FA Alpha Weekly Digest 11 11 2024

Wall Street’s stock picks can’t be trusted and the advertising bias of the mainstream financial media makes their news only sensationalist-driven. Gain an edge by knowing the trends that matter and some of the mispriced stocks in the market.

We bring you the FA Alpha Weekly Digest, a roundup of FA Alpha’s unique and unparalleled equity, credit, and macroeconomic insights over the past week.

In today’s digest, we’ll cover recent trends in October ATI, Super Micro Computer (SMCI), Wolverine World Wide (WWW), Corpay (CPAY), and Xpel (XPEL).

Reaching the one-third mark in a $4.6 trillion opportunity

U.S. corporations minimized investments in their own assets between 2000 to 2020 following strategies advised by major consulting firms. This resulted in vulnerabilities in the supply chain that were exposed during the pandemic and prompted companies to refocus on domestic reinvestment. This shift has been accelerated by government spending programs and the necessity to adapt to new technologies like AI. As corporations continue increasing their investments, the easing of credit standards could boost this trend and lead to earnings growth.

This semiconductor giant has fallen from grace

Super Micro Computer, Inc. (SMCI) faces significant issues after its auditor, Ernst & Young (EY), resigned due to concerns about transparency and internal controls, triggering a 40% drop in stock. Shortly before, Hindenburg Research published a report alleging serious problems, including potential revenue inflation, undisclosed related-party transactions, and export control violations involving Russia. The report also pointed to strained relationships with key clients, with Tesla and CoreWeave recently switching to competitors. With EY’s departure and mounting allegations, Super Micro must address these concerns to regain investor and customer trust.

This shoe company is feeling the pressure as consumer demand declines

U.S. consumers are facing financial strain as credit card debt surpasses $1.14 trillion, with high interest rates at around 25%, making debt harder to manage and daily expenses more challenging. With savings from the pandemic era mostly gone, consumers now rely on credit for essentials, which has led to reduced discretionary spending. This shift is impacting companies like Wolverine World Wide, known for brands like Merrell and Saucony, as demand for non-essential goods declines. Wolverine is also managing high debt from acquisitions, such as Sweaty Betty, which have not delivered expected returns. Although new management is restructuring and focusing on core brands to improve profitability, the company’s turnaround remains uncertain amid these economic pressures.

This payment solutions company is driving growth through strategic transformation

Corpay (CPAY), formerly Fleetcor, has shifted from vehicle payments to broader corporate payment solutions, reducing reliance on fuel price-linked revenues. This strategic pivot, driving 20% annual growth, includes services like accounts payable automation and risk management, fostering more stable, recurring income. Despite risks like flat North American revenue and increased debt from the Paymerang acquisition, Corpay's global reach and integrated solutions position it well for growth.

This protective film provider is working to adapt as the auto industry struggles

The auto industry is currently struggling due to high interest rates, which have increased car financing costs and affected consumer affordability. Xpel (XPEL), a company specializing in protective films, has experienced significant challenges, including declining stock prices and reduced demand in the aftermarket amid slower EV adoption and weakened consumer interest in China. In response, Xpel is diversifying its offerings and expanding into international markets like China, India, and the Middle East, as well as developing new products such as windshield protection and architectural films. Despite these efforts and achieving a high Uniform return on assets, market uncertainties persist, reflected in a cautious valuation.

We hope you find this week’s FA Alpha Daily articles insightful.

See you next week as we talk about another set of interesting names.

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