BACK TO BUSINESS

Client Talking Points

KEY RANGES TODAY

It’s certainly a difficult time for millions of people impacted by the devastation of Hurricane Sandy. Our CEO, Keith McCullough, hopes for health and safety to the many in the dark on the East Coast. As Keith says, “Hope isn’t a risk management process.” He is really at a loss for words, so we wanted to offer you a few risk management lines.

  • US Dollar Index immediate-term TRADE breakout line $79.57 (long-term TAIL support=$78.11)
  • SP500 TRADE (1431) and TREND (1419) resistance
  • CRB Commodities Index TRADE (305) and TAIL (312) resistance

IT’S THE END OF THE MONTH AS WE KNOW IT

It’s the last day of October, which means it’s not only Halloween, but something potentially scarier -- the year-end for many mutual funds. Futures are indicating that we’re going to get a lift thanks to these month-end markups. That doesn’t change the big picture – global growth and corporate earnings both are slowing.


CHINA SYNDROME

Many are saying that China’s stock market has bottomed. As we say, bottoms are processes, not points and we’re still bearish on a TRADE, TREND and TAIL basis for the Shanghai market. Sure, Chinese stocks rallied off two week lows to close up marginally (0.3%), but China hasn’t bottomed.

 

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

“All people begging for banker and #oldwall bailouts when people in the dark need them, #reflect.” -@KeithMcCullough

QUOTE OF THE DAY

“If the world was perfect, it wouldn’t be.” – Yogi Berra

                       

STAT OF THE DAY

8 million, the number of American homes without power after Hurrucane Sandy