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Client Talking Points

Can It Hold?

1556 is a line we've been watching in the S&P 500. If this line can hold after today, we'll likely buy the index. There is no resistance all the way up to 1601. That's a lot of room to grow. Volume is up, volatility is down and the S&P is holding steady. These three factors make for a perfect storm of sorts that allows us to start getting long stocks and specifically, the S&P 500.

Keeping Focus On Consumption

We remain bullish on consumption and bearish on commodities. The fact of the matter is that there is an exodus in commodities and investors and traders sell the sector in an attempt to preserve capital. The people who fled commodities and will move into things like equities and treasuries. As commodity prices go down and your family sees the benefits of lower gas prices and cheaper food at the grocery store. They WILL buy more when prices come down and that in help drives global growth.

Asset Allocation

CASH 31% US EQUITIES 20%
INTL EQUITIES 15% COMMODITIES 0%
FIXED INCOME 6% INTL CURRENCIES 28%

Top Long Ideas

Company Ticker Sector Duration
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.

Three for the Road

TWEET OF THE DAY

"Aussie Dollar failing at 20mda resist and breaking 50mda support. Policy can't fight move in copper, PGMs. CAD + AUD to test May '12 lows" -@timseymour

QUOTE OF THE DAY

"There is always more misery among the lower classes than there is humanity in the higher." -Victor Hugo

STAT OF THE DAY

Germany auctions 10-year bonds at record low yield of 1.28%.