Introduction
The ‘Undercovered’ Dozen series aims to highlight undercovered stocks on our platform for you to have another source for idea generation.
For reference, you can find our previous articles in The Undercovered Dozen profile.
Take a look at what some of these undercovered stocks and ideas might hold for you. And please join the conversation below to share what you think: are any of these worth following up on?
“On our last coverage of TELUS Corporation (TU) (T:CA), we gave a lukewarm reception to the wireless giant. In the face of more challenges from higher interest rates, higher debt, and higher competition, we reserved our enthusiasm and went with a “hold” rating. This was, of course, a significant improvement over some of the poor grades we have given this stock in the past.
“We tell you why we are now giving this a reluctant one thumbs-up and upgrading this to a Buy. As far as we can tell, TELUS is doing fairly well, even accounting for the long lead times. The key reason is that they are actually making up for it on volume.”
“New car inventories are 55% higher compared to last year, leading automakers and dealers to offer discounts and incentives to sell their building up inventories. Used car prices could drop by as much as 24% due to inventories building up and soft demand.
“Carvana’s (CVNA) earnings have benefitted from an unrealized gain on its Root warrants as well as PIK payments. Carvana plans to pay cash interest on its secured debt next year along with a $98 million unsecured debt maturity.
“I remain bearish on Carvana due to the headwinds facing used car prices. In addition, I still believe the company’s financial performance is unsustainable.”
“Shares of zinc-based energy storage solutions provider Eos Energy Enterprises, Inc. (EOSE) rallied upon news of an up to $315.5 million strategic investment by an affiliate of Cerberus Capital Management LP. However, a closer look at the transaction terms reveals a highly dilutive transaction, with Cerberus grabbing up to 49% of the company’s equity in return for providing an expensive loan.
“Even worse, the loan is governed by harsh covenants and funding of additional tranches will be dependent upon the company achieving a number of complex milestone requirements. With the loan secured by substantially all the company’s assets, Cerberus might end up owning the business at some point going forward.”
“While Wall Street and Main Street remain focused on the Fed’s interest rate outlook, employment numbers, and other economic data, we are quietly buying discounted securities from the fixed-income segment. Preferred securities, in particular, provide attractive tax benefits on dividends compared to interest income from bonds while also having priority over common stock in the company’s capital stack.
“Amidst elevated interest rates, quality companies are offering new high-coupon preferreds and bonds. M&T Bank Corporation’s (MTB) latest issue is one such high-quality opportunity. As an income investor, we are delighted by these opportunities and are buying M&T Bank Corporation shares before the Fed makes a policy change.”
“abrdn Income Credit Strategies Fund (ACP) offers one of the highest annual yields in my Income Compounder portfolio, trading near par with an 18% yield. Bank disintermediation is creating opportunities in private credit, benefiting global credit markets and ACP shareholders. ACP’s distribution history is consistent, with potential mergers and reorganizations expected to benefit shareholders in terms of scale and liquidity.
“I like ACP and have held it in my Fidelity IRA for nearly a year now and still feel that the fund is a Buy given its steady high-yield distribution, stable NAV, and pending merger with First Trust High Inc Long/Short Fund (FSD).”
“Looking for high-yield income from the Energy sector, without having to deal with a K-1 at tax time? Kayne Anderson Energy Infrastructure Fund (KYN) offers high-yield income from the Energy sector without it. The KYN CEF has delivered a 23% total return since mid-February 2024. The fund focuses on Energy Infrastructure Companies, with an 8.45% yield, and uses leverage to acquire portfolio investments.
“Investors who bought KYN at very deep discounts during 2020-2021 should have done well. Other investors have not been so lucky. We advise waiting for a significant market meltdown, which should result in a deeper discount.”
“Last fall, interest rates began a notable climb and equity markets were selling off amid high volatility and fears that interest rates may need to go higher to fight inflation. To hedge against my equity positions, I purchased several 1-year CDs with JPMorgan Chase (JPM) that had interest rates ranging from 5.55 to 5.65%.
“This past week, I received multiple redemption notices on these CDs, meaning JPMorgan Chase had decided to call these securities three to four months before maturity. In order to find a relatively comparable income return, I opted to avoid renewing CDs at a lower rate and instead purchased their Series EE (NYSE:JPM.PR.C) and Series DD (NYSE:JPM.PR.D) preferred shares at yields of 5.75% and near 6%.”
The Other Five Fit For Mention
BANX: Producing Steady Cash Flow For Income Investors
“ArrowMark Financial Corp (BANX) is an enticing investment choice in the high-yield space, coming back down to an attractive discount level.”
X-FAB: The Only Company With Positive Silicon Carbide (SiC) Growth In Q1 2024
“X-FAB Silicon Foundries SE (OTCPK:XFABF) is a leading European semiconductor foundry specializing in high-voltage chips for automotive, industrial, and medical markets.”
TotalEnergies: Could Namibia Be Its Guyana Moment?
“TotalEnergies SE (TTE) delivered a solid Q1 with lower sales and production levels offset by a decrease in costs and downstream profits. Recent discoveries in frontier regions Namibia and Suriname are key.”
GRAIL: Ambitious Illumina Spin-Off Trading At Intriguing Valuation
“After a lengthy history between GRAIL LLC (GRAL) and Illumina (ILMN), GRAIL was finally spun off again in June 2024 due to EU regulation, and shares have begun trading at a fraction of Illumina’s prior valuation for the acquisition.”
Inditex: No Stopping The World’s Premier Fast Fashion Compounder
“Apparel retailer Industria de Diseño Textil, or ‘Inditex,’ (OTCPK:IDEXY) continues to go from strength to strength. Despite intense competition from incumbents and upstarts alike…”
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.
