CAT: Global Dealer Sales

Caterpillar’s (CAT) dealer sales mirror that of durable goods in that both have been steadily weakening since Q2 of 2011. We don’t expect a rebound in CAT’s sales in the near-term as dealers and various corporations focus on reducing inventory and shift away from resource industries. Combined with a decline in mining capital expenditures over the last few quarters, CAT has its work cut out for the first half of 2013.


CAT: Global Dealer Sales - CAT Dealers

Still Bullish: SP500 Levels, Refreshed

Takeaway: Bullish is as bullish does.



Bullish is as bullish does. And I think we have been very clear on the why. Employment #GrowthStabilizing now has to deliver on Friday.


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


  1. Immediate-term TRADE overbought = 1511
  2. Immediate-term TRADE support = 1489
  3. Intermediate-term TREND support = 1434


That’s why I bought and covered on both yesterday and today’s red market opens. Our quantitative risk factoring supported those decisions.


It’s just our process.



Keith R. McCullough
Chief Executive Officer


Still Bullish: SP500 Levels, Refreshed - SPX

Case-Shiller: Growth On Track

This week’s Case-Shiller numbers showed +5.5% year-over-year growth for the month of November. With the housing market still in full on recovery mode, prices will likely continue to rise while existing inventory falls. Recent gains in residential home prices may induce yet higher prices, attracting new construction activity after years of a very weak market.


Case-Shiller: Growth On Track - case

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.

Quick Hits on Upcoming EPS

With a slew of earnings results this week, we are about to enter the meat of consumer staples EPS results.  As a rule, we don’t do previews/reviews, but we do have an abiding interest in making people money, so we offer the following quick views on how we would be positioned into and following this week’s EPS results.  Most of these comments represent shorter duration ideas or simply an indication that we don’t see anything to do in the short-term.

BNNY – 1/30 – Wouldn’t do anything into earnings with the pizza recall muddying the waters, but any significant, incremental weakness would represent an opportunity on the long side.

CL – 1/31 – at 18.7x ’13 earnings and guidance in the rear-view mirror, hard to see how you get hurt being short here.  We are modeling an EPS result that is at consensus ($1.40), with a modest sequential deceleration in constant currency organic growth.

MJN – 1/31 – We defer to our more detailed prior work, but a quick review is that we expect a result that is below consensus, but we would be buyers lower (low $60s) assuming no new issues.

HSY – 1/31 – 21.4x ’13 EPS, but very good business momentum, we think the name finds buyers on any potential weakness post earnings.  We wouldn’t be doing anything into the print.

ENR – 1/31 – Miss on top line, better than consensus EPS, trades at 12.8x ’13 – do nothing.

MO – 1/31 – 14.4x next year, and we can abide by a short position higher, so we would take in a small short position.  We are modeling a penny below consensus for the quarter, right around consensus for 2013.

HSH – 1/31 – We are modeling $0.03 above consensus ($0.50 vs. $0.47).  We don’t love the multiple here (19.2x ’13), but this quarter shouldn’t offer a reason to sell a name that we see as a likely takeout candidate.

NWL – 2/1 – We are right at consensus of $0.42 for the quarter, but $0.06 ahead for 2013.  It’s a stealth housing play that still trades at only 12.7x ’13.  We would be long into the print, as it can be defended lower.

BEAM – 2/1 – We are $0.02 ahead of consensus for the quarter; the multiple keeps us on the sidelines on the long side and business momentum keeps us from being short.  We don't do shorts just because a name is expensive.

TSN – 2/1 – Recent upgrades (including one this morning) make us uneasy into the print and the valuation against a “normalized” EPS base that the company never seems to earn is getting full.  Watch and wait (and hopefully learn).  We are modeling an above consensus result ($0.04), but prefer to take a beer frame for the event.

Our preferred shorts remain TAP, KMB, PM and either GIS or CPB in packaged food. We are sticking with our preferred longs:

  1. STZ - event stock with near-term catalyst
  2. CAG - valuation remains compelling
  3. PG - positive bias to EPS estimates (versus KMB short)
  4. ADM - most compelling way to play new crop year (though no clear view on upcoming EPS)

Call with questions.


 - Rob


Robert  Campagnino

Managing Director




Matt Hedrick

Senior Analyst


Retail: Waiting For A Fundamental Rebound

Takeaway: Retail spending stats are not getting better as the month draws to a close. Better consumer confidence is having zero impact -- yet.

We might be in a bull market, and that might create a wealth-effect as it relates to consumer spending, but we’re simply not seeing it yet. The Redbook (80 store sample) numbers released this morning peg department store spending flat yy, and the gap with Discount Stores continues to widen. This is the 5th week we’ve seen consecutive declines in the Dept Store component, and 4th week for Discounters. The Discount Store/Department Store gap traditionally widens when the consumer is stretched as people take down discretionary spending, and shift incrementally to the Wal-Marts of the world. The incremental changes are not massive, but have been enough to take Department Store spend from +1.7% around the holiday (partially driven by discounting) to flat today. 


Our top long ideas are RH, NKE, FNP (still), JCP and RL.

Top shorts include M, GPS, GES, UA and KSS 


Johnson Redbook Same Store Sales Index: YY % Change

Retail: Waiting For A Fundamental Rebound - redbook1

Front Running

Client Talking Points

Higher Yields

You’ve got to keep in mind that #GrowthStabilizing = good for stocks, bad for bonds and gold. In turn, yields on the 10-year Treasury hit higher highs this morning, with 2.01% acting as immediate-term TRADE resistance. There’s no intermediate-term resistance up to 2.41% and with employment, housing and labor markets cranking out positive data points week-after-week, higher yields are certainly possible. Fund flows are moving out of bonds and Treasuries and into equities as they chase they stock market.

Beat The Machines

A lot of investors and traders like to complain about “the machines” (aka the algos, the robots) taking control of the market and beating people at their own game. Well if you can’t join ‘em, beat ‘em. If you stick to a plan that works, you can front run the algos and stay one step ahead in this game called “the market.” We use our multi-duration (TRADE, TREND, TAIL), price/volume/volatility model to tell us what the machines are chasing and that way, we don’t have to worry about what some bank’s buy algo is doing because we’ve done the math and the homework. Right now, it’s sexy to be in names that have high short interest, high beta and high debt/EV. The market may seem toppy but there’s room to grow; just keep in mind that our S&P 500 line of TRADE support is at 1488. That’s the magic number.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

We believe ASCA will receive a higher bid from another gaming competitor. Our valuation puts ASCA’s worth closer to $40.


ADM has significantly lagged the overall market in 2012 over concerns that weakness in the company’s bioproducts (ethanol) and merchandise and handling segment will persist. Ethanol margins suffered from higher corn costs, as well as weak domestic demand and low capacity utilization across the industry. Merchandising and handling results were at the mercy of a smaller U.S. corn harvest. Both segments could be in a position to rebound as we move into 2013 and a new crop goes into the ground. With corn prices remaining at elevated levels, the incentive to plant corn certainly exists, and we expect that we will see corn planted fencepost to fencepost.


HOLX remains one of our favorite longer-term fundamental growth companies given growing penetration of its 3D Tomo platform and high leverage to the 2014 Insurance Expansion from the Affordable Care Act.

Three for the Road


“bulls looking for another leg higher in equities. Bears praying for a rollover. FOMC tomorrow - perfect” -@allstarcharts


“Eccentricity is not, as dull people would have us believe, a form of madness. It is often a kind of innocent pride, and the man of genius and the aristocrat are frequently regarded as eccentrics because genius and aristocrat are entirely unafraid of and uninfluenced by the opinions and vagaries of the crowd.” -Edith Sitwell


Case-Shiller 20-city home-price index up 5.5% year-over-year

investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.