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Age & Beauty: Resilient November Class 8 Orders

Takeaway: November Class 8 orders weathered the political and literal storms. The data shows the benefit of depressed cyclicals like $PCAR.

Age & Beauty:  Resilient November Class 8 Orders

 

  • Resilience:  The current US Class 8 truck fleet is the oldest ever, by our data, and November orders show the benefit this provides to the Truck OEMs.  Despite November's headwinds from the fiscal cliff and weather, orders continued sequential YoY improvements.
  • Owners Keeping Pre-2007 Trucks:  The 2004-2006 vintage pre-buy Class 8 trucks have fewer emissions controls than current new trucks.  Owners will be slow to replace these trucks with more complex new units.  Truck OEMs win either through aftermarket parts sales or new truck sales as these trucks age.   
  • Excellent Set-up:  November orders remain 6%-7% below replacement demand despite the sequential improvement, indicating that the Class 8 fleet will continue to age.  An aging fleet represents pent-up demand for new trucks and high margin aftermarket parts.
  • Top Machinery Idea:  With construction activity improving, Navistar continuing with a difficult 13L strategy, and an aging Class fleet, we see PACCAR as a top long idea.  See our Truck OEM Black Book for valuation and other data.

 

Age & Beauty:  Resilient November Class 8 Orders - 9

 

 

 

 

 

Jay Van Sciver, CFA

Managing Director


HEDGEYE RISK MANAGEMENT
120 Wooster St.

New York, NY 10012


 


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.


THE M3: OUTER HARBOUR FERRY

The Macau Metro Monitor, December 5, 2012

 

 

WORKS ON THE OUTER HARBOUR TERMINAL TO START NEXT YEAR Macau Business

According to the director of the Maritime Administration, Susana Wong Soi Man, the expansion works of the Outer Harbour Ferry Terminal will start in mid-2013.  The government is now preparing the public tender.  In addition, she said that the Taipa Ferry Terminal would be fully operational in the first half of 2014, including a direct link to the Macau airport.

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Buying The Love

“Buying love is as stupid as loving money.”

-Loesje

 

Off the ice, I’m a sometimes cuddly Thunder Bay bear. And since it’s the holiday season, I decided to spread some of the holiday cheer and went shopping yesterday. I love buying things on sale, so I bought some US Consumer stocks. Why some people only buy these things when they are green is still beyond me.

 

Clearly, buying the love here requires a suspension of disbelief. I get that. But I am also getting used to getting that. For most of 2012, the economy has not been the stock market. On global #GrowthSlowing, the bond market has been closer to the truth.

 

But what is the truth? That’s a question that people have been asking since Pythagoras did circa 530BC. I’m sure Christopher Columbus found some not so true truisms when he landed on the shores of Hispanolia today in 1492 too. We’re always learning something.

 

Back to the Global Macro Grind

 

The truth is that it helps to know when someone is lying to you. For example, look at the fine folks of the Political Class in Greece. Today, the Greeks got the nod as the “most corrupt” country in the European Union. Nice. Must do more bailouts.

 

In other love-oriented news this morning, it turns out that France’s sperm count just dropped by 32%. Now, if you are a single French male getting taxed at 75%, that’s a problem. The good news is that this isn’t new news. The French study cited by BBC News Europe this morning goes back to 1989. Centrally planned life was not cited as causal.

 

On a more serious note, why would you love buying US Consumer stocks here? The reason for that is as simple as it has always been in our Global Macro Economic model – deflating the Bernanke’s Bubble (commodities) is a real-time tax cut.

 

I know, I know – the whole Marxist tax demagoguery thing is still a factor out there. And I’m certainly not trying to downplay the confidence interval you’ll need to have in the bottom-up research that will get you to buy something on sale (74% of companies issuing guidance so far in Q412 have guided lower ) - but tickle me with something that isn’t French this morning and humor me.

 

The immediate-term risk management setup for US Consumer Stocks is as follows:

  1. SP500 held its immediate-term TRADE support line of 1404 yesterday
  2. Consumer Discretionary (XLY) held its immediate-term TRADE line of $46.49
  3. Consumer Staples (XLP) held its immediate-term TRADE line of $35.28

From an intermediate-term TREND perspective, the Commodity Deflation setup looks equally bullish:

  1. CRB Commodities Index Inflation remains in a Bearish Formation (bearish TRADE, TREND, and TAIL)
  2. Brent and WTI Crude Oil prices remain in Bearish Formations as well ($111.58 and $92.20 TAIL resistance, respectively)
  3. Food Prices (Coffee, Corn – and don’t forget Wheat! “cream of wheat” –Woody Allen) are in Bearish Formations too

So, while deflation of certain asset prices may not be good for some in the Political Class, it’s really good for the Rest of Us. If they are going to tax everything and anything that isn’t locked down, we’ll take some back-pocket relief where we can find it.

 

What are the risks to Buying The Love in US (or Global) Consumption stocks?

  1. The Government
  2. The Government
  3. And, The Government

You see, it’s only the Government that can impose Policies To Inflate on its people. Bastiat and von Misses called it plundering. That’s what politicians do – they plunder you so that they get paid (that’s why they call your taxes, “revenues”).

 

Moving along…  In other globally interconnected market news this morning:

  1. Chinese stocks stopped crashing (up huge overnight at +2.87% on the Shanghai Composite)
  2. Russian stocks = +1.75% today (out of crash mode as well, now only -17.5% from the March #GrowthSlowing top)
  3. Both Global Equity Volatility and Sovereign Bonds (Treasuries and German Bunds) are finally overbought

When bonds and volatility are immediate-term TRADE overbought, it’s easier to fall in love with stocks (for a day) too.

 

Our Risk Ranges (support and resistance) for Gold, Oil (Brent), Copper, US Dollar, EUR/USD, UST 10yr Yield, and the SP500 are now $1, $109.12-110.69, $3.54-3.68, $79.52-80.32, $1.29-1.31, $1.59-1.66%, and 1, respectively.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Buying The Love - Chart of the Day

 

Buying The Love - Virtual Portfolio


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – December 5, 2012


As we look at today's setup for the S&P 500, the range is 15 points or 0.22% downside to 1404 and 0.85% upside to 1419.      

                                                                                                                                                         

SECTOR AND GLOBAL PERFORMANCE

 

THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

THE HEDGEYE DAILY OUTLOOK - 3

 

THE HEDGEYE DAILY OUTLOOK - 4

 

EQUITY SENTIMENT:


THE HEDGEYE DAILY OUTLOOK - 10


CREDIT/ECONOMIC MARKET LOOK:

  • YIELD CURVE: 1.35 from 1.36

MACRO DATA POINTS (Bloomberg Estimates):

  • 7am: MBA Mortgage Applications, Nov. 30 (prior -0.9%)
  • 8:15am: ADP Employment Change, Nov. est. 125k (prior 158k)
  • 8:30am: Nonfarm Productivity, 3Q F est. 2.8% (prior 1.9%)
  • 10am: Factory Orders, Oct. est. 0.0% (prior 4.8%)
  • 10am: ISM Non-Manf. Composite, Nov. est. 53.5 (prior 54.2)
  • 10:30am: DoE inventories
  • 11am: Fed to buy $4.25b-$5.25b debt due 2/15/36-11/15/42

GOVERNMENT:

    • House, Senate in session
    • President Obama addresses Business Roundtable members
    • *Financial Research Advisory Committee, unit of Treasury’s
    • Office of Financial Research, holds inaugural meeting
    • FDA to release documents on Zogenix Inc.’s Zohydro, the first single-ingredient hydrocodone product. 8am

WHAT TO WATCH

  • Tesco poised to exit U.S. after starting Fresh & Easy review
  • Facebook to join Nasdaq 100, replacing Infosys, from Dec 12
  • Big Lots CEO Probed by SEC for Sale Before Share Decline: WSJ
  • Freeport planning 2 big acquisitions in oil & gas, FT says
  • Billionaire Green said to be in talks to sell 25% of Topshop
  • HSBC to sell $9.4b Ping An stake to Charoen Pokphand
  • Intersnack agrees to buy KP Snacks from United Biscuits
  • Senate passes $631b U.S. defense measure over veto threat
  • Pimco’s Gross recommends TIPS as yields on U.S. T-bills are lower than inflation
  • BlackRock’s Larry Fink says he won’t leave firm to take Treasury Dept. job
  • Wal-Mart being probed for breaking India FDI rules: Reuters
  • Wynn Macau changes timing for board to consider dividends
  • Boeing 787 Dreamliners must be inspected for fuel leaks: FAA
  • Repsol suing Chevron in N.Y. court over U.S. co.’s development of shale assets in Argentina

     EARNINGS:

    • Brown-Forman (BF/B) 7:00am, $0.78
    • Toro Co (TTC) 8:30am, $0.01
    • Laurentian Bank of Canada (LB CN) 8:40am, C$1.34
    • Finisar (FNSR) 4:00pm, $0.14
    • Francesca’s Holdings (FRAN) 4:01pm, $0.22
    • Ascena Retail Group (ASNA) 4:02pm, $0.35
    • Vera Bradley (VRA) 4:02pm, $0.38
    • Synopsys (SNPS) 4:05pm, $0.47
    • Verint Systems (VRNT) 4:05pm, $0.59
    • SAIC (SAI) 4:05pm, $0.34
    • Men’s Wearhouse (MW) 5:00pm, $0.97

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)


GOLD -  pain trade is down, not up – after seeing a +13% w/w ramp in spec long positions (futures/options net long contracts) last wk, Gold bulls were looking for Down Dollar to get them paid – didn’t happen on down USD yesterday, so the machines register that as something new, because it is; watching this TREND level of $1711 Gold very closely.

  • Oil Fluctuates on U.S. Inventory Increase, China Economy Boost
  • Steak Price Rising as Cattle Seen 20% Higher at JBS: Commodities
  • Bank of Korea Raises Gold Holding 20% Seeing Metal as Safe Asset
  • Standard Chartered Adds Commodity Traders on China’s Demand
  • Copper Reaches Six-Week High as China Backs Urban Development
  • Gold Rebounds From Four-Week Low as Weaker Dollar Spurs Demand
  • Cocoa Rises as Dry Weather May Hurt African Crops; Sugar Gains
  • Soybeans Advance to Three-Week High as Argentina Set for Storms
  • Rebar Gains on Speculation Chinese Policies to Stimulate Growth
  • Palm Oil Declines to Two-Month Low on Malaysian Supply Outlook
  • Water Wars Pit Thirsty Dakotas Against Barges for Missouri Flow
  • Funds’ $40 Billion Bet on Farmland Seen as a Fraction of Market
  • Former Soviet Union Has Greater Gasoline Potential Than Europe
  • Iron Ore Cargoes to China Fall 8.3% From Australia’s Main Port

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - 6

 

EUROPEAN MARKETS


GERMANY – real tricky/sticky spot for the DAX here as its closing high for SEP was 7451 on 9/21; looking for hedge funds who are short either the Euro or European stocks to capitulate/cover around here on the Equities side and/or $1.31 Euro (which is the top end of our immediate-term $1.29-1.31 risk range).


THE HEDGEYE DAILY OUTLOOK - 7

 

ASIAN MARKETS


CHINA – rip roaring fun in the Shanghai Comp last night, closing up huge (+2.87%) and, importantly, takes it out of crash mode for now (down -17.5% from the March global #GrowthSlowing top); immediate-term Risk Range = 1, and we’d need to see a close > 2038 to consider buying the A-shares (down food and oil helps there too).

 

THE HEDGEYE DAILY OUTLOOK - 8

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 9

 

 

The Hedgeye Macro Team

 

 

 


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

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