADYEY Continues to Ride Secular Payments Growth with Land-and-Expand Strategy
• Adyen is increasing market share through new customers and greater wallet share per customer.
• Expected sales growth of 22% to 26% and earnings growth of 20% to 25% over the medium term.
• Long-term revenue growth driven by increased wallet share on existing customers, enhanced by very low 1% quarterly churn.
• 10% buyback authorized of outstanding stock by the end of November 2025.
• $1.7 billion in free cash flow in 2023 and $9 billion of cash on hand with no debt.
Camping World Ready for Strong Upcycle
• 2.44% Yield.
• Strong market share growth, moving from 18% to 25% in a single quarter.
• Aggressive expansion campaign, hoping to add just over 100 locations by 2028, largely through acquisitions.
• Largely finished with inventory management ahead of the market, with 90% of inventory now containing the cheaper 2024 models.
• Internal actions to move SG&A expenses back from 80% of gross profit back down to 70%, which should provide incremental net income margin gains.
Video: Strong 11% Yield for LexinFintech Emerging Market Opportunity
• 11% dividend yield.
• Provides consumer and small business loans to the Chinese market.
• New risk officer implementing improved pricing and credit metrics, high tech loan selection process.
• Trading at a massive discount to tangible book value, with tangible book value sitting at $7.59, compared to a stock price of $1.66.
• We expect earnings to be $0.95 this year, with $1.10 in earnings next year. This less than a 2.0x P/E which would make it an incredibly cheap stock.
• However, there are risks such as the Chinese regulatory system and increasing US-China Tensions.
Uber: Driving Success with Network Effect and Improving Financials
• Uber’s long-term strategy of focusing on scale first and profitability later is starting to pay off, as it has seen significant growth and has been added to major stock indices.
• The company’s ability to operate across multiple platforms and channels efficiently has allowed it to cross-sell effectively and capture and retain more customers.
• Uber’s recent upgrade to BB+ outlook positive and its achievement of GAAP profitability have positioned it for aggressive expansion and lower interest rates, which could further drive its growth and market dominance.
Video: Oil Demand Continues to Grow – These Oil Stocks Should Benefit From Continued Secular Tailwinds
• Demand for oil continues to grow, only stopping around the COVID Crisis, reaching pre-pandemic demand levels in 2023.
• China and Europe are both bottoming out and beginning their recovery, which should provide further tailwinds.
• We favor crude over natural gas, given that natural gas is a byproduct of oil production, which can lead to supply gluts.
• The past down cycles bankrupted many E&P companies and made the survivors more conservative.
• Hence, there is insufficient capital development for expansion, meaning supply will not overshoot demand.
• Hydrocarbons are still dominant in transportation, and we feel that the developing world will buoy continued demand growth.
EXPE and BKNG: Travel Titans Poised for Record-Breaking Year
• Booking Holdings (BKNG) and Expedia Group (EXPE) are leading players in the Online Travel Agency (OTA) market, with BKNG dominating the European market and EXPE holding a larger share in the US.
• Both BKNG and EXPE are investing in AI to drive personalization of offerings and new large-scale rewards offerings.
• Travel spending is on the rise, with consumers prioritizing travel over other expenses, indicating a strong rebound in the travel industry.
• The alternative accommodation market is a key growth area for both companies, with EXPE’s Vrbo and BKNG’s expansion in non-hotel offerings.
REPX: Sustainable Growth with Strong Free Cash Flow
• 5.22% dividend yield, maintained even at $40/bbl WTI.
• Strong free cash flow, at $75/bbl WTI REPX expects $100 million in FCF for 2024.
• Estimated 18.3% production gowth for 2024 without a meaningful increase in costs.
• REPX is actively deleveraging its balance sheet, targeting 60% of free cash to debt reduction.
• Strong geographic position, operating in a lower-cost and lower-decline rate location compared to the median Permian field.
Everest Reaches Peak Performance with Rising Premiums and Business Expansion
• 1.9% dividend yield, EG is targeting >17% shareholder return.
• Gross written premium growth of 20.9% year over year, with a combined ratio of 90.9%.
• EG expects to invest more in reinsurance underwriting opportunities in 2024, aiming for a combined ratio target of 89-91%.
• Strong earnings growth, with a continued hard market in reinsurance and new specialty lines in the primary insurance business.
• Sustaining catastrophe reinsurance share at 7% of business, realizing 45% increase in catastrophe reinsurance rates.
Foot Locker Laces Up for Off-Mall Move
• Foot Locker is shifting from mall-based to off-mall ‘new format’ stores to attract a broader customer base.
• It has started partnerships with leading brands like Puma and Reebok and a renewed Nike partnership.
• NBA sponsorship to boost brand loyalty and engagement, tapping into the massive global basketball fanbase.
• Eyeing growth in the Asia-Pacific region and India, targeting the burgeoning middle-class population and their increasing purchasing power.
• The current economic environment has decreased earnings and margins, but the foundation is set for recovery as the consumer spending upcycle takes hold.
Video: CVS Offers Recession-Resistant Growth with Acquisitions, Single Digit P/E, 3.6% Dividend Yield
• 3.6% Dividend Yield, single digit P/E.
• M&A period over, now focusing on integrating new businesses and strengthening the balance sheet.
• Healthcare as a sector is recession-resistant.
• Cost recovery on the horizon, with the conclusion of a cost optimization program expected to yield $700-800 million in savings.
• The expected addition of $2 billion to EBITDA by FY26 from Oak Street and a significant internal referral network from Signify Health.
• This could grow earnings by 10% or more.
Video: Everest Group (EG) Raising Premiums and Profits with Compelling Low Valuation
• 1.9% dividend yield, EG is targeting over 13% shareholder return.
• Natural disasters are becoming more frequent and more intense, with primary insurers facing restrictions on premium hikes.
• Reinsurance rates have sustained tailwinds, with Everest realizing a 26.9% increase in premiums.
• Even in the face of increased catastrophe claims, the combined ratio in all segments of the company has improved. Reinsurance combined ratio dropped 340 bps to 88.2%, and primary insurance dropped 120 bps to 91.5%.
• International expansion effort in the primary insurance area resulting in premium growth of 13.5% year over year.
• Strong EPS growth to an expected $61 per share in 2024
• Compelling low valuation with a PE of 6
