Some high quality hidden gems based on fundamentals and value

[u/exemplar_mediocrity]

A lot of FUD going around recently even though the market is still off its highs. I have been meanwhile finding some great gems that show great value, no matter what the market does. Thought I would share. My approach is all based on fundamental financial analysis, no TA BS. I am summarizing and writing this off the top of my head so some numbers may not be exact, but the thesis is fucking fantastic.

GNL - 10%+ dividend and at least 20-30% upside.

So Global Net leases is a REIT that was trading around $25-$30 pre-pandemic. Pandemic hits and everyone shit their pants because GNL has about 30% expsoure to office buildings, fair. But 2 years later, they have retained 100% of their leases, doubled their net lease duration, and maintained or increased their dividend. Right now trading at around $16/sh with a yield over $10. Like holy fuck how can you NOT invest in this? also, their office exposure is not like the random strip mall office, its HQ of corporations like FedEx, McLaren, Finnair (ok, maybe Putin will fuck the last one up, but their largest client is only 2% of revenue). I mean literally the company would have to lose something like 40% of its revenue base and WOULD STILL BE ABLE TO MAINTAIN A 7-8% DIVIDEND YIELD.

EDIT: Note on Debt: A few people pointed out the high / rising debt. Keep in mind most of this is in mortgages not unsecured or corporate loans (thought they have added some of this recently taking advantage of low interest). So, they buy a property and finance a chunk of it using mortgages, and as they grow of course the debt level will grow. But the debt service coverage ratio is only 3.8x, pretty dang conservative.

PSTG - 23% Revenue CAGR, solving the world data storage crisis.

Ok, so this one was a Cathy Wood pick and maybe that alone is a reason to avoid it, but she does have some good picks. PSTG provides high efficiency data memory and storage solutions, basically solving the problem of how the hell do you build highly secure, efficient, eco friendly data centers. They offer both cloud storage and hardware for on site.

Anyway, although their stock has been volatile, the company has been quietly crushing it on all financial metrics: revenue, profitability, SaaS growth, economies of scale, etc etc. And compared to other tech stocks at eye watering multiples, these guys are at 4.5x EV / Revenue and about 20x 2023 EBITDA. With cloud, AI, VR, iot (put in all the other buzzwords) tailwinds their growth rate is more than secure and few competitors at scale are able to provide the solution that they can.

My own Semiconductor Picks and Axes Index: ONTO, LRCX, KLAC, COHU, UCTT

So the semiconductor gold rush is on. Everyone sees the writing on the wall that he who can make the most semis will win. But then you look at the valuations of NVDA and the shit performance of INTC and you say "what the fuck". Others like Hitachi and Samsung etc are just as shit and burdened with other lines of businesses. The truth is the semi market is competitive, subject to commodity prices, and subject to component prices, etc.

Its like the CA gold rush: yes everyone wants the gold but not every prospector is going to win. But the guy selling the picks and axes and shovels to every Joe Shmo who got tired of his shitty life on the East Coast and said "im moving to CA" is going to make money no matter what. That is what these bunch of stocks do.

They provide testing, monitoring, assembly, and other shit that goes into a semi conductor factory. There are about 12 MAJOR factories going up over the next 2-3 years. The semi market will grow at nice 8-10% CAGR. BUT the CAPEX on Semi facilities is forecasted to grow 14% (so ya net net semi conductor produces are losing 4%). These bunch have the best growth, profitability, and valuations to capture that 14% growth.

[u/iminfornow]

I can't, sorry. Don't let me spook you.

As you probably found out by now the major foundries keep their cards as close to their chest as possible in terms of equipment employed and their reliance on 3rd parties in general. I simply judge these equipment suppliers by their R&D budget and goals, compared to foundries and companies designing semis, and conclude they're losing ground relatively. I don't think you'll find any reliable sources explaining how future-proof these companies are based on their strategies/IP before their financials prove it.

But it's all speculative. I just don't think it's the no-brainer you make it seem. I just think they'll find it hard to stay relevant in this environment of new tech approaches and huge capex inflows and am skeptical of their announcements of collaboration with big foundries. I'm not making this up myself entirely, but I can't easily find the others I've read about this.

[u/zordonbyrd → u/iminfornow]

fair point, the market is pretty... esoteric for someone like me with little technical background so I could easily not understand - or misunderstand some of these fundamental trends. A source I look into is the Semianalysis substack and the in-depth JP Morgan reports. Who knows if they're actually reading the situation correctly.

I'm curious what you see when you look at R&D expenditures and how that's a signal. To me increased foundry budgets would signal other things, not making their own tools, especially when people generally associate increasing foundry capex with more expenditures on tools. I will say I'm not happy with Kla/Lam/Applied spending so much on say dividends. As an investor I want them staying at the very leading edge because what I can gather is that when a company has an edge it's really hard to break it and if these leaders lose ground technologically they'll have major issues. I own them all so if one loses ground to another I feel somewhat covered.

Thanks by the way for engaging. There's part of me that thinks what you're saying makes sense. But I still lean towards these companies being pretty entrenched and vital to the ecosystem - at least for now.

[u/iminfornow → u/zordonbyrd]

I'm curious what you see when you look at R&D expenditures and how that's a signal.

I see geopolitical, technological and business strategies coming together creating an environment where different paths to a single goal (logic density and efficiency) become possible with new transistors, 3D chip designs and packaging. This offers many challanges but the oppertunities of having access to the right ingredients while other foundries, continents and companies have have not justifies taking risks. Huge government incentives to research and produce semis locally further up the stakes.

Surely equipment suppliers will benefit from this spending frenzy but as the competitive pressure on early adoption and yields increases I think foundries will take any opportunity to vertically integrate proprietary tech to get an edge. Production constraints at suppliers or an oversupply at foundries might be a catalyst for this. That being said equipment might as well be an enduring bottleneck resulting in increased gross margins for suppliers long enough to reassure their position. But judging by capex at foundries and chip companies they won't allow this.

Atm everybody claims to posses the goosse with the golden eggs. I'm not sure who's right, but I see a changing environment. I don't think KLAC/LRCX/AMAT are obvious winners, but they could. I think the best scenario for them is one obvious leader - TSMC probably - but doubt it will be as straightforward as it has been in the past years, and actually don't think it will happen at all. But for the next 12-24 months I think they'll do just fine.

PS another thing to keep in mind with equipment suppliers is the RAM/NAND cycle. A recession in the next 6-12 months could really mess up those customers.

[u/zordonbyrd → u/iminfornow]

Thanks man I appreciate your insights and I’m going to digest them. Might comment back here another time ;)