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Trade of the Day: EVEP

Takeaway: Keith reiterates the short call on EV Energy Partners (EVEP) at $41.95.

We are reiterating our energy analyst Kevin Kaiser’s short call on EV Energy Partners at $41.95. The company is an oil and gas property MLP. They have a funding gap. That's a big problem.

 

Trade of the Day: EVEP - EVEP


Keith's Top-5 Tweets Today

Takeaway: Stocks, Goldman Sachs and Doug Kass.

Almost everything on my shopping list is saying, wait - you can buy me lower

@KeithMcCullough 3:17 PM

 

Sometimes doing nothing is the hardest thing to do - but precisely what you should do

@KeithMcCullough 3:06 PM

 

You have to be kidding me on the Goldman call here - its raining, so they now forecast rain

@KeithMcCullough 10:45 AM

 

When my signal and my research team are immediate-term bearish; my decisions to not buy become a lot easier

@KeithMcCullough  10:38 AM

 

@KeithMcCullough Sincere congratulations - you performed both the roles of market obstetrician and mkt mortician with precision in 2013. @DougKass 5:32 AM

Retweeted by Keith McCullough

 


CHART DU JOUR: US GAMING: SOFT SLOTS

Q2 top-line growth should be weak, again

 

  • Despite an improvement in US consumer discretionary spending and sentiment trends in 2013, domestic gaming continues to lag.  Demographic headwinds are to blame, in our opinion.
  • US domestic gaming revenues (excluding Indian casinos) growth has been slowing since Q3 2012 despite the recent opening of new casino markets
  • Q1 2013 US gaming revenues grew a pathetic 0.5% YoY; on a same-store basis, Q1 revenues dropped 4.2% YoY
  • For the mature regional gambling markets, April same-store revenues tumbled 4% YoY, in-line with our projections.  We believe May revenues could be flat, followed by further declines in June. 

 

CHART DU JOUR: US GAMING: SOFT SLOTS - b


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The Case against Consumer Staples Stocks

It’s been a tough Q1 (and then some) for many staples investors that have to make a living generating alpha on the short side, or at least have to try and have their shorts go up less than their longs.  As with most market moves, there are multiple factors to which we can point as contributing causes to the run up in consumer staples:

  1. Investors chasing yield
  2. Inflows into low volatility ETFs
  3. M&A speculation in the wake of the HNZ acquisition
  4. Declining commodity prices and the associated expectation for improvement in gross margins
  5. Investors skeptical of the broader market rally and playing staples as a “safe” way to be long

Conspicuous by its absence is any case for the valuation of the consumer staples sector, broadly.  Valuation is always a tough one – it doesn’t matter until it matters, then when a stock heads lower (or higher, as the case may be), people point to valuation.



The Case against Consumer Staples Stocks - Sector PE 5.23.13

 

Generally speaking, we like to see stocks heading higher as estimates head higher - that has not been the case.  Through Q1 earnings season, the "average" staples company missed revenue expectations by 0.4% and beat EPS by a meager 3.3%.

 

The Case against Consumer Staples Stocks - Q1 EPS Summary

 

We have long made the case that investors have been using the staples sector (and utilities) as bond proxies.

 

The Case against Consumer Staples Stocks - Yield Spread 5.23.13

 

The Case against Consumer Staples Stocks - XLP vs. 10 yr. 5.23.13

 

With interest rates starting to creep higher, we may start to see money flow out of the consumer staples sector that was chasing yield and not invested for (or with, quite frankly) any fundamental view of the sector or the companies.

 

We also believe that certain stocks have benefitted from the inclusion in low volatility ETFs and associated money flows into those ETFs. 

 

The Case against Consumer Staples Stocks - CPB and CLX 5.23.13

 

The Case against Consumer Staples Stocks - GIS and KMB 5.23.13

 

In recent weeks, inflows into these ETFs have become decidedly less one directional.

 

The Case against Consumer Staples Stocks - Low Vol Inflows

 

M&A speculation is more difficult to argue against.  We think some names continue to make sense over longer durations as potential targets of either activists (MDLZ - known) or strategic investors (BEAM, HSH, POST, DF).  We have always viewed the possibility of some sort of transaction as another reason to own a stock, but not the primary reason (unless you happen to work on a special situations desk, then have at it).  Therefore, names such as CPB or even TAP, that have benefitted in part from low-quality speculation remain squarely on our least preferred list.

 

As to commodity prices, we believe that the companies in our universe will see a benefit, but on a lag (3-12 months, depending on the hedging programs).  However, current multiples appear to be baking in a whole lot of good margin news, that may be fleeting in terms of duration given the competitive environment.  Most staples companies can't stand prosperity, and are likely, in our view, to deal back margin in an effort to support top line momentum, which is still faltering.

 

Where does this leave us?

 

Quite frankly, it leaves us with a long list of names where we have a hard time seeing how the marginal investing dollar makes money at current levels.  Our least preferred list is long and not so distinguished:

 

  1. KMB
  2. TAP
  3. CPB
  4. PM (more of an issue with the strength of the dollar)
  5. CLX
  6. CL
  7. GIS
  8. MKC

What we like remains largely unchanged:

 

  1. ADM
  2. CAG
  3. NWL
  4. BUD
  5. DF
  6. SPB

Call with questions,

 

Rob



Robert Campagnino

Managing Director

HEDGEYE RISK MANAGEMENT, LLC

E:

P:

 

Matt Hedrick

Senior Analyst



INITIAL CLAIMS: LABOR MARKET RESUMES FULL STEAM AHEAD

Takeaway: After a brief misfire last week, the labor market appears to again be moving in the right direction. YTD trend-line acceleration continues.

Below is the breakdown of this morning's claims data from our head of Financials, Josh Steiner.  If you would like to setup a call with Josh or trial his research, please contact 

 

 

Labor Market: Back to the Races

After taking a breather last week, the labor market came roaring back this week. Taking a look at the YoY trend in NSA initial claims over the last five weeks, they look like this (newest to oldest): -8.9%, -1.3%, -10.5%, -9.7%, -12.1%. That is an extraordinarily strong run. The real takeaway, however, remains that the YoY rate of improvement in rolling NSA claims continues to accelerate in 2013. This is different than what we've seen in the prior three years. The chart below shows this. The black dotted line shows that the slope in the rate of claims improvement is negative for 2013, whereas 2010, 2011 and 2012 all had positive slopes (a negative slope in this instance is better as it means the rate of improvement is accelerating).

 

INITIAL CLAIMS: LABOR MARKET RESUMES FULL STEAM AHEAD - JS 1

 

To reiterate our comments from last week, we have subscribed to a simple philosophy since Lehman Brothers. We consider three macro factors paramount in gauging the overall direction for the sector: labor, housing and the Fed. On that score, YTD all three factors had been moving in the right direction.We continue to view labor and housing as moving in the right direction from an intermediate and longer-term standpoint. The Fed, however, now seems the odd man out, and in the short-term we continue to expect weakness. 

 

Contrary to the prior three years, however, where it was unclear whether the weakness constituted a falling knife or buying opportunity, this time around, we would view any weakness as a buying opportunity for those with a horizon beyond a few weeks. Our basis is primarily the ongoing recovery in both housing and labor. Moreover, a steepening curve is obviously a good thing for lenders, even if it retards some of the progress we've seen in housing.

 

The Data

Prior to revision, initial jobless claims fell 20k to 340k from 360k WoW, as the prior week's number was revised up by 3k to 363k.

 

The headline (unrevised) number shows claims were lower by 23k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -0.5k WoW to 339.5k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -7.6% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -8.5%.

 

INITIAL CLAIMS: LABOR MARKET RESUMES FULL STEAM AHEAD - JS 2

 

INITIAL CLAIMS: LABOR MARKET RESUMES FULL STEAM AHEAD - JS 3

 

INITIAL CLAIMS: LABOR MARKET RESUMES FULL STEAM AHEAD - JS 4

 

INITIAL CLAIMS: LABOR MARKET RESUMES FULL STEAM AHEAD - JS 5

 

INITIAL CLAIMS: LABOR MARKET RESUMES FULL STEAM AHEAD - JS 6

 

INITIAL CLAIMS: LABOR MARKET RESUMES FULL STEAM AHEAD - JS 7

 

INITIAL CLAIMS: LABOR MARKET RESUMES FULL STEAM AHEAD - JS 8

 

 

Joshua Steiner, CFA

 

 


Initial Claims: Back in Business

Takeaway: After last week’s hiccup, the US labor market appears to be moving in the right direction again.

After taking a breather last week, the labor market came roaring back this week.Taking a look at the YoY trend in NSA initial claims over the last five weeks, they look like this (newest to oldest): -8.9%, -1.3%, -10.5%, -9.7%, -12.1%. That is an extraordinarily strong run.

 

The real takeaway, however, remains that the YoY rate of improvement in rolling NSA claims continues to accelerate in 2013. This is different than what we've seen in the prior three years. The chart below shows this. The black dotted line shows that the slope in the rate of claims improvement is negative for 2013, whereas 2010, 2011 and 2012 all had positive slopes (a negative slope in this instance is better as it means the rate of improvement is accelerating).

 

Initial Claims: Back in Business - steiner


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