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GMCR STOCK AND K-CUPS ARE BARGAINS FOR A REASON

Takeaway: GMCR is "cheap" but it may get cheaper.

Discounting is a difficult strategy to evaluate.  It can be a sign of strength in one instance and a sign of weakness in another.  We view the heavy discounting of K-Cups as a clear sign of weakness in the Green Mountain Coffee Roasters business model. 

 

A walk around a Lucky Supermarket in Santa Rosa, California, revealed that K-Cups are being sold for $4.99 per box.  In light of this discovery, we would make the following observations:

  1. Discounting of this magnitude calls into question the accuracy of the company’s internal “demand model”
  2. It is almost certain that the company has ongoing inventory issues
  3. The margin structure of the company is under duress
  4. Given the cash flow and balance sheet of the company, as well as the competitive landscape, a turnaround is going to be a tall order from here

As we have written before, it is almost impossible to analyze this company in a conventional manner given the lack of coherence and disclosure in the company’s guidance, particularly with regard to its capex budget.  Whispers continue to occasionally spur bouts of short covering but our view is that the risk in this stock remains disproportionately to the downside. 

 

GMCR STOCK AND K-CUPS ARE BARGAINS FOR A REASON - gmcr kcup 4.99

 

 

Howard Penney

Managing Director

 

Rory Green

Analyst


Lolo Jones Doing The Bobsled

Takeaway: Track star Lolo Jones shows us why its so much more important to endorse the athlete over the event. Congrats to UA.

Track star Lolo Jones looks like her best prospect to medal in an Olympic event might actually be in a cold weather sport. In this photo, check out the wall, and the uniforms. Then answer yourself the question...is it more important to endorse the athlete or the event? Congrats to UA. Sorry Adidas.

Lolo Jones Doing The Bobsled - 11 9 2012 5 30 46 PM


Weekly European Monitor: The Eurocrat Shuffle

Takeaway: Greece was on the center of the dance floor this week with Eurocrats lining the walls afraid to make a move.

-- For specific questions on anything Europe, please contact me at to set up a call.

 

No Current Real-Time Positions in Europe

 

Asset Class Performance:

  • Equities:  The STOXX Europe 600 closed down -1.7% week-over-week vs +1.6% last week. Bottom performers: Spain -4.2%; Italy -3.7%; Russia (RTSI) -3.0%; Germany -2.7%; Finland -2.7%; France -2.0%; Austria -2.0%; UK -1.7%.  Top performers: Turkey +0.6%; Slovakia +0.5%; Switzerland +0.2%. [Other: Greece +0.0%].
  • FX:  The EUR/USD is down -0.94% week-over-week.  W/W Divergences: TRY/EUR +1.01%; NOK/EUR +0.83%; SEK/EUR +0.43%; GBP/EUR +0.18%; CHF/EUR +0.10%; DKK/EUR +0.02%; HUF/EUR -0.44%; CZK/EUR -0.46%; PLN/EUR -1.17%.
  • Fixed Income:  The 10YR yield for sovereigns were mixed week-on-week. Portugal rose the most at +51bps to 8.86%, followed by Spain +23bps to 5.83%. Greece saw the largest decline at -34bps to 17.87%.  Germany, Belgium, and France were notable decliners, falling -12bps, -11bps, and -9bps to 1.33%, 2.31%, and 2.13%, respectively.    

Weekly European Monitor: The Eurocrat Shuffle - 11. yields

 

  • The EUR/USD hit its lowest level in 2 months this week. We maintain an immediate term TRADE range of $1.27 to $1.29 and a heavy intermediate term TREND resistance level of $1.31.

Weekly European Monitor: The Eurocrat Shuffle - 222. NEU EUR

 

Weekly European Monitor: The Eurocrat Shuffle - 11. cftc data

 

 

The Eurocrat Shuffle:

 

The Eurozone continues to take two steps forward and one step back, or is it, one step forward and two steps back?  Headline risk continues to be a governing factor. This week it largely revolved around Greece – waiting on the narrow passage of a €13.5B package of spending cuts, tax increases and structural reforms late Wednesday night and ahead of Sunday’s vote on its 2013 budget.

 

Markets remained constipated over Greece’s next lifeline aid tranche of €31.5B, as the European Commission, Eurogroup, and IMF are in disagreement about how to both reduce Greece’s debt load and set appropriate debt reduction targets for such far-out dates as 2020. On some level an agreement to both will be needed before the money is dropped from the skies. [See our note titled “November ECB Presser: No Surprises” for our commentary on the ECB’s decision to keep rates on hold this week.]

 

 Away from the politically compromised Eurocrats and structural flaws of the Eurosystem, Keith noted that his multi-factor quantitative model was flashing a major buy signal for the German DAX. [Note: we sold our Real-Time Position in German Bonds (BUNL) on Thursday (11/8) so we have no exposure to Europe].  He also said that the broader equity market of Denmark looks good; whereas the UK is flashing a negative set-up.

 

Weekly European Monitor: The Eurocrat Shuffle - 22. dax

 

 

Beyond the headline news, and broader negative data out this week (see below in the section “Data Dump”), there were a couple positive charts that caught our attention this week:

  • Target 2 exposure is actually slowly improving across the periphery.

Weekly European Monitor: The Eurocrat Shuffle - 11. target 2

 

  • Current Account Balances are showing improvement across countries that have historically had heavy deficits.

Weekly European Monitor: The Eurocrat Shuffle - 11. current acct bal

 

 

 

The European Week Ahead:


Monday: Eurogroup Meeting in Brussels; Oct. Germany Wholesale Price Index (Nov. 12-13); Oct. UK RICS House Price Balance; Sep. Spain House Transactions

 

Tuesday: Nov. Eurozone ZEW Survey Economic Sentiment; Nov. Germany ZEW Survey Current Situation and Economic Sentiment; Oct. UK PPI Input and Output, CPI, Retail Price Index; Sep. UK ONS House Price; Oct. France CPI - Final; Sep. France Current Account; 3Q France Wages and Non-Farm Payrolls – Preliminary; Oct. Italy CPI - Final; Sep. Italy General Government Debt

 

Wednesday: Sep. Eurozone Industrial Production; BoE Inflation Report; Oct. UK Claimant Count Rate, Jobless Claims Change; Sep. UK Weekly Earnings, ILO Unemployment Rate, Employment Change; Oct. France Consumer Price Index; 3Q Greece GDP - Advance

 

Thursday: ECB Publishes Nov. Monthly Report; Oct. Eurozone CPI; 3Q Eurozone GDP – Advance; 3Q Germany GDP – Preliminary; Oct. UK Retail Sales; 3Q France GDP – Preliminary; Spain Catalonia Regional Election; 3Q GDP - Final 3Q Spain GDP – Final; Sep. Italy Current Account; 3Q Italy GDP - Preliminary

 

Friday: Sep. Eurozone Current Account, Trade Balance; Sep. Italy Trade Balance

 

 

Extended Calendar:


NOV 19  –            Eurozone Finance Ministers Meeting

NOV 22 –             EU Summit and ECB Governing Council Meeting

NOV 26  –            Finance Ministers may sign off on Greece’s next bailout tranche, 31.5B EUR

NOV 27 –             AFME 4th Annual Spanish Funding Conference in Madrid

DEC 1 –                Beginning of the Russian Presidency of G20

DEC 3 –                Eurogroup Meeting in Brussels

DEC 6 –                ECB Governing Council Meeting

DEC 12-13 –          First public consultation between the Russian government, B20 Coalition and international civil society representatives on G20 agenda for 2013 (in Moscow)

DEC 20 –               ECB Governing and General Council Meeting

APR 2013 –           Parliamentary elections in Italy

MAY 2013 –           Presidential elections in Italy

 

 

Call Outs:

 

Turkey - received its first investment- grade ranking since 1994 after Fitch Ratings raised the country by one level (BB+ to BBB-), citing an easing in economic risk and lower debt.

 

Italy - Italian Treasury officials rejected proposals to create a so-called bad bank for the non-performing loans of the nation’s lenders amid concern the plan would strengthen the link between sovereign and bank debt, said people with knowledge of the matter.

 

France - the IMF warned that France risks falling behind the likes of Spain and Italy if it does not reform its economy. It called for a comprehensive program of structural reforms, citing the country's significant loss of competitiveness.

 

 

Data Dump:

 

Weekly European Monitor: The Eurocrat Shuffle - 22. PMIs

 

Eurozone PPI 2.7% SEPT Y/Y vs 2.7% AUG

Eurozone Retail Sales -0.8% SEPT Y/Y vs -0.9% AUG

Eurozone Sentix Investor Confidence -18.8 NOV (exp. -21) vs -22.2 OCT

 

UK Halifax House Price -1.7% OCT Y/Y vs -1.2% September

UK New Car Registrations 12.1% OCT Y/Y vs 8.2% September

UK Industrial Production -2.6% SEPT Y/Y vs -1.0% AUG

UK Manufacturing Production -1.0% SEPT Y/Y vs -1.2% AUG

 

Germany CPI 2.1% OCT Final Y/Y UNCH  [0.1% M/M UNCH]

Germany Exports -2.5% SEPT M/M vs 2.3% AUG

Germany Imports -1.6% SEPT M/M vs 0.4% AUG

Germany Industrial Sales -1.2% SEPT Y/Y vs -1.3% AUG

Germany Factory Orders -4.7% SEPT Y/Y vs -4.6% AUG   [-3.3% SEPT M/M vs -0.8% AUG]

 

Weekly European Monitor: The Eurocrat Shuffle - 11. German fact orders

 

France Bank of France Business Sentiment 92 OCT vs 92 SEPT

France Industrial Production -2.5% SEPT Y/Y vs -0.9% AUG

France Manufacturing Production -2.5% SEPT Y/Y vs -0.3% AUG

 

Italy Industrial Production SA -1.5% SEPT Y/Y vs 1.7% AUG

Italy Industrial Production WDA -4.8% SEPT Y/Y vs -5.2% AUG

Italy Industrial Production NSA -10.5% SEPT Y/Y vs -5.1% AUG

 

Spain Industrial Output NSA -11.7% SEPT Y/Y vs -2.5% AUG

Spain Unemployment Change 128.2k OCT M/M (exp. 110k) vs 79.6k SEPT

 

Norway Industrial Production -5.0% SEPT Y/Y vs 1.9% AUG

Norway CPI 1.1% OCT Y/Y vs 0.5% SEPT

Norway CPI incl. oil 1.7% OCT Y/Y vs 1.4% SEPT

Finland Industrial Production -1.7% SEPT Y/Y vs -1.4% AUG

Sweden Industrial Production -5.0% SEPT Y/Y vs 2.7% AUG

 

Switzerland Unemployment Rate 3.0% OCT vs 2.9%

Switzerland CPI -0.1% OCT Y/Y vs -0.3% SEPT

Austria Wholesale Price Index 4.2% OCT Y/Y vs 4.2% SEPT

 

Netherlands CPI 2.9% OCT Y/Y vs 2.3% SEPT

Netherlands Industrial Production -0.2% SEPT Y/Y vs -0.6% AUG

 

Greece Unemployment Rate 25.4% AUG vs 24.8% JUL

Greece Industrial Production -7.3% SEPT Y/Y vs 2.5% AUG

Greece CPI 1.6% OCT Y/Y vs 0.9% September

 

Ireland CPI 2.1% OCT Y/Y vs 2.4% SEPT

Ireland Industrial Production -12.7% SEPT Y/Y vs -0.5% AUG

Portugal Industrial Sales -8.1% SEPT Y/Y vs -1.3% AUG

 

Russia Consumer Prices 6.5% OCT Y/Y vs 6.6% SEPT

 

Czech Republic Unemployment Rate 8.5% OCT vs 8.4% SEPT

Czech Republic Retail Sales -3.3% SEPT Y/Y vs -0.8% AUG

Czech Republic CPI 3.4% OCT Y/Y vs 3.4% September

 

Romania Retail Sales 5.1% SEPT Y/Y vs 4.7% AUG

Hungary Industrial Production 0.6% SEPT Y/Y vs 1.8% AUG

Slovenia Industrial Production -0.2% SEPT Y/Y vs 4.2% AUG

Latvia Preliminary Q3 GDP 5.3% Y/Y vs 5.0% in Q2   [1.7% Q/Q vs 1.3% in Q2]

 

Turkey Consumer Prices 7.80% OCT Y/Y vs 9.19% SEPT

Turkey Producer Prices 2.57% OCT Y/Y vs 4.03% September

Turkey Industrial Production 6.2% SEPT Y/Y vs 0.9% AUG

 

 

Interest Rate Decisions:

 

(11/8) BOE Main Interest Rate UNCH at 0.50% (and asset purchase program UNCH)

(11/8) ECB Main Interest Rate UNCH at 0.75%

(11/8) Serbia Repo Rate HIKED to 10.95% from 10.75% (exp. 11%)

(11/9) Russia Refinancing Rate UNCH at 8.25%

(11/9) Russia Overnight Deposit Rate UNCH at 4.25%

(11/9) Russia Overnight Auction-Based Repo UNCH at 5.50%

 

Matthew Hedrick

Senior Analyst


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.64%
  • SHORT SIGNALS 78.57%

TRADE OF THE DAY: OZM

Today we bought Och-Ziff Capital Management Group (OZM) at $9.06 a share at 9:42 AM EDT in our Real Time Alerts. Och Ziff remains one of our favorite long-term stocks in financials. The firm is capable of preserving capital and generating alpha in a market where other asset managers are losing money. As always, we bought on the red and will sell when it’s green.

 

TRADE OF THE DAY: OZM  - OCHZIFF


THE WEEK AHEAD

The Economic Data calendar for the week of the 12th of November through the 16th is full of critical releases and events. Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.

 

THE WEEK AHEAD - week

 

 


Best Ideas Call November 15th

Best Ideas Call November 15th - BESTIDEAS

 

Hedgeye Risk Management invites you to join us Thursday, November 15th, for our bi-annual BEST IDEAS CALL at 1:30pm EST. We will be outlining the top investment ideas, both long and short, across each vertical of our world-class research team. In aggregate, we will offer one high conviction and differentiated investment idea from each of our 8 verticals over the intermediate term duration.  

 

Below is a list of speakers:

  • Keith McCullough, CEO
  • Daryl Jones, Macro
  • Brian McGough, Retail
  • Todd Jordan, Gaming, Lodging and Leisure
  • Howard Penney, Restaurants
  • Tom Tobin, Healthcare
  • Josh Steiner, Financials
  • Jay Van Sciver, Industrials
  • Kevin Kaiser, Energy

Please dial in 5-10 minutes prior to the 1:30pm EST start time using the number provided below, a copy of the presentation will be distributed before the call. If you have any further questions email .

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 666651#

 

"You just need a solid bench of analysts and inventory of long/short ideas to pick from"      

-@KeithMcCullough  

 


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