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Client Talking Points

Dollar Flexes Its Muscle

The US Dollar broke out to year-to-date highs yesterday, in a rally that Keith says is  “really starting to matter” from both correlation risk (lower commodities) and economic growth (strong consumption) perspectives. The US dollar is overbought immediate term, but the US Dollar index could push $90 in the intermediate term.

Gold Losing Luster

Gold, though, doesn’t like a strong dollar that confirms that growth is indeed accelerating. Gold is currently oversold at $1409, but Keith says gold is beginning to look like it did in the early 1980s. That’s anything but good for gold bugs.

Asset Allocation

CASH 39% US EQUITIES 18%
INTL EQUITIES 18% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 25%

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

“FX: Hell0 102, Burning Yen.” -- @KeithMcCullough

 

QUOTE OF THE DAY

“He who conquers, endures.” -- Perseus

STAT OF THE DAY

3.3%, the amount the S&P 500 is up so far in May