Editor’s Note: Imaging using an AI trading system to screen 5,000+ stocks and ETFs every day. And it then alerts you to the 3 – 5 trades with the greatest upside potential. |
It’s called the AI Profit Predictor. And it’s already alerted us to some huge winners including… |
· 113% in NEXTERA in 2 days |
· 100% in Gilead Sciences in 3 days |
· 151% in Microsoft in 2 days |
Here’s a link to the details – and you can get next week’s trade alert. |
Yesterday I told you about MGM Resorts — one of four ideas pitched at a hedge fund contest in Napa Valley. |
Today I'll reveal the pick that actually won. It came from Dan Dreyfus, who runs a fund called Bornite Capital. |
His top pick is Talen Energy (Nasdaq: TLN). |
Talen owns about 8 gigawatts of power generation — that includes 2 gigawatts of nuclear and 6 gigawatts of natural gas. |
Dreyfus quoted Sam Zell's old playbook: buy a hard asset below what it would cost to replace, hold it, and sell it at a premium once the market wakes up. |
Want to get this week’s AI trade alerts? Go here to get on the list. |
That's the setup here. He thinks Talen's enterprise value around $25 billion against a replacement cost closer to $45 billion. You're buying the fleet of energy producing assets for a 50% discount. |
Surging electricity demand makes this extremely attractive. |
AI data centers are enormous power hogs. Dreyfus described a data center as a kind of refinery — electricity goes in, intelligence comes out. The grid Talen operates in, called PJM, is projecting it needs 106 gigawatts of new power over the next decade. That's roughly the total power consumption of Japan. |
Meanwhile new power is slow and expensive to build. So existing capacity — what Talen already owns — gets more valuable every year supply stays tight. |
The hyperscalers know it. Microsoft cut a deal to restart Three Mile Island. And Talen already has a power contract with Amazon for nearly 2 gigawatts. |
The numbers are moving in the right direction. In the first quarter, adjusted EBITDA more than doubled to $473 million and free cash flow quadrupled to $350 million. |
And just days ago, on June 15, Talen closed its Cornerstone acquisition — about 2.6 gigawatts of additional gas plants for $3.45 billion. Management says it's immediately accretive, adding more than 15% to cash flow per share and giving the company a clear line to over $40 a share in annual free cash flow by 2028. |
The company is also buying back its own stock aggressively. The buyback program for $1.9 billion is authorized through 2028. Fewer shares = more cash flow per share. |
So, what’s the upside? |
Dreyfus’s base case assumes the company does nothing fancy — just runs the fleet. That alone throws off around $50 a share in free cash flow. Put a 15x multiple on it, the standard for quality infrastructure, and you get roughly $750 a share. |
If Talen signs more contracts at premium prices, that climbs toward $70 a share in cash flow. The same 15x multiple gets the stock price to $1,050. |
And if it actually builds new capacity into that 106-gigawatt shortfall, he sees over $100 a share in cash flow. That could send the stock price above $1,500. |
Talen shares were recently trading around $410. |
It’s a pretty attractive setup: a fleet worth far less than replacement cost, demand exploding, and supply that can't keep up. |
Several of the biggest hedge funds are using AI to research, analyze and select stocks for their portfolios. Yet most individual investors are watching from the sidelines. |
That’s why my team created the AI Profit Predictor. It’s designed to being powerful AI algorithms directly to individual investors. |
Simply go here to check it out. |
Ian Wyatt |
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