Does Size Matter?

Earlier in the week, we took a look at the year to date performance across the consumer staples sector, looking for explanations related to short interest, 2012 performance and beta.  Today we round out our discussion of quant factors with a look at market capitalization versus YTD stock performance.  In much the same fashion as our prior attempt to identify the drivers of performance, our examination of market capitalization fell short.


Does Size Matter? - Market Cap vs. Performance


We even took a look at the space absent the big uglies (market cap >$75 billion>, but the data didn't provide any incremental insight.


Does Size Matter? - Market Cap less than 75


While these factors have been valuable indicators of outperformance in the broader market, consumer staples appears to be marching to its own beat.  We remain convinced that the consumer staples sector is seeing inflows as investors seek to participate in a market rally they may not necessarily believe.  We believe it, and see better ways to participate than with a consumer staples sector that is seeing historical valuation levels getting stretched.


Kind regards,




Robert  Campagnino

Managing Director





Matt Hedrick

Senior Analyst 




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

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.

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

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