prev

Financials Take Hold

Over the last year, the S&P 500 has returned +9.55%, which is impressive for anyone who had index funds in their portfolio. But the real gains can be seen in individual S&P sector ETFs. Financials (XLF) are leading the pack, up +17.16% over a one-year period, while Tech (XLK) and Energy (XLE) are up +1.24% and +2.08%, respectively. The recovery in the housing market and the uptick in mortgages and housing prices has no doubt given a boost to the banks and other financial institutions as growth continues to stabilize.

 

Financials Take Hold - SEKTORS


The Final Countdown

Client Talking Points

Can We Fix It?

While the US stock market is looking good, America's political class is looking ugly, today. Automatic spending cuts aka The Great Sequester are set to kick in at midnight. Can Congress come to an agreement? Fat chance of that happening. So the question is, will it really hurt the stock market? In a sense: no. We may see a down day or two, but we are bullish on consumption. Consumption helps drive growth and with oil prices hitting 2013 lows this morning, we're liking the consumption game. Remember: strong dollar = strong America. 

Asset Allocation

CASH 48% US EQUITIES 20%
INTL EQUITIES 12% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 20%

Top Long Ideas

Company Ticker Sector Duration
ASCA

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

FDX

With FedEx Express margins at a 30+ year low and 4-7 percentage points behind competitors, the opportunity for effective cost reductions appears significant. FedEx Ground is using its structural advantages to take market share from UPS. FDX competes in a highly consolidated industry with rational pricing. Both the Ground and Express divisions could be separately worth more than FDX’s current market value, in our view.

HOLX

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

TWEET OF THE DAY

"The one eyed man is king in the land of the blind." -@HedgeyeDJ

QUOTE OF THE DAY

"Cynicism is an unpleasant way of saying the truth." -Lillian Hellman

STAT OF THE DAY

US consumer spending edged up 0.2% in January while income fell sharply.



get free cartoon of the day!

Start receiving Hedgeye's Cartoon of the Day, an exclusive and humourous take on the market and the economy, delivered every morning to your inbox

By joining our email marketing list you agree to receive marketing emails from Hedgeye. You may unsubscribe at any time by clicking the unsubscribe link in one of the emails.

Feb Club

“Take the shortest route to the puck, and arrive in ill humor.”

-Fred Shero

 

At my alma mater Yale, the under graduates hold a party every day in February.  If you have ever been to New Haven, CT, you get the reason they do this - New Haven is a rainy and depressing place in February.  Naturally, in the spirit of reliving their youth, a group of Yale graduates resurrected the tradition and started Yale Club Emeritus.  In effect, Yale Club for old people.

 

Now I’m not sure if I’m officially old or not, but after stopping by the final Yale Club Emeritus last night at the infamous Dorrian’s Red Hand Bar in the Upper East Side of Manhattan, and perhaps staying a little too late, I feel old this morning.  Or to refer to Fred Shero’s quote above, I’m at the very least in ill humor.

 

Yesterday I had the pleasure of joining Mario Bartiromo on CNBC’s closing bell. The topic of the discussion was what’s next for U.S. equities. The gentleman I was debating cited the fact that most Wall Street analysts had reduced their estimates for U.S. GDP growth recently and he was therefore negative on growth and the market.  As I countered, I went to these funny critters called facts.  The three most recent data points on the U.S. economy that I’d seen which were as follows:

  • New home sales up 29% y-o-y and inventory is at the lowest level since 2005;
  • Chicago PMI new orders reading coming in at 60.1, an 11-month high; and
  • Jobless claims in the most recent week showing an 8% improvement year-over-year.

As they say, facts don’t lie, people do.  Now those are only the facts that I happened to see as I was prepping for my interview yesterday and it is certainly not to say that all is well in the world, but those facts are supportive of our growth stabilizing thesis.

 

The caveat to my points above is the Chinese economic data that came out this morning was definitely slightly disappointing. Chinese PMI came in at 50.1 versus the estimate of 50.5 and was down from January’s reading of 50.4.  Now this reading is still expansionary, but is indicative of a sequential slow down, although admittedly the February economic data from China is distorted by the Lunar New Year.

 

Even as we continue to express our bullish stance on U.S. equities, we are not bullish of all markets.  In fact, a key global market we remain bearish on is the Japanese Yen.  This morning we received more confirmatory data of that stance as Japanese CPI fell for the eighth time in the last nine months.  Since the political leadership of Japan intents to manufacture inflation, they will obviously react to this by doubling down on their policy of debauching the Yen.

 

On that note, in the Chart of the Day (titled: Japanese Consumers Are Going to Get Bag Skated) we highlight how difficult it will actually be to create inflation in Japan via monetary easing.  This chart goes back to 2004 and highlights that annual CPI has been consistently below 0%.  The point being that if the Japanese leadership is really intent on taking CPI to a 2% level, it will take a massive amount of Japanese Yen printing, which begs the question: are we bearish enough on the Yen?

 

While we are doing the around the globe macro review this morning, it is probably prudent not to forget the currency experiment gone awry – the Euro-zone. This morning European manufacturing PMIs are out and the results are mediocre at best.  The headline number for the Euro-zone is 47.9, which is slightly better than the 47.8 estimate but still suggesting of an economy in decline.  As always though, Europe is bifurcated.

 

On the positive extreme, consistent with our research, is Germany with an expansionary PMI of 50.3.  Meanwhile on the negative end of the spectrum is France with a dreadful PMI of 43.9.   To the credit of the French politicians who implemented tax rates that have motivated capital to flee France, they actually don’t have the worst PMI in the Euro-zone. That title goes to Greece at 43.0.

 

Before you head off into the weekend, let’s talk stocks for a second.  As many of you know, we are instituting a best ideas list that highlights our best ideas across our research team.  On Wednesday we did the second part of that launch and our Financials Sector Head, Josh Steiner, presented the idea Nationstar Mortgage (NSM), a company that is in the business of servicing delinquent loans and originating agency mortgages for sale.  The thesis is as follows:

  • The company operates in a oligopoly with only two true competitors;
  • We think the street is too low in 2013 and that the earnings power of the company is ultimately close to $10 per share;
  • A spin-off of its Solution Star business could unlock $6 in incremental value; and
  • NSM has a servicing acquisition pipeline of some $300BN in the foreseeable future.

So, here we have a company with a big market opportunity, operates in an oligopoly and is trading at less than 4x its ultimate earnings power.  Stock ideas like NSM, are starting to put me in a much better mood this morning.

 

Our immediate-term Risk Ranges for Gold, Oil (Brent), US Dollar, UST10yr, and the SP500 are now $1, $110.04-112.85, $81.45-82.46, 1.83-1.95%, and 1, respectively.

 

Keep your head up and stick on the ice,

 

Daryl G. Jones

Director of Research

 

Feb Club - Chart of the Day

 

Feb Club - Virtual Portfolio


BYD YOUTUBE

In preparation for BYD's F4Q earnings release Monday, we’ve put together the recent pertinent forward looking company commentary.

 

 

BOYD GAMING ANNOUNCES AGREEMENT TO SELL DANIA JAI-ALAI (2/28)

  • Entered into a definitive agreement to sell the assets of Dania Jai-Alai in Dania Beach, Fla., to Dania Entertainment Center, LLC, for $65.5 million in cash.  As part of the agreement, the $7 million deposit previously paid by Dania Entertainment to Boyd Gaming will be applied to the purchase price.
  • Subject to terms of the definitive agreement and satisfaction of closing conditions, the transaction is expected to close on or before May 24, 2013.  The Company intends to use proceeds for general corporate purposes, including the repayment of debt.

BOYD GAMING COMPLETES ACQUISITION OF KANSAS STAR CASINO'S OPERATOR (11/20)

 

 

YOUTUBE FROM 4Q CONFERENCE CALL

  • "We expect wholly-owned EBITDA after the deduction for corporate expense to be in the range of $70 million to $75 million."
  • "Our Midwest and South region... is currently the healthiest region of the domestic gaming industry and the most robust part of our business."
  • "We were especially pleased by the continued strong performance of the IP, which delivered its largest year-over-year EBITDA improvement since we acquired it a year ago."
  • "Upon completion of the Peninsula transaction, we will have added six properties in just over a year, generating approximately $250 million in additional EBITDA annually."
  • "Atlantic City.... the... environment remains competitive. Weakness was concentrated in our table games business, where both volume and hold fell year-over-year. This accounted for almost the entire EBITDA shortfall. Still, there were encouraging signs as our slot and non-gaming business showed growth. Borgata remains the undisputed market leader and we expect it will be Atlantic City's premier destination resort for years to come."
  • "As expected, we saw growth resume in our Downtown business segment in the third quarter and we anticipate this positive trend will continue in the fourth."
  • "The Las Vegas Locals business remains extremely competitive...we're continuing our efforts to grow business from casual players. Penny denomination games are popular with these guests and are one of the few segments of the Locals market to show growth in recent months. So we've recently taken steps to ensure we are well positioned in this area and are nearing completion of the rollout of some 1,500 new penny themes across our Southern Nevada properties. Starting today we have begun to aggressively promote these new games. While we believe this initiative will be attractive to slot players, video poker will remain an essential part of our business, especially among our core players. We will continue to offer our guests what we believe is the most competitive video poker product in Las Vegas."
  • "Revel spent a lot of marketing dollars, they were very aggressive in buying business, in trying to gain trial and gain some traction. We increased our promotional dollars slightly. If you look at some of our slot promotional credits, they're up slightly year-over-year, but not substantially, and not compared to what the rest of the market is doing."
  • "We know that in certain markets like Tunica, Mississippi and Shreveport, Louisiana, there is a significant amount of competition both within the specific geographic market as well as within neighboring states. But I've got to tell you, I feel awfully good as to where we perform in those markets relative to our competitors that post those results. And you can see it in the revenue numbers that are published especially in Louisiana as it relates to Sam's Town Shreveport."
  • "Regarding CapEx, we're kind of spending at what is in today's world a fairly normal level, wouldn't expect anything – any abnormal capital spending. We have announced... that we'll be wrapping the Echelon property and sprucing up some landscaping. It's to the tune of a couple of million dollars, so it's nothing significant. That work will take place first... first couple of months of the year or so."
  • "On the FTE side, we obviously took measures really at this point years ago in adjusting FTEs for the business levels. And at this point in time we really don't see any further opportunity of any significance to do that."
  • "If I had to make a guess...it will continue to be fairly promotionally aggressive in... Atlantic City."
  • "I wouldn't say that promotions have abated. I think they're at very much kind of the same state they were in through the summer. What we have seen is spend per visitor in the Las Vegas Locals segment flatten out."

 



THE M3: FEB GGR; MPEL BOND

The Macau Metro Monitor, March 1, 2013

 

 

FEBRUARY GGR DICJ

Macau February Gross Gaming Revenues hit MOP 27.084 BN (HKD 26.294 BN, USD 3.39 BN) up 11.5% YoY.

 

MELCO PLACES HK$460 MILLION IN BONDS Macau Business

Hong Kong-listed Melco International Development Ltd, one of the two main shareholders of MPEL, is placing HK$460 million (US$59.3 million) in bonds.  The five-year notes will pay 4.15% interest annually  The bonds are being issued by Melco International Finance Ltd, a British Virgin Islands company, and fully guaranteed by Melco International Development.  The cash will be used for general working capital and future investment purposes, according to the company.

 

 

 


Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.

next