Anthony Speciale Stock Market Analyst

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Daily Trends

MOMENTUM

Momentum is about owning what is working, and that’s why we are going to stick with Tractor Supply (TSCO) this week as our momentum stock. 

Business is booming for this company as people leave the cities and head to the smaller cities and towns around the United States. Tractor Supply has been reporting record results for about 18 months now, and there is no end in sight. 

On the last conference call, management raised their guidance for revenues and profits for 2021, and they are expecting another record year.

Tractor Supply management also said their average customer is getting younger. So as millennials finally start forming families, leaving cities and having kids and pets, Tractor Supply is going to benefit from their spending for literally decades to come.

Tractor Supply has also been successful at developing an e-commerce platform. Last year alone, there were more than 1.6 million downloads of the Tractor Supply mobile app.

The company’s performance has attracted large cash inflows from large institutions that have given the stock the type of smooth momentum we like to see in a momentum stock.

CHEAP ASSETS

Malvern Bank (MLVF) was originally organized in 1887 as a federally-chartered savings bank and is now one of the oldest banks on the Philadelphia Main Line. The bank is based in Paoli, Pennsylvania, and has nine branches, including one in Palm Beach, Florida. They have just over $1 billion in total assets.

The bank has a lot of excess capital on hand right now. As a result, its equity to asset ratio, an important measure of a bank’s financial strength, stands at 13.47, well above the national average of about 10.29.

Malvern is in sound financial shape, but they are underperforming their larger peers in terms of returns on assets and equity. Smaller banks like Malvern are having a tough time keeping up with their larger competitors. 

In addition, regulatory costs will be going back up as the new administration unwinds some of the easier policies put in place over the last four years. The adoption of digital banking that was accelerated by the pandemic has also dramatically increased the need to spend money on technology and cybersecurity.

Often an underperforming bank with excess capital becomes a target for a larger bank that can reduce costs and has the assets to deal with rising costs. Malvern is reaching price levels that might make them a very attractive takeover target.

With the stock trading at just 86% of book value, there is tremendous upside potential.

CHEAP EARNINGS

Gray Television (GTN) is an owner and operator of television stations around the United States. They have transformed themselves over the past year with two deals that have made them one of the largest owners of television stations in the United States.

In August, Gray completed its acquisition of Quincy Media, Inc. for $925 million in cash. The deal added adds eight new markets, each with the #1 or #2 ranked television station.

Gray also reached an agreement to acquire Meredith Corporation’s Local Media Group for $2.825 billion in cash in a deal that should close later this year. This deal will add 11 new markets, including one and two ranked television stations in eight markets. 

When the Meredith deal closes, Gray will be the second-largest broadcast company in the United States with what most industry observers think will be the highest quality collection of assets.

The biggest stock driver will be the massive wave of political advertising that will happen in 2022. This is going to be a watershed off-year election with billions of dollars being spent.

During the 2018 elections, the biggest beneficiaries of political dollars were Gray, Quincey and Meredith. Now Gray will own all of the three companies and rake in the majority of these billions spent on television ads.

Gray Television shares are currently trading at less than six times earnings and five times free cash flow.

INCOME

Enterprise Products Partners (EPD) owns a collection of midstream energy assets in North America. They own pipelines, processing plants, storage facilities and terminals to move crude oil, natural gas and natural gas liquids from the field to the processor and the end-user.

With all the talk of renewable energy, it is easy to lose sight of the fact that we still use more oil and gas than solar and wind, and that’s going to be true for a long time. We will need pipelines and storage facilities for decades more at least. Emerging markets like China and India will be using oil and gas even longer. 

Natural Gas Liquids are a big part of the Enterprise Products story.  Natural gas liquids are fuels like propane and butane as well as plastic feedstock like Ethane. Enterprise not only has pipelines and storage facilities for natural gas liquids, they have facilities at the Houston Ship Channel, the main export facility for NGLs in the U.S.

The export markets for these liquids are enormous. In large emerging markets like China and India, propane is being used instead of coal or biological materials like animal waste to heat homes and cook. Switching to propane will help curb emission in emerging markets, and demand will continue to grow for a very long time.

Enterprise Product Partners is the largest U.S.-based owner of energy infrastructure. The stock is yielding over 8%, and cash flows more than cover the dividend. In addition, the payout has been increased for 22 straight years, so it is reasonable to expect continued increases in the future.

Management owns almost one-third of the company, so they have a lot of skin in the game.

SPECIAL SITUATIONS

EchoStar Corporation (SATS) is a global provider of satellite communications solutions. The company has two segments: Hughes and EchoStar Satellite Services (ESS). 

The Hughes segment provides broadband satellite technologies and internet services for home and small to medium-sized businesses and satellite services to broadband and communication providers.

EchoStar Satellite Services provides satellite communications infrastructure and solutions to media and broadcast organizations, enterprise customers and U.S. government and military service providers. They currently have a fleet of nine satellites available.

The story here is pretty simple. EchoStar is generating enormous amounts of cash and using it to reduce debt and buy back stock. In the second quarter alone, EchoStar purchased 2,374,452 shares of stock and paid off the remaining $809.5 million of a bond issue.

As of the end of June, the company had cash, cash equivalents and current marketable investment securities of$1.6 billion. They have no net debt.

Given its position as a premier provider of satellite T.V. to the broadband and communication markets in the United States, EchoStar is positioned to be a fantastic growth stock. 

At less than tangible book value and less than eight times earnings before interest and taxes, this stock could have been in either the cheap earnings or cheap asset portion of the Trend report this week.

What makes it a special situation is that almost 20% of the float is sold short right now. That is equivalent to 12 days of volume. So continued strong results along with the consistent stock buybacks could create a short squeeze in shares of EchoStar that would drive the stock dramatically higher no matter what the stock market is doing at the time.

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