CLIENT TALKING POINTS
Jobless Claims
Once again, the employment picture shows signs of strength as today’s report of initial jobless claims checked in at 323,000 for the week. For followers of Hedgeye, we have been talking about an improved jobs environment for some time as part of our #GrowthAccelerating macro theme.
Strong Dollar, Lower Food Prices
With the SP500 up for the fifth consecutive day, hitting another all-time (which is a long-time) record closing high of 1632 (+14.4% year-to-date), Keith was selling all day as he watched the #Sohn2013 ideas roll on to the new tape. Three days ago we had 18% Cash in the Hedgeye Asset Allocation Model – this morning we have 32%. In other words, from a gross exposure perspective, we are raising some cash now.
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.
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.
Asset Allocation
| CASH | 32% | US EQUITIES | 15% | |
| INTL EQUITIES | 15% | COMMODITIES | 0% | |
| FIXED INCOME | 10% | INTL CURRENCIES | 28% |
THREE FOR THE ROAD
TWEET OF THE DAY
“Rumors of a low-cost iPhone heat up as a key Apple supplier goes on a hiring spree.” -- @CNET
QUOTE OF THE DAY
“We are what we believe we are.” – C.S. Lewis
STAT OF THE DAY
323,000, this week’s Jobless Claims Number
