America Grows

Client Talking Points

Strength In Housing

The housing market continues to impress investors with its recovery. We're seeing a combination of positive indicators that indicate demand is on the rise. Home prices are rising, volumes are up, mortgage demand has increased thanks to ultra-low rates (the 15-year fixed-rate is at an all-time low) and inventory isn't bloated. Put all these together and you have true economic recovery that makes the US housing market one of the most attractive investments out there.

Employment Stabilizing

Talking heads on news programs may indicate otherwise, but the employment situation in the United States is doing quite well. The latest initial jobless claims numbers prove that we're seeing sequential improvement on a month-over-month basis. Both seasonally adjusted and non-seasonally adjusted claims show an improving trend in the labor market. Jobs, along with housing, all fit into the consumption game. Consumers are working hard, buying homes and hitting the grocery store and gas pump and spending money. Consumption is the key to global growth and right now, things are looking up.

Asset Allocation

CASH 23% US EQUITIES 25%
INTL EQUITIES 18% 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. 

WWW

WWW is one of the best managed and most consistent companies in retail. We’re rarely fans of acquisitions, but the recent addition of Sperry, Saucony, Keds and Stride Rite (known as PLG) gives WWW a multi-year platform from which to grow. 

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.

Three for the Road

TWEET OF THE DAY

"Whoa, Burger King a whopper (20%) of div increase. However... "comp sales growth was not up to our expectations..." Which trumps which? $BKW" -@herbgreenberg

QUOTE OF THE DAY

"Instead of giving a politician the keys to the city, it might be better to change the locks." -Doug Larson

STAT OF THE DAY

Economy in US expanded 2.5% in Q1 compared with 3% projected growth.