MoneyShow’s Best Investment Ideas For 2024: Part 3

MoneyShow’s top contributing analysts, strategists, and newsletter editors share their investment recommendations for the year ahead. See Part 2 here.

Celldex Therapeutics

By John McCamant, Editor of The Medical Technology Stock Letter

Celldex Therapeutics (CLDX) is one of our top picks for 2024. The recently reported 208-patient trial with the first-ever subcutaneous (SC) version of CLDX’s barzo in CSU confirmed that it is the Best-In-Class compound with the fastest onset and most durable efficacy in mast cell blocking.

All three doses had high statistical significance, (p<0.0001), improvement at 12 weeks. A p<0.05 is statistically significant and the barzoSC data hit the ball out of the park.

As its clinical profile continues to come to fruition, barzo is by far the leader in mast cell inhibition – hence the superior data. More details of the Celldex CSU trial will be at AAAAI in February 2024. But with its own recent and very successful clinical trial data combined with the clinical and regulatory setbacks for three potential competitors in just the past month or so, barzolvolimab’s position as the Best-In-Class compound is becoming even more evident than ever.

After the positive data release (in both CSU and PN), Celldex raised approximately $230 million in a follow-on offering (as its typical of most post-good-data biotechs). It now has about $450 million in cash.

Lastly, CLDX remains to us one of the more attractive takeover candidates in the sector. Recently, AbbVie (ABBV) was in the process of buying ImmunoGen (IMGN) for $10 billion and Cerevel (CERE) for $8.7 billion. We believe CLDX with barzo can command a similar valuation. In sum, with very good data and the financing behind it, we strongly recommend taking advantage of the pullback in CLDX shares to initiate and/or add to positions.

Centrus Energy

By Eoin Treacy, Editor of Fuller Treacy Money

The planning process of building new nuclear power plants is lengthy and drives up costs. That’s one of the primary reasons so few get built in the US. The conservatism of nuclear regulators also slowed down the rollout of new technologies. That is now changing, which is why I am recommending Centrus Energy (LEU).

People tend to get emotional about nuclear energy. Those who worry about it point to the long-term issue of nuclear waste storage. The small number of high-profile accidents also continue to make headlines. Germany’s politicians closed all their nuclear power plants in response to the Fukushima accident in Japan. That was despite the fact Germany is not in an active seismic area.

But those who are in favor of nuclear energy point to its long-term reliability as a provider of base load power. That means it can be dialed up and down at will to meet demand. That’s not possible with intermittent supply like wind and solar. They need alternative backups to smooth out the delivery of electricity.

In December 2023, China put the first Generation IV nuclear reactor into service. On the same day, the US regulator granted permission for the first new design of a reactor since the 1970s. The defining characteristic of Generation IV reactors is they cannot melt down.

They are also easier to construct. In fact, they are built in factories and trucked to their destination. The reactors in use today all must be constructed in place because they are so large.

These new kinds of reactors use higher concentrations of uranium. They need new kinds of fuel. As a result, the market for high-assay low-enriched uranium (HALEU) fuel is set to boom over the next decade.

At present, Russia supplies 24% of all the nuclear fuel used by the US. A bill is currently moving through Congress, which would ban imports of fuel. We need to find new suppliers.

Centrus opened a new HALEU manufacturing plant in Ohio. It made its first delivery to the Department of Defense in November 2023. The shares hit an initial peak in late 2021 and were recently ranging below $60.

The shares are on the cusp of breaking out to the upside. Enthusiasm around the new enrichment plant and the potential for new demand are driving the move.

Nuclear fuel has been dependent on global cooperation since the end of the Cold War. That era is now over. Rising geopolitical tensions mean we need a new independent fuel cycle. Centrus is at the center of that trend.

Charles Schwab

By Nate Pile, Editor of Nate’s Notes

Charles Schwab’s (SCHW) stock got crushed last March as part of the across-the-board selloff we saw in regional bank stocks. While the stock has managed to rally nicely off the lows set during that turbulent time period, I believe it is still being undervalued by the market.

To be sure, Schwab is most definitely a “financial services” company that offers some of the same services one might find at a regional bank. However, the reality is that it is not a regional bank, and yet its stock was (and, to a certain extent, is still being) punished by the market as if it is one.

Whenever I see these sorts of situations where perhaps “a baby has been thrown out with the bathwater,” so to speak, it often means there is substantial upside for investors who are willing to put their emotions aside and look at the long-term picture instead.

While it is quite possible the stock could trade down in sympathy with the regional banks if investors start to worry about that sector again, this is another situation where I especially like the risk-reward ratio we are currently being given. Provided one is disciplined about scaling in to a position over time, SCHW is considered a strong buy under $62 and a buy under $70.

Chord Energy Corporation

By Crista Huff, Portfolio Manager at Freedom Capital Management

As we embark on our investment journey into 2024, I’m quite disenchanted with US stocks, largely because there are some serious recessionary red flags waving frantically at us. But I do like a small-cap stock in the energy sector, in part because it didn’t just have a huge run-up in November-December 2023 with most other names. It’s called Chord Energy (CHRD).

As a bonus, it’s got a big dividend yield! The Houston-based company was formed in July 2022 upon the successful merger of Whiting Petroleum Corporation and Oasis Petroleum Inc. Chord Energy’s focus is on the exploration and production of crude oil, natural gas, and natural gas liquids in the Williston Basin, which overlaps a few states and territories in the US and Canada, including North Dakota and Saskatchewan.

CHRD could easily appeal to growth, value, and/or income investors. The stock’s hefty price is matched by Wall Street’s hefty 2024 earnings per share (EPS) consensus expectation of $26.69. The result is a single-digit price/earnings ratio.

The company’s long-term debt-to-capitalization ratio is incredibly low at 8%. It regularly returns cash to shareholders. In 2023, the variable quarterly dividends totaled $11.88, resulting in a yield of about 7.2%. There’s also a $750 million share repurchase authorization in place.

These are fantastic fundamentals, but you don’t have to take my word for it. Almost every Wall Street analyst who covers Chord Energy gives the stock an Outperform or Buy rating.

CNH Industrial

By Bruce Kaser, Editor of Cabot Turnaround Letter

CNH Industrial (CNHI) is a major producer of agriculture (80% of sales) and construction (20% of sales) equipment. Its shares have slid from their peak and now trade essentially unchanged over the past 20 years, making them look attractive.

Many investors see an average cyclical company at the cusp of a downturn, with a complicated history and share structure. But we see a high-quality and financially strong company that is improving its business prospects while simplifying itself, yet its shares are trading at a highly discounted price.

CNH owns high-quality brands that include Case IH and New Holland. The company is highly profitable, with earnings expected to be $2.1 billion in 2024. Free cash flow for its Industrial operations will be about $1 billion.

The Industrial segment balance sheet carries $3.7 billion in cash compared to its $4.6 billion in debt. CNH’s financial segment, whose only business is providing financing for end-customers and dealers of its equipment, is conservatively capitalized (9.7% equity ratio) and generates a 12-13% return on equity.

The company’s complicated history includes one-time ownership by Fiat, the Italian manufacturing conglomerate, along with being combined with the Iveco truck, bus, and engines business. However, this murkiness is being cleaned up, notably by the separation from Iveco in 2021. That leaves only farm and construction equipment along with the inhouse financing business.

A legacy of its Fiat days, CHN’s shares currently trade in Milan and New York. This dual-exchange complexity is now being removed. CNH is de-listing its shares from Milan and transitioning all of its share trading to the New York Stock Exchange, effective in early 2024.

Near term, this transition is likely weighing on the share price as Milan traders unwind their positions, so CNH is implementing a $1 billion share buyback program, with a completion date of March 31. For perspective, the $1 billion would repurchase about 7% of the company’s shares.

Relatively new CEO Scott Wine, who previously led Polaris (PII) to success, is implementing efficiency programs totaling about $800 million (nearly 4% of revenues) to make CNH more profitable at all points in the cycle. Removing the legacy inefficiencies from its Iveco era is a key component of these programs.

The company’s shares recently traded at 6.1x per-share earnings. This compares to 12x for Deere (DE) and Caterpillar (CAT) and 7x for AGCO. On an EBITDA basis, assuming only book value for the financial segment, CNH’s shares trade at 4.2x EV/ EBITDA – also a sizeable discount to its peers.

The shares offer an attractive 3.7% dividend yield that looks well-supported by cash flow and the balance sheet.

Corby Spirit and Wine

By Benj Gallander, President of Contra the Heard

Corby Spirit and Wine (OTCPK:CBYDF, OTCPK:CRBBF, CSW.A:CA) is a Canadian manufacturer, marketer, and importer of spirits and wines. In June 2023, the conservative management there did something uncharacteristic by acquiring a 90% stake in privately held Ace Beverage Group for $148.5 million. The odds are decent that shareholders will ultimately be rewarded.

The remaining 10 per cent will be held by Ace’s founders. The deal was funded from cash on hand plus $120 million from Corby’s parent, Pernod Ricard (OTCPK:PDRDF, OTCPK:PRNDY).

Ace Beverage, launched in 2013, is in the “ready-to-drink” segment of the alcohol industry. Its brands include Ace Hill, Cabana Coast, Cottage Springs, Good Vines, and Liberty Village. Ace has achieved a sales CAGR of 37% from 2020 to 2022, currently holds an 11.8% share of the RTD market in Ontario, Canada, but does not have much presence outside that province.

From Corby’s perspective, this deal will diversify and boost revenues. The spirits subsegment has grown at roughly 2% annually over the past five years, while RTD has surged by 20%. The name of the game is to capitalize on this RTD trend, increase Ace’s presence in Ontario, and expand in the rest of Canada.

Corby also argued that Ace is asset-light, has low capex, and produces high returns on equity. CSW expects the takeover to goose its revenue by 35% and be highly accretive to EPS a year out. That bodes well for continued dividend payouts, which yielded 6% at the end of the second quarter.

So, those are the goals, the schemes, and the dreams, but as with many mergers, investors should ask, “How much does it cost?” The purchase price of $148.5 million is 2.7 times Ace’s annual sales of $56 million; Corby recently traded at about 2.5 times. Ace’s enterprise value, at 2.9 times sales, is also higher than Corby’s 2.2.

Moreover, the debt load will jump from basically nothing to 1.8 times net debt-to-adjusted EBITDA. This debt load is not crazy, and Corby is supported by Pernod Ricard, but it is something to watch. My take is that Corby is paying for growth through this transformative acquisition and is taking on debt (and risk) to do so.

Corby’s latest quarter was eventful. Revenue grew by 43% and adjusted earnings from operations 36%. Odds are that people will continue to drink to celebrate and drown sorrows. That bodes well for this enterprise.

Corning

By Michael Murphy, Editor of New World Investor

Corning (GLW) is a 172-year-old technology company. Best known for their optical fiber and Gorilla Glass for smartphones, they also make the glass for flat panel displays used in computers and large-screen TVs. They also have growing businesses in emissions control filters, auto glass, laboratory products, and pharmaceutical packaging.

Many of those areas are consumer products where revenues could flatten or decline in a recession. Revenues were $11.3 billion in 2020. They increased 24.6% in 2021 to $14.1 billion but essentially flatlined in 2022 at $14.2 billion. I think they slipped to about $13.6 billion in 2023 and will only grow slightly to $13.9 billion this year.

But management has done an excellent job of controlling costs and protecting the balance sheet. They reported $2.09 per share in 2022. I think they did about $1.70 in 2023 and should hit close to $2 a share this year. They have the ability to grow revenues 30% as their markets recover with minimal additional expenses. That translates to a likely earnings explosion in 2025 and 2026.

Meanwhile, GLW recently had nearly a 4% dividend yield and an aggressive stock buyback program. The company is managed for the benefit of the shareholders and can be a cornerstone holding in the conservative part of your portfolio.

Crocs

By Tyler Laundon, Editor of Cabot Small-Cap Confidential

Crocs (CROX) is a Colorado-based footwear company that was founded in 2002 and has two well-known brands, Crocs and HEYDUDE. Analyst projections are conservative. But Crocs could do a lot better. If it does, the stock could be off to the races.

The HEYDUDE brand hasn’t been around as long as the Crocs brand. HEYDUDE was founded in 2008 in Italy and acquired in 2022 by Crocs to the tune of $2.5 billion in cash and stock. Its best-known models are the “Wendy” and “Wally”.

CROX stock fell by more than 50% in the months after the deal was announced. It has since come back. But taking 12 months to get back to “even” after a major acquisition isn’t exactly what CROX shareholders were looking for.

Granted, 2022 was a terrible year for many growth stocks and not all of it is Crocs’ management’s fault. But some pain was surely self-inflicted. The stock likely suffered because of a variety of sales, marketing, and distribution challenges when the HEYDUDE brand was rolled out. Profit margins took a serious hit as wholesale accounts were flooded with inventory.

There are still some HEYDUDE shoes for sale on Amazon – put there by liquidators – selling for about half of what they sell for on heydude.com. Not great, but also a known issue that management said is in the final innings of being corrected. That’s (mostly) in the past (hopefully).

Looking forward, it bears noting that Crocs is the fourth-largest footwear brand in North America. While the company has debuted a variety of models over the years, the classic clog still drives around 80% of brand sales, and the Crocs brand drives just over 75% of company sales (i.e., HEYDUDE drives about 25%).

There’s a lot of potential to grow in China (100% growth in Q2 and 90% in Q3), where social media is helping to move the needle. There are also a variety of marketing collaborations putting the brand front and center among various buyer groups.

There is, of course, some risk that operational issues could persist, or that retailers and consumers just won’t gravitate toward the HEYDUDE brand. That’s why this is a potential recovery play. Looking forward, it’s likely total company revenue growth in 2023 will be about 10% ($3.93 billion), while EPS growth will be about 7% ($11.67).

In 2024, estimates are conservative (remember, recovery story). Analysts are looking for revenue growth of 4.5% ($4.1 billion) and EPS of $12.17 (+4.3%)

CTO Realty Growth

By Tim Melvin, Editor of The 20% Letter

Real estate has been one of my favorite sectors for most of my more-than-three-decade career. One of my favorites names for 2024 is CTO Realty Growth (CTO). It owns a portfolio of high-quality retail properties in markets with high population growth and above-average income levels.

Over the years, I have met thousands of wealthy individuals from all walks of life, and 90% of them (at least) have invested in real estate besides their primary (and secondary) residences. Although technology is giving it a run for the money, real estate has still created more millionaires than any other asset class.

CTO Realty owns 23 properties concentrated in the southeastern and southwestern United States. These areas have attracted significant population growth since the early days of the pandemic, and the surge of people moving to the Sunbelt regions shows no signs of slowing. It also owns a significant interest in and manages Alpine Income Property Trust (PINE), a publicly traded REIT that owns net lease retail properties in the United States.

CTO’s properties are open-air shopping centers featuring anchor tenants, such as grocery stores that are internet-resistant and essential to daily living. Anchors include upscale grocers like Publix, Whole Foods, and Sprouts Markets. Tenants also include high-performing stores like Best Buy, Academy Sports, Barnes and Noble, and entertainment and dining locations.

The properties owned by Alpine Income are single-tenant properties, including companies like Walmart, Dollar General, Walgreens, CVS, 7/11, and Dicks Sporting Goods.

CTO Realty Growth shares are undervalued at their recent price. The shares trade at a single-digit multiple of funds from operations and yielded over 9.5%.

Given the high quality of the properties and the demographics of the locations it serves, I expect CTO Realty Growth to be a compounding machine that delivers a combination of cash dividends and capital appreciation for a long time.

Cullen/Frost Bankers

By Sam Stovall, Chief Investment Strategist at CFRA Research

Good years tend to follow great years, and 2024 should be no exception. History offers an elevated level of optimism for the upcoming year, based on a variety of fundamental, technical, and historical precedents. Cullen/Frost Bankers (CFR) is a “Strong Buy.”

Positive market factors include the end of the Fed’s rate-tightening cycle, double-digit EPS growth expectations, first-term presidential election patterns, and second-year bull market returns, all within the context of a US economy that continues to avoid recession. With the prospects for lower interest rates in 2024, we see financials and smaller-cap stocks finally joining the party.

With that in mind, CFR is an income-oriented, high-quality regional bank to consider. It specializes in commercial/ commercial real estate lending in metropolitan areas within Texas, and offers banking, trust and investment management, and insurance services.

Our Strong Buy recommendation reflects our view that CFR is one of the best-positioned banks in today’s higher-for-longer rate environment. Unlike other banks that have been forced to play defense following the collapse of Silicon Valley Bank, CFR is growing its loan book as it takes advantage of its attractive client demographics (100% of CFR’s deposits are in the fast-growing Texas area).

Additionally, we see CFR as uniquely positioned to manage deposit outflows and funding pressures as the bank maintains a loan-to-deposit ratio of just 43% vs. peers’ 85%. This stronger ratio will likely allow CFR to maintain above-average loan growth without the cost of significant net interest margin deterioration.

CFR recently paid a dividend yield in excess of 3%, while maintaining a payout ratio that is below 40%. The stock also carries an above-average S&P Earnings & Dividend Quality Ranking of A.

Originally posted on MoneyShow.com

Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.