"Great" Expectations

RIA DAILY PLAYBOOK  

FOR RELEASE ON MONDAY, JULY 23, 2012

 

CLIENT TALKING POINTS

 

BACK TO BACK

Once again, Europe is in trouble. Funny how every time the EU is thrust into the limelight, it’s always something worse than before. This time around, Spanish and Greek equities are getting the crud kicked out of them and Italy isn’t even positive that Germany will be able to bail them out on September 12. Throw in the joke known as a “ban” on shorting Italian bank stocks from Italy’s regulator and you can kind of guess how quickly the country has gone to hell in a hand basket.

 

WHAT YIELD?

The flight to safety known as “buying the 10-year Treasury” continues to pick up speed. Last night, the 10yr hit an record low yield of 1.44%. This morning it’s at 1.41%. Do you see the trend here? People aren’t confident that our capital markets can perform well. As we always say: get the US dollar right, you’re going to get a lot of other things right; that includes the slope of growth.

 

“GREAT” EXPECTATIONS

Another arbiter of hope for the market was the Q2 earnings season. After all, if one company could offload some debt to a SPV and beat the Street, everything would be OK in the end. Not the case, though. With almost 200 of 500 companies in the S&P 500 having reported, at least 50% of them have already missed on revenue expectations (worst quarter since 2008).

 

Somewhere, Charles Dickens is rolling over in his grave right now.

 

ASSET ALLOCATION

 

Cash:  Down                 U.S. Equities: Flat

 

Int'l Equities: Up          Commodities: Flat

 

Fixed Income: Flat         Int'l Currencies: Flat

 

TOP LONG IDEAS

 

JACK IN THE BOX (JACK)

This company is transitioning from cash burn to $75mm annual free cash flow generation thanks to completion of a reimaging program and refranchising of JIB units. Qdoba is the leverage; a maturing and growing store base will bring higher margins. We see 8.5% upside over the next 6-9 months.

                                 

TRADE: LONG

TREND: LONG

TAIL: LONG

 

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: “RTRS-ITALY MARKET REGULATOR CONSOB SAYS REINTRODUCES SHORT-SELLING BAN ON BANKING, INSURANCE STOCK” -@BergenCapital

 

Quote of the Day: “In great affairs men show themselves as they wish to be seen; in small things they show themselves as they are.” –Nicholas Chamfort

 

Stat of the Day: $15.1 billion in CASH. The price China-based Cnooc Ltd. paid for Canadian oil-and-gas producer Nexen Inc. It is the largest overseas acquisition for a Chinese company to date.                                                                                                                                                                                                                                                                                                               


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