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Client Talking Points

You Down With ECB?

Rate cuts have become the norm in the "new economy" we live in. The next big one should come out of Europe, specifically from Mario Draghi at the European Central Bank (ECB). The EuroStoxx 600 index was up +3.7% last week, which shows that stocks do expect and care about rate changes. Spain and Italy rallied the most out of the great big melting pot so if Draghi doesn't cut rates soon, it's going to be a mess over there.

Crude Mood

Brent crude oil is in bearish formation across all three of our durations: TRADE, TREND and TAIL. Last week's bounce is unlikely to hold and that's a positive for consumption (Americans are quite fond of lower gas prices). Our immediate-term risk range for Brent crude oil is $97.18-104.09 and there are plenty of speculators who need to unwind their long positions.

Asset Allocation

CASH 22% US EQUITIES 26%
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

"Consumer spending report at 8:30 kicks off a week chock full of data" -@BenEisen

QUOTE OF THE DAY

"Facts are stubborn things, but statistics are more pliable." -Mark Twain

STAT OF THE DAY

U.S. consumer spending rises 0.2% in March.