Stock Thoughts

An Investment in Knowledge Pays the Best Interest

Benjamin Franklin

 

GFI Poised to Grow Its 3% Dividend with Expansion and Optimization

• 3% projected dividend yield for 2025.
• Gold prices should benefit from economic instability, persistent inflation, deficit spending, high debt, and a global move away from the dollar.
• Production is concentrated in geopolitically stable areas like Australia and the Americas, with limited geopolitical risk compared to competitors.
• Low-cost greenfield expansion and disposal of older mines should drive down company-wide all-in-sustaining costs.
• The Salares Norte project will open in April 2024 and add 600k ounces by 2025 at only $700/oz in all-in sustaining costs.
• Salares Norte will drive double-digit low-cost growth in production.

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High Dividend Yield Remains Anchored by Grocery Stability

• 9.7% distribution yield, 125% coverage from funds from operations.
• Grocery Anchors drive traffic, as 94% of grocery demand is met through physical storefronts.
• Strong occupancy rates, with a 94.1% overall rate and 99.3% in grocery space.
• 100% renewal rate on grocery-anchor spaces, 90% on connected retail locations in the last quarter.
• Average new rent is 16.4% higher than the expiring rent in the quarter.

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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

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Civitas CIVI Permian Pivot Yields Massive 9% Dividend Yield

• 2.9% Base Yield, paying out 50% of average TTM quarterly Free Cash Flow as a variable dividend.
• 582k acres in low-cost basins in the US, expecting to have 280 Mboe/d in production by the end of 2023.
• Total 2024 production is expected to increase significantly, with quarterly production growing by at least 16% to 325 Mboe/d (thousands of barrels of oil equivalent per day).
• Entered the oil-rich Permian basin, significantly increasing its production targets by 101 Mboe/d in 2023 and 168 Mboe/d in 2024.
• These recent acquisitions are expected to surge earnings above $15/share in 2024, with 2024 guidance pointing to $1.8 billion in free cash flow.
• OPEC+ production cuts and Mideast uncertainty could put upward pressure on pricing, bringing WTI oil back to the $80/bbl area.
• Strong balance sheet, targeting a debt-to-EBITDA ratio of 0.9x by the end of fiscal 2024.
• 15.6% pullback from its $82.63 high is an attractive entry point in our opinion.

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Video: Civitas CIVI Permian Pivot Yields Massive 9% Dividend Yield

• 2.9% Base Yield, paying out 50% of average TTM quarterly Free Cash Flow as a variable dividend bringing full yield to 9%.
• 582k acres in low-cost basins in the US, expecting to have 280 Mboe/d in production by the end of 2023.
• Total 2024 production is expected to increase significantly, with quarterly production growing by at least 16% to 325 Mboe/d (thousands of barrels of oil equivalent per day).
• Entered the oil-rich Permian basin, significantly increasing its production targets by 101 Mboe/d in 2023 and 168 Mboe/d in 2024.
• These recent acquisitions are expected to surge earnings above $15/share in 2024, with 2024 guidance pointing to $1.8 billion in free cash flow.
• OPEC+ production cuts and Mideast uncertainty could put upward pressure on pricing, bringing WTI oil back to the $80/bbl area.
• Strong balance sheet, targeting a debt-to-EBITDA ratio of 0.9x by the end of fiscal 2024.
• 15.6% pullback from its $82.63 high is an attractive entry point in our opinion.

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NVIDIA’s AI Boom and the Ghost of Cisco’s Internet Bust

• NVIDIA (NVDA) has established dominance in AI advancements, where it already had a foothold in the data center market. Prior to this, NVDA was a key player in the cryptocurrency mining and graphics card markets.
• Since 2019, NVDA has continued its upward trajectory with a remarkable 716% revenue growth. The share price during this time also saw an increase of 1,491%
• Cisco Systems (CSCO) experienced a similar boom in the 1990s, becoming the leading infrastructure provider for the global internet buildout. From 1996 to its peak in 2000, Cisco’s revenue grew by 498%, while its share price dramatically increased by 3,278%. Eventually, it would collapse by 83%.
• Dominant players in capital goods markets, like NVIDIA’s chips and Cisco’s network routers, often experience significant pricing power during boom periods. However, this is typically followed by a bust characterized by over-buildout and a subsequent revenue decline.
• NVIDIA enjoyed a surge in purchases from Chinese companies just before export restrictions were implemented. This has led to significant overbuying and stockpiling of reserves in China, a market now mostly closed.
• High Growth and Great Margins during this surge often attract new competitors, leading to a saturated market, more competition, fewer sales, lower prices, and lower profits.

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Video: NVIDIA’s AI Boom is Similar to Cisco’s Internet Boom. Will the Similarities Extend to the Bust?

• NVIDIA and Cisco have been leading players in their respective fields during periods of high capital expenditure and rapid industry expansion. However, they also share the likelihood of reaching a cyclical peak, which could lead to significant stock price corrections.
• Since 2019, NVDA has continued its upward trajectory with a remarkable 716% revenue growth. The share price during this time also saw an increase of 1,491%
• Cisco Systems (CSCO) experienced a similar boom in the 1990s, becoming the leading infrastructure provider for the global internet buildout. From 1996 to its peak in 2000, Cisco’s revenue grew by 498%, while its share price dramatically increased by 3,278%. Eventually, it would collapse by 83%.
• Given the historical patterns, we believe exercising caution with NVDA is the best action.

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JCI Using Green-Dominance to Pivot to High-Value Services

• 2.62% Dividend Yield.
• JCI’s focus on sustainable products, constituting about 55% of its revenue, aligns with global environmental goals and market trends.
• Building Solutions is shifting focus toward service-oriented business, allowing for predictable cycles and higher margins.
• Short-term weakness in the Global Products segment and Asia-Pacific installs, with secular tailwinds in sustainable product offerings and growth in the high-tech economy.

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Toyota (TM) Hybrid Dominance Continues: Hybrid Cars are Having a Moment Amid Electric Car Skepticism

•Hybrids — which get great gas mileage and average under $40,000 — are a happy medium for many.
•That has some carmakers rethinking their product offerings, at least in the short term.
•Toyota and its Lexus luxury brand now offer 26 “electrified” models — more than any other carmaker
•Toyota has long favored a mix of powertrain choices, and has stood apart from rivals for its reluctance to race too quickly into pure EVs.

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General Dynamics’ Diverse Defense Portfolio Key Part of Modernization

• 2.16% Dividend Yield
• The Navy aims to procure 55 ships over the next five years, indicating sustained demand for maritime defense capabilities.
• Notable increase in ordnance production due to global conflicts, with plans for a 600% output increase as soon as 2025.
• Army and Navy are covering significant expansion expenses as part of an “industrial base modernization” program.
• Nearly $100 billion backlog, with a company-wide 1.4-to-1 book-to-bill.

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Hasbro’s 6.1% Dividend Yield Pays as We Wait for Recovery

• 6.13% Dividend Yield.
• The company is undergoing major restructuring to focus on its core brands, offload the costly entertainment segment, and implement cost-saving measures.
• The company aims to save $220 million annually by the end of 2023, increasing to $300 million by 2024, by reducing its workforce and offloading non-core divisions.
• The Wizards of the Coast and Digital Gaming segment shows robust growth and high margins, now constituting 30% of Hasbro’s revenue.
• The Consumer Products segment faces challenges due to the macroeconomic environment but contains high-selling brands like Transformers.

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Insuring Success Through $380 Million in Cost Savings

• 1.38% Yield, $1 billion left on repurchase authorization.
• Expecting an increase in free cash flow in to $1 billion in 2024.
• WTW’s strategic cost-saving program aims to deliver $380 million in annualized savings by fiscal 2024.
• Strength in every business, with new clients and higher fees driving results.
• Demographic trends provide secular tailwinds.

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