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TJX: Idea Alert -- Short

Takeaway: Adding TJX as a #RealTimeAlerts short position. The market isn't respecting competitive factors at play and how they'll unfold in 2013

Today we added TJX as a #RealTimeAlerts Position on the short side.

 

The longer term story here is reasonably attractive predicated largely on the int’l store growth opportunity, rebound in European margins, and ~5%+ annual share repurchase booster, but we don’t think that the stock is appropriately discounting the risks from a more competitive department store climate on top of dwindling inventories and peak gross margins.

 

The near-term setup is likely to provide an opportunity to get involved lower.  Most notably, the company is coming off an investment year, which should be a positive, but it is likely to incur additional spend as it pushes more aggressively into Europe. That should be heaviest as it goes up against its toughest compare of the year (1Q).

 

But our biggest concern is the impact of a more competitive department store space as JC Penney shows some signs of life and ceases to hemorrhage the kind of market share it ceded in 2012. Remember, a bear scenario doesn't need JCP to GAIN share in 2013, but rather simply NOT LOSE share to the extent it did last year. By a country mile, the off price retailers made out the best when JCP was incapacitated, with TJX leading the way.  Where we could be wrong on the negative side is if JCP has another year of comping down solid double digits, creating an easy environment for TJX to quickly replenish its dwindling inventory levels (either directly from brands, or indirectly through department stores). We think that this opportunity would need to come by way of career risk for JCP’s Ron Johnson – something we don’t think he will let happen.

 

TJX: Idea Alert -- Short - 1

 

At this precise time, TJX had a noticeable (positive) boost in its sales/inventory spread – even relative to Ross Stores. The sales/inventory spread is peaking today, and while we think this has positive implications for Gross Margin, we think that it’s top line that investors will pay for – and that top line growth rate should decelerate throughout 2013.

 

TJX: Idea Alert -- Short - 2

 

TJX: Idea Alert -- Short - 3

 

One booster to the sales line should be TJX’s recent acquisition of Sierra Trading Post positive, but we caution that since the deal, sales estimates have picked up by just over 100bp – which is the amount of revenue Sierra will add to the parent.  TJX paid ~$200mm for the business. The e-commerce infrastructure will be valuable to TJX as it looks to build out its own branded sites more aggressively.

 

With four discount stores out West associated with the deal, there is the possibility that TJX looks to apply their discount prowess more meaningfully to the outdoor/sporting goods space as a standalone concept. This could prove to be add an nice kicker to the value of this deal 3-5 years down the line. But that is hardly enough to get excited about today.

 

Valuation and Sentiment

At 8x EBITDA, 15.5x earnings and 1.2 EV/Sales, TJX is trading near peak multiples on all accounts. Sentiment is also near peak, as measured by the Hedgeye Sentiment Monitor (which blends buy side, sell side and insider trading activity). We get the whole ‘good management, good long term story, good liquidity’ argument. But the reality is that there are some headwinds in 2013 that can’t be overlooked.

 

Hedgeye Sentiment Monitor

TJX: Idea Alert -- Short - 4

 

 

Hedgeye SIGMA Analysis

TJX: Idea Alert -- Short - 5

 


Gold Short - Staying With It

Takeaway: Gold is now confirming that it is in a quantitative Bearish Formation.

POSITIONS: Short Gold (GLD) and Gold Miners (GDX)

 

The bear case for gold just got a lot better this week.

 

Gold (and Bonds) do not like it when the slope of growth moves from slowing to stabilizing. Why would they? That’s the end-of-the-world type stuff.

 

From a long-term perspective, we think Gold is a bubble that’s already popping. We only make that claim when something is making a series of lower long-term highs (see the chart below).

 

Across our core risk management durations in Gold, here are the lines that matter to me most:

 

  1. Intermediate-term TREND resistance = 1699
  2. Long-term TAIL resistance = 1671
  3. Immediate-term TRADE resistance = 1665

 

In other words, Gold is now confirming that it is in a quantitative Bearish Formation (bearish TRADE, TREND, and TAIL).

 

Since it’s way over-owned by Institutional Money Managers who had never owned if before (ostensibly because they were bullish on growth and other productive assets at the time), and the fundamentals (Global Growth and US Employment Growth stabilizing) are confirming our quantitative signal, we are staying with it.

 

If you’d like our longer form bearish research notes on Gold that we published in Q412 under our Q4 Global Macro Theme “Bubble #3”, let us know.

 

KM

 

Keith R. McCullough
Chief Executive Officer

 

Gold Short - Staying With It - GOLD


PODCAST: Feds and Funds

 

On this morning’s investment call held for Hedgeye subscribers, our Question & Answer session focused on retail investors, shifting capital from traditional fund managers to ETFs and how the Federal Reserve affects growth in the United States. You can listen to the full Q&A session in the audio posted above.


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Resolving The Drought

The drought that has plagued the Midwestern United States for some time now was fixed in part by December snowfall accumulation. The Midwest saw 68.4% of the region covered by snow with an average depth of 3.2 inches according to the National Weather Service.

 

With no snowfall in November and very little in December of 2011, this snow season has started off on a positive note. Unfortunately, that amount of snowfall equates to approximately a half-inch of rainfall. January and February will need several feet of snow in order to provide meaningful relief to areas affected by the drought. We remain bearish on corn fundamentally and on commodities in general from a macro perspective.

 

Resolving The Drought - image020


Go With The Flow

Client Talking Points

Changing Tides

This morning’s jobs data was in-line with expectations. That might be enough to spark a rally, but who knows. All it takes these days is one catalyst to get the market fired up. As we stated earlier this week, our S&P sector model is flashing bullish signals across all nine sectors. It’s pretty incredible stuff. People seem to be catching on to this whole short bonds and gold, long equities idea that we’ve talked about. Maybe it’s because the fund managers are following our lead? Maybe its fate. Whatever the reason, you can try to fight the overall market but it won’t be pretty.

Asset Allocation

CASH 55% US EQUITIES 18%
INTL EQUITIES 15% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 12%

Top Long Ideas

Company Ticker Sector Duration
NKE

Our competitors are neutral to bearish on the name ahead of earnings, but we think they’re missing the bigger picture. We think concerns over the shoe cycle rolling over are overdone. With R&D in the mid-teens, NKE has the ability to drive the ‘sneaker cycle’ in a case of “the tail wagging the dog”. We also think $NKE is a candidate for releasing a special dividend when they report EPS next week.

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.

 

FDX

Margins are in a cycle trough as the USPS is on the brink. FDX is taking more share in the U.S. and following the recent $TNT news flow we think $UPS is in a tough spot.

Three for the Road

TWEET OF THE DAY

“#Unemployment data out shortly & the 10yr is nearing 2% ~ Gold on the floor saying 'I've fallen & I can't get up' as well” -@TheKillir

QUOTE OF THE DAY

“Doubt is not a pleasant condition, but certainty is absurd.” -Voltaire

STAT OF THE DAY

December jobs up 155k, near 10k expected. Unemployment at 7.8%


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – January 4, 2013


As we look at today's setup for the S&P 500, the range is 42 points or 1.88% downside to 1432 and 1.00% upside to 1474.     

                                                                                                                          

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: 1.67 from 1.65
  • VIX closed at 14.56 1 day percent change of -0.82%
  • BONDS – massive 3wk move in Treasuries and now Bond Yields are in a Bullish Formation (bullish TRADE, TREND, TAIL) now that they took out my 1.85% TAIL risk line (1.96% last); no intermediate-term resistance in the 10yr to 2.4% and our asset allocation to Fixed Income remains 0%.

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Nonfarm Payrolls, Dec., est. 153k (prior 146k)
  • 8:30am: Unemployment Rate, Dec., est. 7.7% (prior 7.7%)
  • 10am: Factory Orders, Nov., est. 0.4% (prior 0.8%)
  • 10am: ISM Non-Manf. Composite, Dec., est. 54.0 (prior 54.7)
  • 10:30am: EIA natgas storage
  • 11am: DoE weekly inventories
  • 1pm: Baker Hughes U.S. rig count
  • 1:15pm: Plosser speaks in San Diego on real business cycles
  • 1:30pm: Lacker speaks in Baltimore on economic outlook
  • 3:30pm: Yellen speaks in San Diego on systemic risk
  • 5:30pm: Bullard speaks to economists in San Diego

GOVERNMENT:

    • House, Senate meet to count electoral votes for president
    • House to vote on $9.7b for national flood insurance program
    • CFTC holds closed meeting on enforcement matters, 10am

WHAT TO WATCH

  • Payrolls in U.S. probably held gains in Dec. as economy grew
  • JPMorgan faces sanction for refusing to provide Madoff docs
  • Abbott, J&J, Sanofi said to show interest in Bausch & Lomb bid
  • Moody’s, S&P, Fitch must face fraud claims in Rhinebridge suit
  • Cohen’s SAC fund tops most-profitable list amid insider probes
  • Berkshire ex-executive Sokol won’t face SEC action, lawyer says
  • Wal-Mart creates new role to oversee alternative format stores
  • Facebook testing free calling on message app: L.A. Times
  • Best Buy, Toys R Us say Wal-Mart misleading in ads: WSJ
  • Euro-area manufacturing, services shrink more than estimated
  • Euro-area Dec. consumer prices rise 2.2% in yr, est. 2.1%
  • IBM insider case analyst agrees to U.S. return, court told
  • ECB, China Trade, Chavez, Oscar Nominees: Wk Ahead Jan. 5-12

EARNINGS:

    • Finish Line (FINL) 6:45am, $0.10
    • Mosaic (MOS) 7am, $0.88, preview

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)


GOLD – getting plastered this morning, down another -2% (Silver down -5%) as the world comes to realize that there are many unintended consequences associates w/ A) #GrowthStabilizing and B) Bernanke’s experiment in unemployment targeting; if this jobs picture continues to improve, we think Gold continues lower – oversold here today.

  • Oil Declines for a Second Day as Fed Discusses Curbing Stimulus
  • Gold Seen Rallying From Worst Streak in Eight Years: Commodities
  • Copper Declines Most in Two Weeks as Fed Signals Stimulus End
  • Soybeans Rebound on Speculation Demand May Rise Following Slump
  • Gold Set for Worst Run Since 2004 as Fed Sees End to Purchases
  • Sugar Falls to Two-Week Low on Surplus; Coffee and Cocoa Slide
  • SHFE Metal Stockpiles Expand as Copper Rises to Eight-Month High
  • West African Cocoa Premiums Said to Drop on Better Crop Outlook
  • Palm Oil Advances as Malaysian Shipments May Gain on Tax Revamp
  • Uranium Rebound Seen as Japan Considers Nuclear: Energy Markets
  • Mississippi Seen Navigable Through Jan. 26 After Rock Removal
  • Oil May Increase as Economic Growth Spurs Demand, Survey Shows
  • Gold May Drop to $1,600 on Moving Averages: Technical Analysis
  • Rebar Advances to Five-Month High as Demand Increases in China

THE HEDGEYE DAILY OUTLOOK - 5

 

CURRENCIES


THE HEDGEYE DAILY OUTLOOK - 6

 

EUROPEAN MARKETS


THE HEDGEYE DAILY OUTLOOK - 7

 

ASIAN MARKETS


JAPAN – in what might be the end of Keynesian policy “experimentation” gone gnarly, the Japanese are literally torching their currency at this pt (Yen down another -1.1% this morn) and the Nikkei is going Weimar style republic (+25.2% since mid OCT!); all the while, Japanese economic growth is one of the few majors in the world still slowing – this should end well.

 

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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