“Balance is not something you find, it’s something you create.”
- Jana Kingsford
When I helped Keith McCullough create Hedgeye back in 2008, our principles were the same as they are now; “Trust, Transparency, Accountability.”
There’s another word that we didn’t use in our marketing materials but "Balance" was and is implied throughout the organization. Balance in the lives of Hedgeye employees, balance in the way we look to the future, and balance in just about everything we did.
Forgive me if I’m feeling a tad nostalgic but as I introduce the Gaming, Lodging, and Leisure (GLL) Pro product to potential individual subscribers for the first time, I’m reminded of the part of the business plan that put me over the edge to join Hedgeye.
Keith pitched me on the idea that we could bring (better than) institutional quality investment research to the masses. While Hedgeye has been doing that for years, I’ll be directly involved in the process for the first time. The GLL team has a lot to offer and for those unable to subscribe to our institutional work, I hope you’ll give GLL Pro a ride. If you would like to learn more about my research team's in-depth investing research please reach out to .
Back to the Gaming, Lodging, and Leisure Grind…
The balance I want to discuss today is in our investment approach. The Hedgeye process to investing has always balanced the marriage of Macro and bottoms up fundamental company and analysis. I, of course, provide the latter, but since I joined Hedgeye, Macro became an integral part of my process. Keith and the Macro Team supply unbelievable research so while I delve into macro correlations occasionally, I mostly rely on their terrific analysis. There are times when Macro dominates and oh how frustrating that can be as a fundamental analyst. But if one has balance between Macro and bottoms up in their process then frustration can be mitigated. In fact, we do our best each day to try and find that balance for our subscribers.
Understanding different points of view is an important part of my process, so I understand that subscribers may not always hold the same macro, industry, or company views. The probability seems to be rising that the US economy may be transitioning to Quad 3 which historically hasn’t been conducive to most stocks in GLL. So even though I may think a stock won’t work under a certain macro regime, our bottoms up analysis could be useful to subscribers. For example, I may think estimates are way too low for PENN and the stock is dirt cheap with positive catalysts (I do), but if the economy is moving to Quad 3, the stock may not work even if I’m right on the fundamentals.
If you risk manage according to the Quads and KM’s levels, perhaps you’ll use our work to put PENN on your watchlist and look for an entry point when the Quad backdrop improves. Alternatively, you may just buy PENN because you see a steady and lasting Quad 2 environment or you hedge or you’re just a buy and hold investor. In any event, we’ll provide the balance between macro and bottoms up analysis to help YOU better make and time your decisions.
I used to think that if you’re right on the company fundamentals, you’ll be right on the stock. I still believe that’s true in most cases but the percentage of positive hits escalates dramatically if you’re right on the macro too. Uncertain about Quad 2 or Quad 3? As a subscriber, you’d know that the OTAs are one of the few subsectors of GLL that actually performs well during Quad 3 and guess what? Fundamentally, we’re bullish on those too, especially EXPE and BKNG.
Leisure travel is exploding here in the US and while that favors EXPE, the Europe is on the come so BKNG can play catch up. Frankly, the investment community is just not bullish enough. But what about the Quad 3 impact on GLL? Well, the OTA sector actually back tests the best among our coverage in Quad 3 owing in part to their “organic growth” and “high quality” business models. The OTAs have been stealing share which will likely be compounded by hotels leaning into the OTAs to fill lost business travel room nights. At the company level, there are drivers as well. EXPE should benefit from cost cutting, marketing realignment, leveraging core brands, and the explosive growth in alternative accommodation (AA via Vrbo).
While EXPE works to improve its operations, BKNG is already there operationally. BKNG’s catalysts include a bigger 2nd derivative of growth as Europe catches up to the US, AA, and leveraging its enormous funnel and marketing might to push for share in the US. These companies should be in growth mode for a long time and without extensive capital needs, will be big time cash generators. Bottoms up = Macro (Quad 2 or Quad 3) for the OTAs. #Balance
The bottom line is that, as a subscriber, you’ll always know where I stand on company and industry fundamentals even if the bottoms up analysis run counter to the Hedgeye Macro view. Fundamental analysis is important – I’ve staked my long career on that premise – but so is Macro and many times more important, so you’ll always know how my stocks fit into that Macro view. Ultimately, the perfectly balanced marriage of the two (Macro and Micro) should result in high quality longs and shorts.
Thanks so much for reading and making it through all the nostalgia. I’m proud of what Hedgeye has become and I’ve been here since almost the beginning. Most of us want to make a lot of money at our jobs but also being proud of what you do is something special. One could say it’s the perfect balance.
Immediate-term @Hedgeye Risk Range™ with TREND signal in brackets:
UST 10yr Yield 1.27-1.48% (bullish)
SPX 4 (bullish)
RUT 2170-2271 (neutral)
NASDAQ 14,501-14,793 (bullish)
Tech (XLK) 148.22-153.35 (bullish)
Energy (XLE) 48.66-54.95 (bullish)
REITS (XLRE) 44.81-46.76 (bullish)
Shanghai Comp 3 (bearish)
Nikkei 27,622-28,966 (bearish)
DAX 15,441-15,916 (bullish)
VIX 14.40-18.66 (bearish)
USD 91.40-92.86 (bearish)
EUR/USD 1.177-1.200 (bullish)
Oil (WTI) 71.11-76.08 (bullish)
Nat Gas 3.54-3.79 (bullish)
Gold 1 (bullish)
Keep your balance…
Todd Jordan
GLL Managing Director/CFO
