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WMT: Idea Alert. Buying Again.

Takeaway: $WMT's inquiry into the FCPA will cost money, but not the ~$9billion in market cap WMT lost today.

We’re adding WMT back to the long side of our portfolio on today’s selloff.  The print was in-line with our view for a tepid top line, but SG&A and below-the-line items making up for the difference. But to suggest that the stock is trading off 4% because of a perceived weak earnings quality is just plain silly. The 8-K added that “Inquiries or investigations regarding allegations of potential F.C.P.A. violations have been commenced in a number of foreign markets where we operate, including but not limited to Brazil, China and India.”

 

That’s bad enough news to anyone who knows the story, but it sounds a heck of a lot worse when you read out the acronym FCPA – Foreign Corrupt Practices Act.  Not exactly a confidence-inspiring ring to it.

 

All that said, the company will spend money on these inquiries. Millions…tens of millions. Maybe even a hundred+. But the risk of WMT realizing that it has to pull out of a country or severely limit growth outside the US is not in the realm of what we think is realistic. Today alone, the market dinged WMT’s market value by ~$9billion, and pushed the stock within $2 of its long term TAIL support of $66.12.

 

Downside here is minimal, concerns will blow over, and there’s a big call option on WMT if oil rolls. 

 

WMT: Idea Alert. Buying Again. - WMT TTT

 

Call it financial engineering, and better tax planning. We'll call it better better relative EPS growth on a big liquid name.

 

WMT: Idea Alert. Buying Again. - 22


Materials & Dial-in Information for Best Ideas Call

Materials & Dial-in Information for Best Ideas Call - materials

 

Today at 1:30pm EST we will be hosting our Best Ideas Call. Follow the link below to access the presentation.

 

Materials: Best Ideas Call Presentation

 

Please dial in 5-10 minutes prior to the 1:30pm EST start time using the number provided below. If you have any further questions email

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

 

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:

  • Daryl Jones, Director of Research
  • Darius Dale, 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



INITIAL JOBLESS CLAIMS: SANDY vs. KATRINA

Takeaway: Comparing Hurricanes Sandy and Katrina, their impact was similar on jobless claims. We'll know more once the State-level data is released.

This note was originally published November 15, 2012 at 09:48 in Financials

Hurricane Comparisons

Remain calm. In the chart below we profile the trend in initial jobless claims following hurricanes Katrina and Sandy. If, in fact, this week's enormous surge in initial claims is attributable to Sandy, then we can reasonably expect to see it mean revert along a similar path that we saw following Katrina. That said, it took 8 weeks for Katrina to fully renormalize. 

 

There is in fact a way in which we can test the government claim that the rise in claims is attributable to Sandy. The government releases state-level NSA claims. Total NSA claims rose 104k WoW. We would expect to see a preponderance of that increase represented by New Jersey, New York and other hard-hit East coast states. Unfortunately, the state level data is not yet available on the Labor Dept website. Stay tuned.

 

INITIAL JOBLESS CLAIMS: SANDY vs. KATRINA - sandy vs katrina

 

 

Initial Jobless Claims: The Data

Initial claims rose 84k last week to 439k (an increase of 78k after a 6k upward revision to last week's data). The rolling claims series rose 11.75k WoW to 384k. On a non-seasonally adjusted basis claims rose 104k to 466k. The year-over-year rolling NSA change made a dramatic jump to ~0% improvement. Last week the YoY rolling NSA change was -6.5%. 

 

INITIAL JOBLESS CLAIMS: SANDY vs. KATRINA - Seasonality

 

INITIAL JOBLESS CLAIMS: SANDY vs. KATRINA - rolling claims NSA YoY data

 

INITIAL JOBLESS CLAIMS: SANDY vs. KATRINA - Raw

 

INITIAL JOBLESS CLAIMS: SANDY vs. KATRINA - Rolling

 

INITIAL JOBLESS CLAIMS: SANDY vs. KATRINA - NSA

 

INITIAL JOBLESS CLAIMS: SANDY vs. KATRINA - Rolling NSA

 

INITIAL JOBLESS CLAIMS: SANDY vs. KATRINA - SPX

 

INITIAL JOBLESS CLAIMS: SANDY vs. KATRINA - Fed

 

INITIAL JOBLESS CLAIMS: SANDY vs. KATRINA - NSA YoY

 

INITIAL JOBLESS CLAIMS: SANDY vs. KATRINA - Recessions

 

INITIAL JOBLESS CLAIMS: SANDY vs. KATRINA - Claims Linear

 

 

Yield Spreads

The 2-10 spread fell 3 bps WoW to 133 bps. So far 4QTD, the 2-10 spread is averaging 1.43%, which is up 6 bps relative to 3Q12.  

 

 

INITIAL JOBLESS CLAIMS: SANDY vs. KATRINA - 2 10 spread

 

INITIAL JOBLESS CLAIMS: SANDY vs. KATRINA - 2 10 QoQ

 

Financial Subsector Performance

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

 

INITIAL JOBLESS CLAIMS: SANDY vs. KATRINA - Subsector performance

 

INITIAL JOBLESS CLAIMS: SANDY vs. KATRINA - Companies

 

Joshua Steiner, CFA

203-562-6500

jsteiner@hedgeye.com

 

Robert Belsky

203-562-6500

rbelsky@hedgeye.com

 


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Bearish Signals For Financials

The Financials SPDR (XLF) broke its intermediate-term TREND line of support yesterday. The last time this happened was on May 9 of this year and back on April 13, 2011. Following those two breaks, the XLF posted sizable declines over the ensuing intermediate term. Thus, we believe breaking the TREND line of support indicates that a sell off is near; financials have been slowly trading lower and lower since the election on November 6. Keep in mind we’ve stated before that an Obama win would be negative on the sector.

 

Bearish Signals For Financials - image011

 

Between the aforementioned quantitative view, Obama’s reelection and the ongoing Fiscal Cliff debacle, it’s looking decidedly bleak for financials over the next few months. 

 

Bearish Signals For Financials - image012


JOSHUA STEINER: INITIAL JOBLESS CLAIMS: SANDY VS. KATRINA

Takeaway: Comparing Hurricanes Sandy and Katrina, their impact was similar on jobless claims. We'll know more once the State-level data is released.

Hurricane Comparisons

Remain calm. In the chart below we profile the trend in initial jobless claims following hurricanes Katrina and Sandy. If, in fact, this week's enormous surge in initial claims is attributable to Sandy, then we can reasonably expect to see it mean revert along a similar path that we saw following Katrina. That said, it took 8 weeks for Katrina to fully renormalize. 

 

There is in fact a way in which we can test the government claim that the rise in claims is attributable to Sandy. The government releases state-level NSA claims. Total NSA claims rose 104k WoW. We would expect to see a preponderance of that increase represented by New Jersey, New York and other hard-hit East coast states. Unfortunately, the state level data is not yet available on the Labor Dept website. Stay tuned.

 

JOSHUA STEINER: INITIAL JOBLESS CLAIMS: SANDY VS. KATRINA - 1

 

Initial Jobless Claims: The Data

Initial claims rose 84k last week to 439k (an increase of 78k after a 6k upward revision to last week's data). The rolling claims series rose 11.75k WoW to 384k. On a non-seasonally adjusted basis claims rose 104k to 466k. The year-over-year rolling NSA change made a dramatic jump to ~0% improvement. Last week the YoY rolling NSA change was -6.5%. 

 

JOSHUA STEINER: INITIAL JOBLESS CLAIMS: SANDY VS. KATRINA - 2

 

JOSHUA STEINER: INITIAL JOBLESS CLAIMS: SANDY VS. KATRINA - 3

 

JOSHUA STEINER: INITIAL JOBLESS CLAIMS: SANDY VS. KATRINA - 4

 

JOSHUA STEINER: INITIAL JOBLESS CLAIMS: SANDY VS. KATRINA - 5

 

JOSHUA STEINER: INITIAL JOBLESS CLAIMS: SANDY VS. KATRINA - 6

 

JOSHUA STEINER: INITIAL JOBLESS CLAIMS: SANDY VS. KATRINA - 7

 

JOSHUA STEINER: INITIAL JOBLESS CLAIMS: SANDY VS. KATRINA - 8
 

JOSHUA STEINER: INITIAL JOBLESS CLAIMS: SANDY VS. KATRINA - 9

 

JOSHUA STEINER: INITIAL JOBLESS CLAIMS: SANDY VS. KATRINA - 10

 

JOSHUA STEINER: INITIAL JOBLESS CLAIMS: SANDY VS. KATRINA - 11

 

JOSHUA STEINER: INITIAL JOBLESS CLAIMS: SANDY VS. KATRINA - 12

 

Joshua Steiner, CFA

 

Robert Belsky


PODCAST: Plenty Of Risk

In today's Morning Investment Call, we discuss the recent weakness in the market and how the S&P 500 broke our key support level of 1364. With the Fiscal Cliff looming, a debt ceiling breach nearly a month away and corporate earnings continuing to slow, how do you properly manage risk? All these topics and more are discussed in our call; we've posted the audio for you to enjoy.

 

 


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