Heads or Bails?

RIA DAILY PLAYBOOK  

FOR RELEASE ON TUESDAY, JULY 24, 2012

 

CLIENT TALKING POINTS

 

DROP THE BOMB

Moody’s came out last night and lowered their outlook on Germany and the Netherlands’ credit ratings. While Angela Merkel’s AAA rating remains intact, the curtain is being pulled back, revealing that Germany has the same #GrowthSlowing problem as everyone else. Estimates floating around now guess that German Q3 GDP could even turn negative on a year-over-year basis; the consensus is up +0.5%.

 

A SHOW OF HANDS, PLEASE

Our idea of a country being “Too Big To Bail” isn’t some pipe dream we came up with – it’s reality. Bailout mechanisms like the IMF and EFSF only have a finite amount of funds and it’s not exactly trillions upon trillions of dollars either. Spain and Greece go and ask for more money every week, like spoiled children going to the shopping mall.

 

And then there is Italy. Italy has over $1 trillion of debt maturing in the next 12 months. The country will have a tough time with austerity measures, too, we’d imagine. This is a country truly too big to bail.

 

DOLLAR HOLLER

Seriously, holler at the US dollar. As Keith mentioned on The Kudlow Report last evening: get the dollar right and you’re going to get a lot of other things right. We’re bullish on the USD and thus we’ve had a fairly good time watching things like Brent oil, the EUR/USD and gold move lower as the dollar goes higher. The commodities game is basically winding to a close since the Federal Reserve is out of bullets.

 

ASSET ALLOCATION

 

Cash:  Flat    U.S. Equities: Up

 

Int'l Equities: Up           Commodities: Flat

 

Fixed Income: Down     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

 

LIFEPOINT HOSPITALS (LPNT)

We continue to expect outpatient utilization to pick up in 2H12 alongside stabilization in acuity with ortho and cardiac/ICD volumes supporting both pricing and inpatient admissions growth. Births should serve as a tailwind into year-end, recent and prospective acquisitions offer some upside to 2012/13 numbers and the in place repo offers some earnings flexibility. With European and Asian growth slowing, we like targeted domestic revenue exposure as well.

 

TRADE: NEUTRAL

TREND: LONG

TAIL: LONG

 

THREE FOR THE ROAD

 

Tweet of the Day: “So this is it. A battle three years in the making. The US Housing Market vs Europe. Good luck, gentlemen. $$” -@ReformedBroker

 

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: The Russell 2000 has dropped over -5% since July 4, snapping both our TRADE and TREND lines of support.

 


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