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Client Talking Points

Gold Not Glittering

Gold has been front-running the Fed since Fed Chief Ben Bernanke said he’d print to infinity and beyond (September 2012). On the heels of John Hilsenrath’s Wall Street Journal article on Friday night, the Gold price is down another -1.3% this morning to $1427/oz. That’s the worst year-to-date start since 1982.

Consumption Growth

Retail sales grew 0.1% in April, beating expectations and confirming Hedgeye’s broad macro theme that US consumption is increasing and that growth is accelerating. Consumption has been strengthening both as the US dollar strengthens, and as a result, commodities prices fall.

Asset Allocation

CASH 33% US EQUITIES 18%
INTL EQUITIES 18% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 31%

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

“I’ve never been more happy that all my trading algos/models aren’t locked into windows someone could have viewed.”

--@KeithMcCullough

QUOTE OF THE DAY

“All generalizations are false, including this one.” – Mark Twain

STAT OF THE DAY

0.1%, the increase in retail sales for April