Risky Business

Client Talking Points

Trading The Range

We have a method here at Hedgeye and we stick to it. It creates order and discourages chaos in a market where chaos can be the norm. An important part of our method is trading the risk and the range. That means we determine the risk involved with a trade and set ranges we’re comfortable trading. For instance, our risk range for the S&P 500 this morning is 1404 and 1419. The former is support where we think it’s a good idea to buy and the latter is where we’d sell at. Our levels change as the market changes, but if we stick to the plan, we won’t get burned. 

Bad Company

The corporate earnings environment looks dreadful as we close out 2012. Our theme of #EarningsSlowing has never been more relevant as the Q4 earnings come in. Want to know how bad it is out there? Keith breaks it down for us:

 

1.       For Q4 2012 so far, 78 companies have issued negative EPS guidance (29 companies have issued positive EPS guidance)

2.       That means 73% (78 out of 107) of the companies that have said something, said something negative, on the margin

3.       73% = 2nd highest percentage of companies issuing negative EPS guidance since FactSet began tracking the data in Q1 2006

Asset Allocation

CASH 64% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 6%
FIXED INCOME 18% INTL CURRENCIES 12%

Top Long Ideas

Company Ticker Sector Duration
YUM

New unit openings in China and strength in YRI and US should offset China weakness in 1H13. China SRS growth is sensitive to the economy but new unit growth and ROIIC are likely to be supported by continuing growth of the consuming class in China. Looking at operating income by geography for YUM/MCD/SBUX, we can see that YUM is the most geographically diverse. This is manifest in YUM’s more stable EPS growth and price performance over the last 10 years.

 

 

SBUX

Uncertainty in US from a macro perspective (jobless claims uptick) gives us pause from TRADE perspective although coffee prices will serve as a tailwind going forward. Company is becoming more complex, taking on risk as it acquires new brands. Longer-term, we view Starbucks, along with YUM, as one of the most attractive global growth stories in our space.

ASCA

We believe ASCA is greatly undervalued due to its potential to follow a OPCO/PROPCO model like PENN in two years or so. A high FCF yield and a healthy balance sheet make this gamer an attractive investment.

Three for the Road

TWEET OF THE DAY

“Brazil NOV Exports: -6% YoY from -1.7%, global #GrowthSlowing” -@KeithMcCullough

QUOTE OF THE DAY

Australia's central bank cuts benchmark interest rate by 25 basis points to 3%.

STAT OF THE DAY

“Experience is that marvelous thing that enables you to recognize a mistake when you make it again.” -Franklin P. Jones



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