Stock Thoughts
An Investment in Knowledge Pays the Best Interest
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9% Dividend Yield for LexinFintech Value Opportunity
• 9% expected dividend yield.
• New risk officer implementing improved pricing and credit metrics.
• 8.5 million active borrowers and 42 million with an open credit line serving the rapid growth of the Chinese consumer market.
• LX expects cheaper origination and funding costs to remain low, falling below 6% in February 2024, and enhancing profitability.
• Expect continued cost leverage, with expected cost per originated loan decreasing at a faster rate than volume growth over the long term.
Carter’s Commands Children’s Clothing Market
• 4.6% dividend yield.
• Largest market share in baby and children’s clothing in the US, holding 10% market share.
• Collaboration with major retailers like Walmart, Amazon, and Target have helped expand wholesale operating margin by 540bps to 24%.
• Despite a downturn in customer volume, CRI’s retail locations are seeing higher conversion and per-customer unit growth.
• Better mix is expected in wholesale as firms continue to wind down inventory and return to “just-in-time” inventory management.
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.
Video: Gold’s Upward Move Still Underpriced in These Dividend Gold Stocks
• The price of gold reached a record high in April 2024, driven primarily by inflation from excess federal debt monetized by the Fed.
• Gold stocks have also made a move upwards, but we feel that they are still discounted due to the current effect of high gold prices on their earnings and free cash flow.
• We like B2Gold (BTG), Newmont (NEM), Gold Fields (GFI), and Barrick (GOLD).
• We own these stocks, and they pay out a dividend with an attractive valuation.
• As gold prices move higher and the effect cascades down into these companies’ bottom line, we feel they will be priced higher by the market.
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.
Himax Positioned for Jump into AI and IoT
• 4.2% Expected Dividend Yield for 2024.
• HIMX is expanding its product portfolio into non-display technologies, catering to emerging markets like AR/VR, AI, and IoT.
• HIMX’s strong partnerships with major automotive OEMs and its 40% market share in automotive displays position it well to capitalize on further digitization of car displays.
• While there are short-term challenges, the display and optical semiconductor market remains one with high margins and high barriers to entry.
Suncor Digs Out Strong Total Return with 6% Production Growth
• 4.6% dividend yield, share repurchases tied to net debt.
• 745.7 mboe/d in aggregate production in 2023, the highest in firm history.
• Targeting a 6% increase in production in 2024 without per bbl cost increases or accelerating depletion.
• Refinery utilization rates in 2023 averaged 90%, with a projected increase to 94% in 2024.
• Fortress balance sheet, with a debt to EBITDA of under 1.0x and $4.6 billion in free cash flow.
• Significant tailwinds with OPEC+ cuts and additional transport capacity to the West Coast coming online in 2024.
Ecopetrol Pays Out 18% Yield with Successful Permian Play And Gas Exploration
• Dividend Yield estimated at 17.7% for 2024.
• A 3.3% increase in production to an 8-year high of 737 mboe/d and a strong production profile.
• Successful Permian basin development program, outputting 66.3 mboe/d. We expect a secular increase to 100 mboe/d through 2025.
• Strong gas development profile, significant domestic supply shortfall over the next decade.
• Political considerations will likely be resolved during the next Colombian election in 2026.
RTX Capitalizes on Secular Trends to Drive Dividend Growth
• 2.6% Dividend Yield should grow with earnings.
• Increased military spending by the US and NATO allies, driven by geopolitical tensions, is expected to fuel sustained growth in RTX’s defense segment.
• As commercial aviation recovers and aircraft average age ticks up, RTX stands to benefit from both new equipment and overhaul services.
• $5.5 billion in free cash flow generated in 2023 and an estimated 16.7% CAGR in free cash flow to 2025 provide a solid foundation for returns and expansion.
• A 12% year-over-year growth in backlog, now at $196 billion, and a book-to-bill ratio of 1.28x for 2023 indicate strong future revenue potential across all segments.
MVP Pipedream Becomes Reality and Unlocks New Market for ETRN
• 5.7% dividend yield, with emphasis on maintaining dividend at the current level and using free cash to pay down debt.
• The Mountain Valley Pipeline is expected to be completed in mid-2024, providing access to Transco markets and Henry Hub and 2 Bcf/d in transit capacity.
• ETRN’s projected EBITDA for 2024 is $1.3 billion, representing an approximate 23% increase year over year.
• ETRN’s network includes 1,120 miles of gathering assets and 940 miles of transmission assets with a 12-year weighted average contract life.
• The total expansion project backlog is expected to add $300 million in yearly EBITDA, a 23% increase.
