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Client Talking Points

JAPAN

Monday morning gut check: The Weimar Nikkei is a little tougher to swallow than getting long SPY on a -2.3% correction. Japanese stocks slid -3.7% overnight with the Yen immediate-term TRADE overbought at 100.09 (vs USD). Get this: Nikkei is down -15.1% since May 22! Ka-boom. Here'a a friendly Hedgeye reminder: Abe’s Policy to inflate is not growth.

OIL

The best economic news of last week (alongside a 58.7 in the PMI, falling rolling jobless claims, and new highs for US consumer confidence) was Brent Oil down another -2.5% on the week. This Bearish Formation for Brent remains an ongoing consumer Tax Cut.

UST 10YR

US bond yields like the trending (bullish) US economic data and oil falling. That is clear. The 10yr is up another +2bps this morning to 2.15%. Look, the 10yr is still breaking out .. despite the 2 hour selloff in US Equities on a month end Friday; PMI and ISM reports up next.

Asset Allocation

CASH 28% US EQUITIES 26%
INTL EQUITIES 18% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 28%

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

@KeithMcCullough I SOOOOO hate you for all the money @hedgeye has made me over last month. Why won't you let me be a loser you cruel prick?

@IllusoryMgmt

QUOTE OF THE DAY

"Great spirits have always encountered violent opposition from mediocre minds." - Albert Einstein

STAT OF THE DAY

From 1960 to 2011, total personal expenditures for hospital care in the U.S. increased from $9.0 billion to $850.6 billion.