CLIENT TALKING POINTS
JGB, Yeah You Know Me
Japanese Government Bonds (JGBs) yields rose ten basis points overnight, have risen 23 basis points in the past month and jumped above Keith’s long-term TAIL risk line of 0.84%. Is this a real move or just a head fake? Keith says he’ll let the market tell him what to do but says that the complacency around JGB or US Treasury yields not breaking to the upside is surreal.
The Doctor Is Out
Copper prices fell 1.6%, yet more evidence of commodity prices falling. Doctor Copper remains firmly bearish on a TREND basis though it is oversold at $1421 on a TRADE duration. A stronger US dollar and weaker commodities prices benefit the US consumer.
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 | 36% | US EQUITIES | 18% | |
| INTL EQUITIES | 18% | COMMODITIES | 0% | |
| FIXED INCOME | 0% | INTL CURRENCIES | 28% |
THREE FOR THE ROAD
TWEET OF THE DAY
“If it weren’t for the last minute, nothing would get done.” -- @Parksani
QUOTE OF THE DAY
“It’s not that I’m smart, it’s just that I stay with problems longer.” – Albert Einstein
STAT OF THE DAY
92.1, the latest reading on the NFIB Small Business Index, which rose 2.6 points in April