Playing to Win

Client Talking Points

JAPAN

Was it a bird? Was it a plane? Nope. It was Shinzo Abe (on the cover of The Economist last month flying with a Superman cape). But let's remember, he’s still the same PM who failed in Japan last time. And now the Nikkei has snapped both our TRADE and TREND lines of support (TREND = 13,841). Overnight down another -0.85% and down -17.4% since May 22. Yen has a wall of resistance in the 97-98 range vs USD so this will remain volatile

CHINA

So the Chinese did make up the export numbers last month and decided to make them up at a slower rate this month (May Exports +7% vs 14% last month). Both Chinese and Hong Kong stocks got blasted with -1.1% drops. The Hang Seng is now bearish TREND in our model with TREND line resistance confirmed up at 22,621.

10YR UST

The next 48 hours...They will be critical on the employment #GrowthAccelerating side of the equation. We've got jobless claims on tap today, which have been fantastic as of late, and the jobs report tomorrow, where expectations are low. The 10yr Yield is in a Bullish Formation (bullish across all 3 durations in our model) with no resistance to 2.23%. Higher-lows of immediate-term support down at 2.01% into the data.

Asset Allocation

CASH 23% US EQUITIES 30%
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

"The Japanese economic gravity smoothing experiment doesn’t seem to be going so swell"

QUOTE OF THE DAY

“There are no environments where you're only going to win, because life just isn't like that.”

- Bobby Orr

STAT OF THE DAY

American men spend 53% of their leisure time on weekends and holidays watching television, 4% of their time reading.