Stick With What's Working

Client Talking Points

S&P500

Excellent month to be long our #GrowthAccelerating call. S&P 500 +3.5% in May.  No, we weren’t in the “Sell in May, Go away” camp. Not by a long shot. Financials up almost 8% for the month. Talk about sector divergence: utilities down over 8% for month. 1600 basis point divergence there. Futures were down this morning which represented another buying opportunity. When you’re long #GrowthAccelerating as we are, you don’t buy gold or Treasuries. You buy financials and consumption. Stick with what’s working.

USD

We bought back one of our big macro favorites #StrongDollar yesterday. It was oversold within our bullish intermediate-term trend. Should have shorted the Euro which banged the top end of our risk range at 1.30. Yes, I make mistakes sometimes.

Asset Allocation

CASH 30% US EQUITIES 22%
INTL EQUITIES 18% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 30%

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

Tons of "smart" people in this business; their intelligence often impedes their mental flexibility

@KeithMcCullough

QUOTE OF THE DAY

“I have noticed even people who claim everything is predestined, and that we can do nothing to change it, look before they cross the road.”  - Stephen Hawking

STAT OF THE DAY

72,600,000: Record number of Americans enrolled in Medicaid for at least one month in fiscal 2012.


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