Follow The Leader

Client Talking Points

Consumption Junction

There’s nothing wrong with going on a shopping spree once in awhile and that’s what we did yesterday. We eyed up consumption names like the Consumer Discretionary ETF (XLY) and bought ‘em. We’re doing this because we know our government is quite capable of driving consumption through inflation. And when a name we like is red on the day, we buy. Why anyone would buy a stock when it’s up a few hundred basis points on the day is beyond us - that’s not a deal, that’s a rip off.

Playing The Game

Aside from individual stockpicking, you can always follow the trend. That doesn’t mean you blindly swim with the rest of the fishes and hope for the best. It means you look at what’s going on around you and adapt to your environment. We like Consumer Discretionary and Consumer Staples on the long side and on the short side of things, commodities, food (corn, wheat, coffee) and oil remain in bearish formation. 

Asset Allocation

CASH 58% US EQUITIES 9%
INTL EQUITIES 6% COMMODITIES 0%
FIXED INCOME 18% INTL CURRENCIES 9%

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

“at what point exactly will folks come to the realization that the job market here in the U.S. is in the midst of a structural change” -@GuyAdami

QUOTE OF THE DAY

“I can believe anything, provided that it is quite incredible.” -Oscar Wilde

STAT OF THE DAY

ADP Report: Private Sector Employment Rose by 118,000 in November.


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