Looking Deeper Into The Rabbit Hole

RIA DAILY PLAYBOOK     

FOR RELEASE ON TUESDAY, JULY 10, 2012

CLIENT TALKING POINTS

READING THE STORY

You get fed news flow and you have to digest it in a rapid manner that gets to the point right away. This morning, before 4AM, the futures were down due to a bad start to the US earnings season. Then, after 5AM, we were up on news of Spain getting a re-do on the timing of its bank bailout. It’s all part of the game.

Basically, keep this in mind: The Barclays debacle is far from over. Bob Diamond will be paid handsomely on his way out, Barclays will separate its retail and investment banking operations and the world will continue on despite the massive manipulation going on in the market. Life is grand.

EARNINGS WATCH

As we move into the earnings season, every week is going to have a slew of new numbers to watch. Right now, the real question is whether or not the slowing growth (and we know slowing growth), is priced into corporate earnings. If this continues, the longest of long-term corporate profit margin cycle peak is probably in. “Cheap stocks” will become a lot cheaper.     

BRITISH INCOMPETENCE

Barclays has a serious problem on its hands on with this LIBOR scandal. People are realizing that they screwed up big time. An interesting note is that Barclays current has a market capitalization of around $20 billion. Were Barclays Capital to separate from the parent division, it would need an additional $20 billion in recapitalization post-split. Diamond and Aegis aren’t going to take their bonuses – that’s given. The question is can this legendary institution survive, given all that’s happened and the worst is yet to come? We shall see.

ASSET ALLOCATION

Cash: Down              U.S. Equities: Flat

Int'l Equities: Down    Commodities: Down

Fixed Income: Down            Int'l Currencies: Down

TOP LONG IDEAS

PSS WORLD MEDICAL (PSSI)

The bulk of the bad news is on the table following disappointing F2012. Rebased F2013 estimates far more reasonable, and revenues should be supported by our expectations for rising physician utilization, and in the near-term, a flu season that is shaping up as a considerable tailwind.

TRADE: LONG

TREND: LONG

TAIL: NEUTRAL

HCA (HCA)

SS volume accelerated in 1Q12 and employment remains a tailwind to both admissions & mix. We expect acuity to stabilize and births and outpatient utilization to accelerate out of 1Q12, while supply cost management continues as a margin driver and acquisition opportunities remain a source for upside.

TRADE: NEUTRAL

TREND: LONG

TAIL: NEUTRAL

UNDER ARMOUR (UA)

The company continues to control its own destiny through investments in all the right areas. We think 30%+ top line and EPS growth for 5+ years. One of its failures, however, has been in penetrating markets outside the US. That will happen. But for now, its failure is a competitive advantage in the face of a strengthening dollar. We like it in sympathy with a LULU sell-off.

TRADE: LONG

TREND: LONG

TAIL: LONG

THREE FOR THE ROAD

Tweet of the Day: “PFG=People’s Funds Gone #PFGBest” -@ilkandcookies         

Quote of the Day: “That is the saving grace of humor, if you fail no one is laughing at you.” –A. Whitney Brown

Stat of the Day:  $200 million in missing funds from Iowa-based futures brokerage PFGBest.