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.
Takeaway: Stocks, Goldman Sachs and Doug Kass.
Almost everything on my shopping list is saying, wait - you can buy me lower
Sometimes doing nothing is the hardest thing to do - but precisely what you should do
You have to be kidding me on the Goldman #JGB call here - its raining, so they now forecast rain
When my signal and my research team are immediate-term bearish; my decisions to not buy become a lot easier #process
Retweeted by Keith McCullough
Q2 top-line growth should be weak, again
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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:
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.
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%.
We have long made the case that investors have been using the staples sector (and utilities) as bond proxies.
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.
In recent weeks, inflows into these ETFs have become decidedly less one directional.
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:
What we like remains largely unchanged:
Call with questions,
HEDGEYE RISK MANAGEMENT, LLC
Takeaway: After a brief misfire last week, the labor market appears to again be moving in the right direction. YTD trend-line acceleration continues.
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).
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.
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%.
Joshua Steiner, CFA
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).
Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.