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Is Apple King Of The Market?

Apple (AAPL) has been the stock market's darling for the last year or two as everyone pumps up rumors and awaits new iPhone updates. Recently, we've seen pullbacks in Apple and considering that the stock makes up about 1/5th of the S&P Tech sector, it can really move a market. So we've taken a look at Apple, the S&P Tech sector and the S&P 500 to see which has performed best on a year-to-date basis.

 

The S&P 500 is up +14.6% year-to-date with the XLK up +18.5% during the same time period. And AAPL? Up +56% during the same time. It appears that while AAPL has its ebbs and flows, it still can beat the broader market with ease.

 

Is Apple King Of The Market? - aapltech


Getting Growth And Earnings Right

Hedgeye CEO Keith McCullough recently penned an article for MarketWatch.com discussing the stock market and our economy. His focus is on getting economic growth right and earnings right in order to pick stocks correctly. In line with our thesis of Earnings Slowing, Keith lays out the case for his bearishness on the market, which is comprised of three reasons:

 

1. Economic growth in the U.S. and globally continues to slow.

2. U.S. corporate earnings slowing is a major market risk.

3. Bernanke’s commodity bubble is primed to deflate.

 

You can read the full article at MarketWatch.com.


JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY

Takeaway: Claims helped by a missing state, but the trend lower remains in place. Dual tailwinds (claims & housing) remain the key Financials drivers.

***The following note comes from our Financials team led by Managing Director Josh Steiner. If you aren't yet receiving their work on the space, including their seminal work on the U.S. housing market, please email if you're interested in setting up a trial.***

 

 

Our Take: Initial claims fell 28k last week to 339k (but fell 30k after a 2k upward revision to the prior week's data). Rolling claims fell 11.5k WoW to 364k. On a non-seasonally adjusted basis, claims rose 26k. News reports are indicating that one "large" state was excluded from this week's jobless claims report, explaining much of the WoW improvement. It's inclusion next week should see the series revert higher. That said, claims are still trending lower, driven by the seasonality dynamics we've often highlighted (see first chart below for detail). 

 

We follow claims and housing closely. Our basic thesis on capital-intensive Financial Services companies is that credit is always the most important swing factor, and the best leading indicators for credit's frequency and severity components are jobless claims (newly unemployed people are what drive new losses) and home prices (this is the primary collateral, hence it's relevance to severity). 

 

Aside from the seasonality component, which will remain a tailwind through February 2013, we like to cut through the noise by looking at the YoY change in the rolling NSA series. Again, largely attributable to the data anomaly of the missing state, there was a large improvement in YoY rolling NSA. The series improved sequentially from -7.4% to -10.3%. 

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY  - 1

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY  - 2

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY  - 3

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY  - 4

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY  - 5

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY  - 6

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY  - 7

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY  - 8
 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY  - 9

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY  - 10

 

Joshua Steiner, CFA

 

Robert Belsky


Early Look

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JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY

Takeaway: Claims helped by a missing state, but the trend lower remains in place. Dual tailwinds (claims & housing) remain the key Financials drivers.

Our Take: Initial claims fell 28k last week to 339k (but fell 30k after a 2k upward revision to the prior week's data). Rolling claims fell 11.5k WoW to 364k. On a non-seasonally adjusted basis, claims rose 26k. News reports are indicating that one "large" state was excluded from this week's jobless claims report, explaining much of the WoW improvement. It's inclusion next week should see the series revert higher. That said, claims are still trending lower, driven by the seasonality dynamics we've often highlighted (see first chart below for detail). 

 

We follow claims and housing closely. Our basic thesis on capital-intensive Financial Services companies is that credit is always the most important swing factor, and the best leading indicators for credit's frequency and severity components are jobless claims (newly unemployed people are what drive new losses) and home prices (this is the primary collateral, hence it's relevance to severity). 

 

Aside from the seasonality component, which will remain a tailwind through February 2013, we like to cut through the noise by looking at the YoY change in the rolling NSA series. Again, largely attributable to the data anomaly of the missing state, there was a large improvement in YoY rolling NSA. The series improved sequentially from -7.4% to -10.3%. 

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - Seasonality

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - Raw

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - Rolling

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - NSA

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - NSA rolling

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - S P

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - Fed

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - YoY NSA claims

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - Recessions

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - Rolling Linear

 

Yield Spreads

The 2-10 spread rose 3 bps WoW. 4QTD, the 2-10 spread is averaging 1.43%, which is up 6 bps basis vs 3Q12.  

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - 2 10 spread

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - 2 10 spread QoQ

 

Financial Subsector Performance

The table below shows the stock performance of each Financial subsector over multiple durations. 

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - Subsector performance

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - Companies

 

Joshua Steiner, CFA

 

Robert Belsky

 

Having trouble viewing the charts in this email?  Please click the link at the bottom of the note to view in your browser.  


Buying On The Dip

BUYING ON THE DIP

 

 

CLIENT TALKING POINTS

 

BUYING ON THE DIP

We go through a risk management process on a daily basis. We look at the market and make our decisions based on what it has done. Apple (AAPL) was oversold, so we bought Tech (XLK). Utilities (XLU) have been one of the top performers since the Bernanke top, so we bought that as well. And we bought one more asset class that’s correlated to the US dollar - see below for that one.

 

 

GOLDENEYE

We’ll leave James Bond be for now, as we’re more interested in the precious metal itself. We bought gold in the Real-Time Alerts yesterday because the US dollar signaled it was immediate-term TRADE overbought. That means we think the USD is ready to make a move to the downside. Dollar down, gold up. It’s pretty simple. Get the dollar right, you get other things right. The name of the game is correlation.

 

_______________________________________________________

 

ASSET ALLOCATION

 

Cash:                DOWN

 

U.S. Equities:   UP

 

Int'l Equities:   Flat   

 

Commodities: Flat

 

Fixed Income:  DOWN

 

Int'l Currencies: Flat  

 

 

_______________________________________________________

 

TOP LONG IDEAS

 

BRINKER INTL (EAT)

Remains our top long in casual dining as new sales layers (pizza) and strong-performing remodels (~5% comps) should maintain sales momentum. The company is continuing to enhance returns for shareholders through share buybacks . The stock trades at a discount to DIN (7.7x vs 9.3x EV/EBITDA) and in line with the group at 7.3x.

  • TRADE:  LONG
  • TREND:  LONG
  • TAIL:      LONG            

 

PACCAR (PCAR)

Emissions regulations in the US focusing on greenhouse gases should end the disruptive pre-buy cycle and allow PCAR to improve margins. Improved capacity utilization, truck fleet aging, and less volatile used truck prices all should support higher long-run profitability. In the near-term, Paccar may benefit from engine certification issues at Navistar, allowing it to gain market share. Longer-term, Paccar enjos a strong position in a structurally advantaged industry and an attractive valuation.

  • TRADE:  LONG
  • TREND:  LONG
  • TAIL:      LONG

 

HCA HOLDINGS (HCA)

While political and reimbursement risk will remain near-term concerns, on the fundamental side we continue to expect accelerating outpatient growth alongside further strength in pricing as acuity improves thru 1Q13. Flu trends may provide an incremental benefit on the quarter and our expectation for a birth recovery should support patient surgery growth over the intermediate term. Supply costs should remain a source of topline & earnings upside going forward.

  • TRADE:  NEUTRAL
  • TREND:  LONG
  • TAIL:      LONG

  

_______________________________________________________

 

THREE FOR THE ROAD

 

TWEET OF THE DAY

“these Las Vegas Strip numbers are even worse than the down 1% would indicate. high margin slot revs down 9%. bad for $MGM” -@HedgeyeSnakeye

 

 

QUOTE OF THE DAY

“No one means all he says, and yet very few say all they mean, for words are slippery and thought is viscous.” -Henry Adams

                       

 

STAT OF THE DAY

Greek unemployment rate hits record high of 25.1% in July

 

 

 


WHAT HAPPENED TO THE FAVORABLE CALENDAR?

Takeaway: September is coming in pretty weak almost across the board for domestic gaming despite an extra weekend.

Down a Friday but up a Saturday and Sunday, we would’ve expected a 2-4% calendar boost.  Yet, out of the six states that have released September gaming revenues, only Illinois – yes, Illinois – posted same-store revenue growth.  Pennsylvania managed to eke out total gaming revenue growth but same-store growth in that market was negative.  What’s going on?

 

WHAT HAPPENED TO THE FAVORABLE CALENDAR? - chart1

 

Clearly, consumers are stretched but gaming seems to be underperforming other consumer sectors.  We would argue that trends are sequentially getting worse. See chart below.  Adjusted for seasonality, July and August were worse than the trend projected, and September looks like more of the same. 

 

WHAT HAPPENED TO THE FAVORABLE CALENDAR? - chart2

 

Clearly there is more going on than just a soft consumer.  Here are some additional factors acutely impacting the gaming sector:

  • New competition and market saturation – We’ve seen same-store revenues suffer hits from new properties, indicative of market saturation.  New casinos in Ohio, PA, and Missouri are probably having an impact
  • Gas prices – We’ve shown statistically that higher gas prices negatively impact regional gaming revenues
  • Higher slot hold have masked lower volumes – Slot hold percentage has been on a consistent uptrend for years.  We think higher “pricing” is unsustainable.  Volumes have been under pressure for years.
  • Younger generations not playing slots – We’ve shown that the average age of the slot player continues to increase among other discouraging demographic trends.  The fact is, the post baby boomer generations are not playing slots.  This is a problem longer-term but may be impacting slot play currently.
  • Gaming is more discretionary than other consumer sectors

September probably needed to be a strong month for most of the regional gaming companies to make their Q3 earnings.  It doesn’t look like it materialized so there is near-term earnings risk.  We will be putting out earnings previews over the next week and we expect to be below consensus for most of the regional gaming companies.


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