lvenks/iStock via Getty Images
Introduction
The ‘Undercovered’ Dozen is a Seeking Alpha editor-curated series highlighting 12 undercovered stock articles from the last week to provide ideas and provoke discussion among the community.
Today, we’re looking at articles published between August 23rd and 29th.
Take a look at what these less-covered stocks might hold for you. And please join the conversation below to share what you think: are any of these worth following up on?
Kraken Robotics Inc. (OTCQB:KRKNF) is a Canadian microcap ($260m) trading on the Toronto Venture Exchange. Kraken’s balance sheet is asset-light, with zero net debt and a small asset base. It is primarily a growth story. The stock has gone up 4x in the last 12 months on the back of explosive revenue and earnings growth. Revenue has grown at a 60% CAGR since 2018, and last year this finally translated into GAAP profitability. Today, shares trade at around 31x TTM earnings and 18x TTM EBITDA, close to the sector averages as calculated by Seeking Alpha. I think this is justified by Kraken’s growth prospects, so I’m initiating coverage with a Strong Buy rating and a two-year price target of $3.
Kraken is led by CEO Greg Reid, who has been with the company since 2015. Everyone else in the C-suite has been at the company for at least 5 years. Longstanding investors I have spoken with have high confidence in Reid’s continued success in executing on the company’s strategic plan. They highlight his strong track record and the fact that he and his colleagues have increased their ownership stakes over the last year.
The Procter & Gamble Company (PG) is a global consumer products giant operating within an attractive segment of the consumer products industry. ‘Why attractive?’ one may ask. In the long term, its products are for everyday use and are not accompanied by negative trends. Unlike Coca-Cola (KO) products (non-critical articles), PG offers a broad portfolio of products that are and will be a part of our lives. The most we can do is switch a producer, but I assume nobody will let go of laundry powders or dish soap soon.
With decent FY 2024 performance, reaffirming PG’s leadership position in numerous market segments, high profitability, meaningful shareholder returns, and upheld ability to grow the scale of its business, I am satisfied with the business update. On the valuation front, while its stock price has increased slightly, the EV/EBITDA multiple remains below my previously announced target of 18-19x. PG’s reaching 18.0x EV/EBITDA is a conservative scenario, as this level would be well-deserved for such a high-quality industry leader. Although the upside resulting from the multiple expansion is insignificant, it is still present and can serve as a margin of safety.
Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) are two government-sponsored enterprises (“GSEs”) that have been in conservatorship since September 6, 2008. Hank Paulson and Dan Jester led Treasury’s efforts to seize the companies and restructure their balance sheets to inject capital via the SPSPA, an agreement that was put in place after they were put in conservatorship that relied on FHFA’s discretionary accounting authority to write down GSE assets to support the narrative of the enterprises needing capital.
In a world where it surely becomes inadvisable to hold the enterprises captive in conservatorship when their net worth eclipses their ERCF capital requirements, and where the Republican Party at large supports the end of conservatorships, my strategy is to continue to accumulate the junior preferreds (OTCQB:FMCKJ) at a discount to their intrinsic value. Fannie and Freddie have more net worth than ever before in history and a stronger earnings profile than ever before in history. They are safer than ever before in history. The acting CEO of Fannie Mae indicated that someone doesn’t know how to take a victory lap by ending the conservatorships. I couldn’t agree more.
|
NNE |
Hold |
Shareholders Unite |
NANO Nuclear Energy Inc. (NNE) is a company that is designing two small-scale nuclear fission reactors or so-called microreactors. These are still in the design phase and commercial products are not likely to emerge this decade. Other business lines are likely to appear sooner, but the economics are difficult to assess, so it’s hard from an investor point of view to formulate projections given the lack of hard data. This is more for specialists who can assess the viability of the company’s reactor designs. The stock is not unlike a pre-clinical stage biotech company with years of trials (and capital needs) ahead of it, facing an uncertain outcome.
We would argue that this is a stock for those who are either familiar with (and have confidence in) the people running it and/or are intimately familiar with the technicalities of their plans, most notably with respect to the two reactor designs. Given the fact that they managed to gather a notable amount of private money, one could argue that there are such people, willing and able to vote with their pocketbooks.
|
ALDX |
Strong Buy |
Wall Street Titan |
On August 8th, Aldeyra Therapeutics, Inc. (ALDX) seemingly achieved its final clinical step in its long and winding road to achieve FDA approval for its Dry Eye Disease (“DED”) eye drop, called Reproxalap. Approval, if granted, should trigger the exercise of an exclusive option owned by AbbVie Inc. (ABBV) that would result in significant milestone payments and the creation of a 60%/40% partnership (with Aldeyra being the minority owner) to manufacture, market and distribute this innovative DED therapy that has a significant advantage over existing DED therapies.
So, to recap, according to the FDA, Aldeyra failed in its first NDA attempt for Reproxalap by not providing the breadth of data required for approval. Aldeyra then worked closely with the FDA to design the protocol of a final study that, if successful, would satisfy the FDA’s requirements for approval. The study results were compelling, with an excellent demonstration of efficacy and without any material adverse effects. Shares have rallied from the low $3 range to over $5.00 based on these results. However, the company still seems to be facing a lingering credibility problem and, as a result, shares are still well below all-time highs even as they approach an important inflection point.
|
UNFI |
Strong Buy |
Leland Roach |
Resulting from a Pre-COVID acquisition of a company called SUPERVALU, United Natural Foods, Inc. (UNFI) currently has multiple distribution centers that overlap the company’s strategic shipping locations. These distribution centers could be sold off without major disruptions to UNFI’s revenue streams. The company could use the liquidity from these real estate sales to pay off the company’s outstanding debts or to spend on carrying out some of the company’s current business objectives including finally fully integrating the business’s SUPERVALU brand with the rest of the company.
The reason I have so much conviction that any of these scenarios are likely to happen is because UNFI has added some relatively new members to its management team including Sandy Douglas as CEO, Giorgio “Matteo” Tarditi as CFO, and an activist investor James C. Pappas to the Board of Directors that all seem to be focused on cutting costs, automating their distribution centers when it makes sense, developing high margin low-cost revenue streams, and creating shareholder value.
ChipMOS Technologies Inc. (IMOS), a provider of outsourced semiconductor assembly and test services or OSAT services to the semiconductor industry, has not done great recently following a major rally in the stock. The stock lost support that had held throughout the year, and it fell to a new low for the year for various reasons, including geopolitical. However, the stock has recovered after a tough start to August, which likely did not happen by coincidence. In addition, there is still a lot to like in IMOS.
The stock fell starting in mid-July, although it is worth mentioning that IMOS was not alone in doing so. In fact, the entire semiconductor sector started to stumble after semis were confronted by a number of developments, which could give the sector problems, depending on how they turn out. A candidate for POTUS, for example, made a number of concerning comments about Taiwan. This is very relevant to IMOS since that is where IMOS is located. It brings us to the risk that has long been associated with IMOS and other companies based in Taiwan.
The Other Five Fit For Mention
Embraer Stock Surges 84%: Updated Buy Rating And New Price Target
Embraer S.A. (ERJ) stock has seen a nearly 220% increase since a buy rating in February and 84% since my last coverage, exceeding the price target. The company recorded margin expansion during the quarter, but this was driven by one-off items. Embraer faces supply chain challenges but sees revenue growth, margin improvement, and strong backlog, presenting opportunities for growth.
NML: Proving Itself As One Of The Best In Class
Neuberger Berman Energy Infrastructure and Income Fund (NML) offers a high yield of 8.75%, making it attractive for income-seeking investors. The fund primarily invests in midstream energy companies, with a small allocation to electric utilities, providing stable cash flows and high dividends. Trading at a 10.49% discount to net asset value, the fund is in solid financial shape and offers a reasonable entry point.
Archer Aviation: Swelling Order Backlog In A Big Addressable Market
|
ACHR |
Strong Buy |
Disruptive Investor |
Archer Aviation Inc. (ACHR) stock is a “Strong Buy” at $3.8 due to its significant progress towards FAA certification and a $6 billion order book. The eVTOL industry is poised for multi-decade growth, with Archer well-positioned as an early mover to capitalize on this potential. Strong partnerships with Stellantis (STLA), United Airlines (UAL), and Southwest Airlines (LUV) bolster Archer’s financial stability and operational plans.
Genmab: Strong H1 2024 Performance, Partner BioNTech Gives Up On Acasunlimab
Genmab A/S (GMAB) stock continues to struggle despite the strong progress of the company’s commercial portfolio in the first half of the year. Epkinly is now FDA-approved for third-line+ follicular lymphoma, which should boost its revenue growth rates in the following quarters. Continued commercial and pipeline progress and the eventual return of margin expansion position Genmab well for long-term value creation.
Galapagos: CAR-T Biotech To Change Landscape With GLPG5101 And Beyond
Galapagos NV (GLPG) achieved positive results from its European phase 1/2 ATLANTA-1 study using GLPG5101 for patients with relapsed/refractory NHL. The global non-Hodgkin lymphoma market is expected to reach $16 billion by 2029; on average, between 30% to 40% of NHL patients have relapsed/refractory disease. GLPG5201 and GLPG5301 are two other candidates in the pipeline, which are being developed to target patients with relapsed/refractory chronic lymphocytic leukemia and relapsed/refractory Multiple Myeloma patients, respectively.
Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.