Markets are entering a more volatile phase, with elevated risk for certain sectors.
Quad 4—when both growth and inflation slow—is sticking around longer than expected, delaying the more bullish Quad 2 (when both accelerate) until May/June instead of March/April.
What this means for Macro-aware investors:
- Defensive sectors like healthcare and REITs have historically outperformed in Quad 4.
- Growth stocks require a more selective approach in this environment.
- Navigating Quad 4 requires discipline—leveraging math-based signals to find high-probability opportunities and sidestep costly mistakes.
Staying nimble is key, and we’re adjusting accordingly.
Stock Spotlight: TKO Group Holdings (TKO)
TKO Group Holdings (TKO) has been a textbook example of our stock-selection process, gaining 27.3% since being added to Investing Ideas on August 23, 2024 and outperforming the S&P by 23.2%.
Our investment process combines quantitative, fundamental, and macro analysis—with an emphasis on timing. TKO cleared all three tests in August 2024, but the risk/reward set up has since shifted.
Fundamentals
TKO operates two major segments: Ultimate Fighting Championship (UFC) and World Wrestling Entertainment (WWE). We identified it as a high-potential stock based on:
- Strong fundamentals
- Key catalysts, including the WWE-Netflix deal and UFC renewal negotiations
UFC renewal expectations have surged, with management signaling a $1B price tag. Reports suggest Amazon and Netflix may enter the bidding war, but much of this optimism appears priced in.
Likewise, WWE’s initial Netflix success was a strong catalyst, but declining viewership trends could pose a risk. Yesterday's earnings report disappointed many investors, causing the stock to lose -6% on the day, rebounding after being down as much as -12% from the February 26 close.
Keith McCullough's Quantitative Signal
Hedgeye CEO Keith McCullough’s proprietary price, volume, and volatility algorithm has been Bullish on TKO since August 2024.
Investing Ideas subscribers will get notified immediately when Keith's signal changes. Subscribe here now.
Macro Headwinds Vs. Tailwinds
As our macro outlook evolves, we remain focused on fundamentally strong stocks that align with market conditions. TKO is still on Investing Ideas, but we will issue a SELL SIGNAL when the data says it’s time to exit.
Bottom Line: The game is always changing, and we always play to win. Trust the process.
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