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THE FED CAN’T FIX IT

CLIENT TALKING POINTS

THE FED CAN’T FIX IT

The Federal Reserve is apparently capable of “fixing” the economy through quantitative easing. It can also “fix” the market through mortgage buybacks and through statements broadcast on TV that make traders go bananas. One thing the Fed can’t do, however, is smooth the corporate EPS cycle. Earnings season is proving to be a cautionary tale as large cap and mega cap companies report misses or offer lower guidance for 2013. You’ve been warned; the Fed won’t be able to skew this one. 

SLOWDOWN TAKING HOLD

Permabulls better start getting with the program and realizing the market doesn’t go straight up like a rocketship. GDP is down, earnings are awful and stocks are still expensive. To those who think stocks are still cheap, you should remember that “cheap” gets “cheaper.” And that’s what’s going to happen as we head lower into November. The election will no doubt act as an important catalyst for moving the market, but until then...

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ASSET ALLOCATION

Cash:                DOWN

U.S. Equities:   UP

Int'l Equities:   Flat   

Commodities: Flat

Fixed Income:  Flat

Int'l Currencies: Flat  

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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

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THREE FOR THE ROAD

TWEET OF THE DAY

“Obama bails out giants, erects barriers to entry, hands goodies to corporate friends. Media points to corp. profits as proof he's capitalist” -@TPCarney

QUOTE OF THE DAY

“You are not superior just because you see the world in an odious light.” -Vicomte de Chateaubriand

STAT OF THE DAY

Hedge funds were up +1.04% for the month of September according to the Dow Jones-Credit Suisse Hedge fund Index.