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Client Talking Points

Sandy Markets

US Equity markets are closed today but the rest of the world continues to trade. And in Chicago, down at the Board of Trade floor, S&P 500 futures are moving down with commodities joining the party as the US dollar makes an upward move. What’s interesting about this hurricane here on the East Coast is that retailers will likely blame Sandy for any sort of miss on their next earnings report, whether it’s actually true or not. Some retailers will actually be impacted by the storm, but others have major fundamental issues that need to be addressed anyway. 

Chinese Cycles

China has been crashing for the last six-to-eight months and even longer than that if you use certain metrics. With Chinese stocks obliterated since March, a lot of people are coming out of the woodwork and declaring that “China has bottomed!” They will likely follow that statement up with something along the lines of how Chinese stocks are “cheap.” We have not bottomed and cheap can get a whole lot cheaper. Remember that. 

Asset Allocation

CASH 61% US EQUITIES 6%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 18% INTL CURRENCIES 15%

Top Long Ideas

Company Ticker Sector Duration
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.

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.

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.

Three for the Road

TWEET OF THE DAY

“EVERY retailer will blame #sandy, many genuinely impacted!” -@herbgreenberg

QUOTE OF THE DAY

“Free advice is worth the price.” -Robert Half

STAT OF THE DAY

Italy sells 8 billion euros of 6 month Treasury bills at 1.347% as borrowing costs fell, the lowest since March 28.