Top That!

Client Talking Points

Beckoning The Bulls

The Professional Top Callers (PTC) have come out of their bunkers this morning to call the top in stocks once again. Too bad that doesn't really work when you've been wrong several times throughout the year. With the S&P 500 hitting a fresh all-time high yesterday, global markets are following in the footsteps of the US with the following markets putting up impressive year-to-date returns thus far:

 

  • FTSE: +11% (in Bullish Formation)
  • Philippines: +24%
  • Indonesia: +18%

Commodities Cornered

Commodities rallied on the US dollar taking a hit but are back to the same old game of getting whacked this morning. Gold, corn and oil are all down this morning, which is a good thing for the consumption game. After all, lower oil and corn prices mean cheaper groceries and lower prices at the pump. Corn has no support here until $6.02 and was as high as $8.30 back in August of 2012. Ouch. 

Asset Allocation

CASH 17% US EQUITIES 25%
INTL EQUITIES 20% COMMODITIES 0%
FIXED INCOME 6% INTL CURRENCIES 32%

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

"More Bad News is Good News "Good for QE, Just Buy Stocks" ADP National Employment Nov 276k Feb 237k April 119k" -@Convertbond

QUOTE OF THE DAY

"In a few minutes a computer can make a mistake so great that it would have taken many men many months to equal it." -Unknown

 

STAT OF THE DAY

ADP Employment Report shows US added 119,000 jobs in April. Estimates were looking for a gain of 150,000.