CLIENT TALKING POINTS
Strong Dollar
Our non-consensus bull case for US growth is something we've been talking about for awhile now and we think that it sells itself. It all revolves around consumption growth which in turn boosts US consumption stocks. The three pillars of our case are:
1. #StrongDollar continues to make a series of higher-lows and higher-highs (vs its 40yr low in 2011)
2. #CommodityDeflation continues to make a series of lower-highs and lower-lows (vs their 40yr high in 2011)
3. US Consumption Growth occurs when the real purchasing power of the US currency rises
Changing Our Mind
What would get us to move away from our consumption plan outlined above? Easy: a change in monetary policy. If Bernanke starts printing money again, then we're in for a rough ride. Commodity prices would like jump as the US dollar was debauched. As US food and gas prices increase, consumption in the US decreases. It's as simple as that. We'll have to wait and see what the Fed is up to. Who knows if QE will ever truly end at this rate?
TOP LONG IDEAS
IGT
Decent earnings visibility, stabilized market share, and aggressive share repurchases should keep a floor on the stock. Near-term earnings, potentially big orders from Oregon and South Dakota, and news of proliferating gaming domestically could provide near term catalysts for a stock that trades at only 11x EPS. We believe that multiple is unsustainably low – and management likely agrees given the buyback – for a company with the balance sheet and strong cash flow as IGT. Given private equity’s interest in WMS (they lost out to SGMS) – a company similar to IGT that unlike IGT generates little free cash – we wouldn’t rule out a privatizing transaction to realize the inherent value in this company.
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.
Asset Allocation
| CASH | 28% | US EQUITIES | 20% | |
| INTL EQUITIES | 20% | COMMODITIES | 0% | |
| FIXED INCOME | 6% | INTL CURRENCIES | 26% |
THREE FOR THE ROAD
TWEET OF THE DAY
"Failed HLF distributor files first lawsuit post-Ackman @nypost Salesman’s suit says $HLF a ‘scheme’, nyp.st/14dXaMC" -@hedgeygrl
QUOTE OF THE DAY
"Laughing at our mistakes can lengthen our own life. Laughing at someone else's can shorten it." -Cullen Hightower
STAT OF THE DAY
U.S. weekly jobless claims drop 42,000 to 346,000
