A 60% upside, a mountain of cash on hand, a couple potential catalysts, AND a 4% dividend
while you wait!
Are you ready for another one?
Let's do this!
Hey there, my name is Stephen Spicer and my goal is to help you build your rapidly-growing,
highly-diversified net worth, one video at a time.
And one of my favorite ways to do that - my niche area of expertise - is with individual
stock selection.
And that's exactly what we're going to do today with August's Top Stock Pick.
Now, before I get into why this one is late and the contest winner from last time, I want
you to know that with EVERY video I do, I take the time to type out detailed timestamps,
so you can jump to the parts that most interest you.
I make these videos for you and have no interest in wasting your time, so please jump around
if you'd like.
I am so sorry that this one is late.
I made the decision to push it out a little bit because I really wanted to get you that
HCLP update and make those videos that went with Ryan's channel.
AND THEN, when I was about ready to record… my pick NACCO Industries, Ticker: NC, jumped
about 10% after earnings.
That's great since it's in our charitable portfolio, but then I felt compelled to find
you an opportunity that hadn't just burned through a little of its upside!
So, I hope you'll forgive me that it's late, but I have a fresh idea here for you!
I'll just cover NACCO with members of our Insider Group next week.
That's where you'll find a few more ideas like these each month.
You can also get insight into the ongoing strategy within our charitable portfolio so
that you know when I change my mind about a particular stock for one reason or another.
If you're interested in that, check out SpicerCapital.com/Insider.
Just so you know, you can win a lifetime Insider membership as well as several other resources
to help you get started investing.
For details, visit SpicerCapital.com/Contest.
In fact, I've got a winner to announce right now from last month's drawing.
I've got your books right here (by the way, I just got a shipment of my books and will
be sending them out next week - if you've ordered one, thank you so much, and thank
you for your patience).
But these are for the contest winner.
Also, Simply Wall St was super cool and they've agreed to waive your first year's subscription
- I was going to pay for it, but I guess you have them to thank now!
And, of course, you're getting lifetime access to the Insider Group.
And it's fitting because this person just so happens to already be a member, so I've
had the privilege of getting to know them and am excited to announce that of the 199
entries, and only 29 entrants, the winner is - Yann!
And look, all this for just leaving a comment!
Congratulations, Yann!
And for those of you who would like to enter for next month's drawing, just go to that
contest page I mentioned, it's super easy!
Real quick, before we jump into this stock, I need to disclose that, as of this recording,
we are long this stock.
That is to say, we own shares in this company.
I own it in my own portfolio and we hold it in most of our clients' portfolios as well.
The information I share with you in this video should not be taken as a recommendation that
you buy shares yourself - I do not know your personal situation and if this particular
stock would make sense for you specifically.
As you know from this video I don't want to you to invest based solely on any idea
- I am simply presenting you with our research as a good place for you to kick off your own.
So without further ado, let's get into this month's (new) pick!
First, let me tee up why I believe this opportunity exists - why it's being overlooked and undervalued.
The great thing about melting ice cubes in the investment world…
... is that there is a large portion of investors who would just rather not dig into them - they
don't want to deal with a "dying industry."
And I completely understand that.
But with my unique style of investing, where identifying a potential catalyst or two is
one of the main criteria before taking any position, these "melting ice cubes" become
more attractive.
Investors, in general, view these stocks as not exciting.
But, when something big happens that draws attention to them, many can't help but notice
the opportunity.
Over the years, I seem to be drawn to these "melting ice cube" with potential catalyst
opportunities.
Last month's Top Stock Pick is a prime example.
A boring old-guard telecommunications company - admittedly "dying."
But dying is not dead.
And a dying cash cow can spew free cash flow for decades, even if it were to get smaller
each year.
And the initial catalyst that I identified for that company took it up 250%, and I think
there are still more potential catalysts in its future (which we talked about last month).
Another example I haven't mentioned on here before was Lee Enterprises, from the "dying"
print media industry.
I wrote an article about them last year for Seeking Alpha.
The company later entered a deal with Berkshire Hathaway and jumped more than 40%.
There are other examples I could use to demonstrate this concept, but I only like to use ones
that I've made public upon entry - that only seems fair.
For a full record of my public recommendations, visit SpicerCapital.com/TradeHistory.
My point with all this is, I personally, wouldn't entirely write off a potential investment
opportunity, just because it's in a "melting ice cube" industry - in fact, that may even
be a good reason to invest when you can find a potential catalyst, as that can create that
ideal scenario where a flood of investors all the sudden care about the stock in question.
In my opinion, it's those three criteria that I always focus on: the upside, the downside,
and the catalyst - that make all the difference - especially, that last one when dealing with
these old industries.
So, with that framing, the ice cube I'm diving into today is from the television broadcasting
industry.
They also have a large radio presence - exciting, I know.
And they're also, of course, trying to expand their digital footprint.
I'm talking about Entravision Communications Corporation.
Ticker: EVC.
They have a market capitalization of slightly over $400MM and a share price around $4.80.
EVC currently boasts a dividend yield over 4%.
Calculating the fair value of EVC is difficult.
They had a one-time windfall last year that skews almost all of their numbers.
One metric that is not skewed is the price-to-sales ratio.
We can use this to at least get a rough idea of how Entravision compares to its industry
and the market as a whole.
Its price-to-sales ratio is around 0.77 compared to the industry's 1.34 and market's 2.68.
You can see that the industry's valuation is already quite a bit below the market - which
should be expected given a "melting ice cube" but what I like about that is that
it provides us even more cushion (I'd much prefer that to an overvalued industry).
Assigning an industry average price-to-sales ratio to EVC would imply a greater than 60%
upside.
Definitely not my preferred 100% upside, but like I said, that's a pretty rough number
due to the anomaly last year.
But I also think they have some unique growth potential, which could be catalytic.
So, let's talk about some of those potential catalysts.
It all comes down to their current cash position.
This $400MM company has over $250MM in cash.
Often, when a company is sitting on SO much money, there are a lot of potential catalysts.
They COULD reasonably raise their dividend.
But I think they're more likely to pursue a strategic and/or accretive acquisition with
those funds.
You see, they've been adapting and shifting their focus to developing their digital presence.
And they have a unique opportunity with Latino markets, as their digital platform has significant
reach.
If they can continue to capitalize on and monetize that reach, they have the potential
to make a successful transition from this "dying" television and radio advertising
industry into the lucrative world digital ads.
Obviously, I don't know exactly how they'll utilize this cash.
They could absolutely make bad decisions.
Luckily they seem to already be priced for failure - so for me, the risk/reward is asymmetric
in my favor!
Because there are some potentially significant catalysts within their range of options.
And that's definitely something that, anyone who decides to take a position in this company,
should be monitoring.
It's something that we'll be regularly checking in and following up on within our
small group of Insiders!
So, we've talked about the upside, we've explored some catalysts, but I think one of
the strongest cases for this stock comes from its limited downside.
As they stand right now - cash position and dividend what they are today - it's my opinion
that this combination provides a pretty solid downside protection.
The company generates enough profits each year to cover its dividends and then some,
but as long as that cash is there, there should be no doubt that they can sustain it.
They could even raise the dividend if they wanted - which, of course, would likely be
catalytic.
They do have a decent amount of debt (which doesn't look terrible now that they have
this added cash, but still, they could spend that… so it's not nothing).
Only about $80MM is due within the next 5 years and their interest rate is pretty low.
So if any sort of economic crash were to happen, as they stand right now, cash where it is,
I believe they'd be pretty insulated.
So, what do you think?
We've calculated a pretty rough 60% upside, identified a couple realistic potential catalysts,
made a case for a limited downside, and they're paying an easily supported dividend over 4%.
Agree or disagree, awesome, I look forward to and welcome your insights in the comments,
and hope you'll explore others' comments as well, there's usually a lot of value
down there and I appreciate you all for that.
If you appreciate this detailed breakdown, don't forget to leave me a like and share
it with all your investing buddies!
And, if you're new here, I hope the value of being a part of this community is clear.
Join us by clicking subscribe and the notification bell - I'd love to help you on your investment
journey!
Thanks again for being here and being engaged.
I appreciate you.
I'll see you in the next one.
Take care!
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