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Client Talking Points

S&P500

Immediate-term Risk Range is 1630-1651. We remain bullish and are time stamped buying yesterday’s dip. Key positive we see relating to growth? Expectations.  Consensus aggregate SP500 revenue growth next three quarters is 0.5%, 3.4% and 2.3%. This is an expected revenue growth rate of  just over 2.0% in the projected period, and less than half the average reported year-over-year growth rate of north of 4% in the prior three quarters.  These low expectations are very supportive. 

JAPAN

Japan bounced +2% overnight right where it should have (it was oversold yesterday). Neighbor China fell -1.2% with Honk Kong and Korea closing flat. The Weimar Nikkei is in a very interesting spot now = bearish TRADE; bullish TREND. Meanwhile, JGB 10yr Yield at 0.83%, that's still 2bps above the Hedgeye TAIL risk line. We’ll be keeping a close eye on Abe's “Yen burning” speech tomorrow.

Asset Allocation

CASH 25% US EQUITIES 28%
INTL EQUITIES 18% COMMODITIES 0%
FIXED INCOME 0% INTL CURRENCIES 29%

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

"Just a friendly reminder to the housing bears - you said y/y US Home prices would be up +5-6%- already running 2x that"

@KeithMcCullough

QUOTE OF THE DAY

"Failure is not fatal, but failure to change might be." - John Wooden 

STAT OF THE DAY

US Home Prices rip a new high in May up +12.5% y/y.