CLIENT TALKING POINTS
Japan's
Japan's announced a few weeks back that it would inject $1.4 trillion into the economy as a stimulus measure. In turn, stock markets ripped to the upside while the value of the Japanese Yen plummeted considerably. This morning, the tradition continues, with the Yen testing the 100 level (against the US dollar) and the Nikkei 225 hitting a fresh year-to-date high, up +1.9% to 13,568. That's the power of the Bank of Japan doing whatever it wants. In turn, the people of Japan will feel the pain when they hit the grocery store and find out that an ear of corn costs $10.
Gold Bulls
Moving on to the Federal Reserve in the United States, our central bank has made it clear there will be no QE 5 to save the day. With this being a bullish catalyst for the US dollar, gold prices continue to get whacked. Bear in mind that a dead cat bounce does not equate to a recovery. Gold can go much lower, especially as the big asset managers liquidate positions.
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 | 18% | COMMODITIES | 0% | |
| FIXED INCOME | 6% | INTL CURRENCIES | 28% |
THREE FOR THE ROAD
TWEET OF THE DAY
"Busiest week for $SPY earnings with one-third of the index reporting" -@CNBCMelloy
QUOTE OF THE DAY
"It is impossible to enjoy idling thoroughly unless one has plenty of work to do." -Jerome K. Jerome
STAT OF THE DAY
Caterpillar's (CAT) its first-quarter profit dropped to $880 million or $1.31 a share, from $1.59 billion or $2.37 a share, in the year-ago quarter. The company also cut its full-year outlook for 2013.
