China Calling, Dollar Matters

Client Talking Points

China Calling

Don’t look now, but the China stock market closed up 1.4% overnight, its third consecutive winning day. The market there is now up, albeit barely, for the year-to-date. That’s telling us that while things might not be great there, the world isn’t ending, either.

Dollar Days

With the US dollar falling yesterday after powering to year-to-date highs earlier in the week, the S&P lost a bit of ground yesterday. As has been our call, a strong dollar leads to a strong US equity market. We’re seeing that this morning as the dollar is back up, and futures are heading higher.

Asset Allocation

CASH 42% US EQUITIES 18%
INTL EQUITIES 15% 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

“It’s all about the storytelling, folks.” -- @KeithMcCullough

 

QUOTE OF THE DAY

“Well begun is half done.” -- Aristotle

STAT OF THE DAY

$92.24, the price of each share of Tesla’s 3.39 million share secondary offering