HTZ, MSGS, PEP, UHAL - Barron's 2024 Top 10 Picks (3). Buy !
Saving the best for last ?
We are at the home stretch of a 3-part posts, courtesy of Barron’s.
On Wed, I shared 1 of 3 posts recommending — Baba, Goog & Gold. Click here ! to read & like.
On Thu, I shared 2 of 3 posts recommending — Brk.B, Bntx and Cvx. Click here ! to read & like.
Today, I am sharing 3 of 3 posts.
Barron’s 2024 reveal - Part 3:
Let’s cut to the chase and jump straight in.!
First up is the major car rental player. Hertz’s Global holdings.
Back in February 2022, a lot of optimism was generated when Hertz announced that they would include electric vehicles (EVs) in its fleet of cars (for rental). (see below)
Afterall, the company has just emerged from the brink of bankruptcy 4 months earlier on (October 2021); due mainly to the economic fallout from the Covid pandemic.
Fast forward 2 years later, the high-profile move into electric vehicles has proven a bust.
Hertz YTD stock price movement
However, the stock looks cheap enough to be a winner in 2024.
Barron’s had a favorable call on Hertz when the stock traded close to $18 earlier this year.
The shares have dropped almost -50%, to around $10.
Simply put, Hertz’s big bet on EVs went sour.
This accounted for 11% of its fleet of Tesla EVs Model 3.
Compared to its rival $Avis Budget(CAR)$ that has an estimated 2% of its fleet EVs, they did not suffer as much.
What went wrong ?
Three important factors that Hertz failed to consider, before embarking on partial electrification of its car fleet:
Repair costs for its Tesla-heavy fleet are sky high.
Resale value. Hertz is getting less than it had projected when its Tesla EVs are sold; all thanks to mr elon musk perennial discounts on his EVs. due to deep price cuts.
Demand. Customers aren’t keen on the EVs, due to charging and range issues.
US rental-car industry is an Oligopoly.
Over 90% of the US market controlled by Enterprise, Avis, and Hertz.
This means pricing should stay rational.
Even with cuts in profit estimates, Hertz trades cheaply at 8.6x projected 2024 earnings.
Its market value of $3.1 Billion is less than half of the larger Avis.
There’s also a remote chance that the investor group that controls Hertz with a nearly 60% stake could offer to buy out public shareholders if the stock remains cheap.
Deutsche Bank analyst, Chris Woronka has the following parting words - Hertz current stock price is “overwhelmingly attractive for patient investors”.
MSG Sports owns two most valuable professional teams in their sports:
The New York Knicks.
The Rangers.
According to Sportico estimates:
The Knicks is worth $7.4 Billion.
The Rangers is worth $2.45 Billion.
However, the company’s current market value is just $4.2 Billion, plus some $300 Million of net debt.
Making MSGS worth less than half of its “real” value.
The stock was $178.85 (as of 21 Dec 2023).
It is below its peak of $233.40 per share on 06 Jul 2018, some 5 years ago.
That’s too cheap, even factoring in the “Dolan discount,” a reference to the controlling Dolan family.
In September 2023, MSGS’s Chairman, Jim Dolan told Barron’s that MSG Sports would not (a) entertain a full sale of either team and (b) is not interested in a partial sale.
Boyar Research, President, Jonathan Boyar added:
“The market has assigned a pretty punitive ‘Dolan discount’ to these trophy assets.
He values the stock at > $300 a share.
He says that MSGS should (1) sell a minority stake in the Knicks or Rangers, (2) buy back a lot of stock, or (3) pay a regular dividend.
Of course, the ultimate payoff would be a sale of the entire company.
Downside risk should be “non-existent”; given the discount to asset value.
Citing another example, the Dallas Mavericks’ Mark Cuban, thought to be an owner for life, recently sold a majority stake in the team to the Adelson family.
MSGS stock is languishing because investors are tired of waiting for the Dolans to do something. The wait could end in 2024.
A new weight-loss drug called Ozempic is making people less interested in buying unhealthy snacks and drinks.
Because of this, PepsiCo's stock price has dipped quite a bit this year.
In the long run however, experts do not think that these drugs probably have a big impact on PepsiCo's business.
Famed for its soft drink “Pepsi” and long-term rivalry with Coca-Cola, PepsiCo actually has a best-in-class snack-food franchise in:
Frito-Lay, maker of (i) Doritos, (ii) Cheetos, and (iii) Lay’s potato chips.
Frito-Lay generates > 50% of company’s profits.
As a result, it has made Pepsi less dependent on sugary soda compared to Coca-Cola.
Ozempic's rise in popularity was like a thunderclap in the healthcare and food & beverage space for several reasons:
Dramatic Weight Loss Results: Users reported feeling fuller faster and eating less, leading to significant weight loss, something not often seen with traditional diet methods. This resonated with millions struggling with obesity and weight-related health issues.
FDA Approval for Broad Use: While initially approved for type 2 diabetes, Ozempic's weight-loss potential became widely known. This broader eligibility boosted its appeal and reach.
Celebrity Endorsements: High-profile individuals openly talking about their successful weight loss using Ozempic fueled public interest and further amplified the buzz.
Fears that weight-loss drugs will curb snacking caused PepsiCo to dip -7.80% YTD in 2023. (see above)
PepsiCo bottomed on 12 Oct 2023 at $158.08 per share.
Its stock price has risen recently, in tandem with US market rally.
It was a relief in late October 2023 to learn that Ozempic did not impact Pepsi as thought of initially. (see above)
Ozempic’s use is far from widespread—maybe 1% of the population in 2024.
Pepsi is optimistic about 2024. They predicted their profits per share will grow faster than this year, which is already expected to be a big jump.
Their goal is for profits to keep rising by at least 10% yearly, for a long time.
Currently, Pepsi's stock price is based on 20.6x their 2024 estimated earnings.
That's cheaper than Pepsi’s average for the past 5 years.
It is a big plus that Pepsi gives out 3% of its stock price as a bonus to shareholders every year, and they've been doing this for 51 years in a row!
This year, they even bumped up the bonus by +10%.
As highlighted by Jefferies analyst, Kaumil Gairawala — Pepsi is the most durable business in his coverage. It rarely pays to bet against the American eater.
There are few businesses with a stronger competitive position than U-Haul Holding, that dominates the do-it-yourself moving business with its nationwide fleet of trucks.
U-Haul’s rivals, Penske and Budget, are a fraction of its size.
It’s the ultimate network-effect business:
With 23,000 locations around the US & Canada.
With nearly 200,000 rental trucks.
The $12-Billion U-Haul has steadily built a sizable self-storage business that now ranks third in the industry and could be worth $8 Billion alone based on comparable companies.
Given U-Haul’s market position, the non-voting stock, looks inexpensive.
Due to reduced moving activity in 2023, U-Haul’s earnings per share is expected to slip to $4.50 this fiscal year.
Even with earnings expected to slip to $4.50 this fiscal year, shares are valued at about 14.1x earnings at a recent $63, while the long-term outlook looks strong.
There is virtually no Wall Street coverage of U-Haul.
It is run like a private company by the Shoen family, which owns about half the company.
As per Kindred Capital’s Managing member, Steve Galbraith — “It’s hard to find such a dominant brand and such an extremely well and conservatively run business as U-Haul”. The company would be a great acquisition for Berkshire Hathaway.
Data analysis & My viewpoints.
In the 2nd post, I have performed analysis of Barron’s stocks selections based on the stock’s sector category.
In this 3rd post, I have performed the same grouping exercise. (see below)
There are 3 stocks in 2022 stocks list, that have been re-included in 2023 list.
They are (a) Madison Square Garden Sports (b) Google and (c) Berkshire Hathaway.
The stock-pick framework did not deviate too much except the number of stocks within each sector.
Do you find sufficient justifications (from my post) on why Barron’s has decided to re-include them in 2023’s pick?
One concern I have of Madison Square Garden Sports is its low trading volume at 134,523. What happens when it’s time to sell and there is low demand?.
The other stock that has low trading volume is U-Haul Holding, with average trading volume at 115,560.
There is still a lot of homework to do, in order to consider any stock/s in the 2023 list.
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