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Stock Report: Nationstar Mortgage Holdings, Inc. (NSM)

Stock Report: Nationstar Mortgage Holdings, Inc. (NSM)  - HE II NSM 6 14 13

THE HEDGEYE EDGE

There are three things NSM needs to do to grow. First, it needs to continue to acquire its share of the outstanding pipeline of servicing assets. We think the risk to execution here is low, as NSM has the infrastructure and backing (Newcastle & Fortress) to be able to execute on significant further volume.

 

Second, it needs to improve its servicing profit margins. Mortgage servicing is a scale business, and the company will grow its servicing book meaningfully in the coming 12-24 months. As the servicing business grows, we expect to see significant servicing margin improvement.

 

Third, the company needs to continue to grow its mortgage origination platform. The volume of this business should grow alongside the servicing business; however, one wildcard is gain-on-sale margins. Gain on sale margins depend on factors outside Nationstar’s control, and are currently wider (larger) than their historic norms.

 

Mean reversion seems like a reasonable assumption, which will put some pressure going forward on this portion of the business, but we think it can be more than offset by volume growth.

 

TIMESPAN

INTERMEDIATE TERM (the next 3 months or more)

Over the intermediate term, we expect NSM to announce further portfolio acquisitions and a continued expansion of its mortgage origination platform. Historically, acquisition announcements have been positive catalysts for the stock, and the company has indicated that it has a $300 billion UPB pipeline of acquisitions as of the end of 1Q13.

 

LONG-TERM (the next 3 years or less)

Over the longer-term, we think banks will continue to sell high-touch, specialty mortgage servicing to a select group of non-bank servicers that includes NSM, OCN and WAC. This industry should remain in a high-growth phase throughout 2013/2014.

 

ONE-YEAR TRAILING CHART

Stock Report: Nationstar Mortgage Holdings, Inc. (NSM)  - HE II NSM chart 6 14 13

 


Fear & Loathing (and Greed) on Wall St

Takeaway: With the Official Meddlers in high gear, market volatility is on a tear.

(Editor's note: The sneak-peak excerpt which follows below is from Hedgeye's popular "Investing Ideas" newsletter that is sent out every Saturday morning. Investing Ideas is for the savvy, longer-term self directed investor looking for fresh, long-only opportunities.This week we focus on seven of our high-conviction stock ideas.  It also features macro commentary like the excerpt below. With your subscription, you'll know immediately when one of our award-winning analysts uncovers a new Idea or changes a current one. Click here to sign up.)

Fear & Loathing (and Greed) on Wall St - fearloathing

Fear & Loathing (and Greed) on Wall Street

With the Official Meddlers in high gear, market volatility is on a tear.  Pundits expect a protracted period of turbulence – possibly running through year end, or even into Q1 of 2014 – as the Fed pretends to decide what policy steps it will take, aided and abetted by their partners in crime at the European Central Bank and the Japanese policy to out-print the US Treasury.  The “Fear & Greed” index maintained by CNN Money was registering Extreme Greed just one month ago.  It now reads Extreme Fear.  It’s “Risk-On” worldwide.

 

Hedgeye CEO Keith McCullough, who reminds us that Risk is always “On,” says our sentiment analysis since the end of 2012 “has indicated you want to be long fear – everyone is looking for a crisis that didn’t come."

 

Did it finally come this week?


Hedgeye remains firmly bullish on US economic growth.  This is not the same as being bullish on the stock market, which is easy to overlook with the indexes at all-time highs.  The Fear Factor is so overpowering in the short term that people always lose sight of the longer term.  As we have observed, highs are made in the markets when Greed overpowers Fear, as note the recent all-time highs in the stock market indexes, that coincided with the CNN index’ “Extreme Greed” reading.  And conversely – no surprise here – when Fear is in the ascendant, markets make lows. 

 

This week’s gapping-down openings in the S&P 500 have been seen as nothing short as a sign that Life-As-We-Know-It is coming to an end.

 


Stock Report: HCA Holdings, Inc. (HCA)

Stock Report: HCA Holdings, Inc. (HCA)  - HE II HCA 6 14 13

THE HEDGEYE EDGE

We have forecasts of physician office visits, maternity trends, and a deep understanding of the positives and negatives of Obamacare.  In addition we think we understand the long term drivers of volume, pricing, and costs for the Hospital industry.  HCA stands to benefit across all of them.

 

TIMESPAN

INTERMEDIATE TERM (the next 3 months or more)

We have identified a number of drivers in the near term and longer term that act as tailwinds to the hospital industry, and HCA in particular.

  1. Utilization:  Based on our analysis of the historical data around demographics, labor trends, confidence, pent up demand created by the Great Recession, insurance coverage, policy, and many other factors, we have built a regression forecast for medical utilization.   We believe medical utilization is improving and will drive improving admission trends among hospital operators including HCA.
  2. Maternity:  The worst decline in births in the last 40 years appears over.  At 25% of Hospital inpatient admissions, accelerating maternity trends will have a very positive impact on volumes and profits.
  3. Pent up demand and Acuity: Many people avoided medical costs over the last several years.  With unemployment claims falling, employment rising, we expect deferred care returns.  In addition, because some have waited, many untreated conditions have likely worsened, meaning patient acuity in the rebound is likely to be higher as well, which means a higher revenue per case for hospitals. 

LONG-TERM (the next 3 years or less)

  1. Consolidation among hospitals will provide pricing power and purchasing power. 
  2. Affordable Care Act will insure and pay for patients who were formerly  treated, but were considered charity care, and their bills written off as bad debt.  We expect an additional 8-13% of EBITDA growth for HCA from this tailwind alone.  There may be additional patient volume from individuals who are getting insurance given the huge gap in utilization between the uninsured, which is near zero, and the insured.

 

ONE-YEAR TRAILING CHART

Stock Report: HCA Holdings, Inc. (HCA)  - HE II HCA chart 6 14 13

 


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.64%
  • SHORT SIGNALS 78.61%

Replay Podcast and Slides: Where Does Europe Go From Here?

On Tuesday June 11th we hosted a conference call titled "Where Does Europe Go From Here?". On the call we highlighted the best investment opportunities in Europe and assessed the overall economy of the region.  

 

 

Summary Conclusions:

  • Fundamentals in Europe remain challenged due to structural headwinds and we should expect long-term below-mean growth
  • There is no risk to any country leaving the Eurozone or the Euro being disbanded, so another Cyprus flare-up is unlikely
  • European bifurcation will remain, with clear winners and losers:

–      Fundamentally Bullish: Germany and UK

–      Fundamentally Bearish: France, Italy and Spain

  • Establishing a fiscal and monetary union will be very challenging
  • ECB unlikely to shift policy anytime soon due to continued stress in peripheries
  • In the intermediate term, EUR/USD range-bound with a negative bias

 

To access the replay podcast and accompanying presentation, please click on the following links:

 

Podcast: CLICK HERE 

Presentation: CLICK HERE

 

 

As always, if there are any questions please shoot us an email and we’ll be sure to get back to you with a reply.

 

Thank you for being a client; we are grateful for your support.

 

The Hedgeye Macro Team


CONFERENCE CALL e-Cigs: The Untapped Market for Electronic Cigarettes

CONFERENCE CALL e-Cigs: The Untapped Market for Electronic Cigarettes - ecigsDialInFInal 06.19.13

Is the Electronic Cigarette (e-Cig) Market A 10-bagger From Here?

 

We will be hosting an expert call on the market for electronic cigarettes titled e-Cigs: The Untapped Market for Electronic Cigarettes, featuring  John J. Wiesehan, CEO of the Charlotte based company, Ballantyne Brands, LLC. The conference call will be held on Wednesday, June 19th at 11:00am EDT.

 

 

CALL OBJECTIVE 

To assess the emerging market opportunities surrounding electronic cigarettes.

 

 

KEY TOPICS WILL INCLUDE

  • An overview and history of e-Cigs
  • Presentation of the market opportunity for e-Cigs’ and current growth rates (over 50% annually)
  • Discussion of the key companies and regulatory agencies involved in the industry
  • Role of big tobacco in the e-Cig industry
  • Analysis of the perceived and real health risks according to public studies

 

KEY TICKERS

AOI, MO, BTI, LO, PM, RAI, UVV, VGR, WMT, ORXE, NVTP, VPCO

 

 

ABOUT John J. Wiesehan

John J. Wiesehan is currently the CEO of Ballantyne Brands, LLC. A graduate of Lindenwood University in Saint Charles, Missouri, John spent time at General Electric as the Worldwide Operations Manager. From General Electric, he moved to Woods Industries as Vice President in the Sales and Marketing sector.  In October 2012, John joined Ballantyne Brands, LLC located in North Carolina and became CEO.

 

Ballantyne Brands, LLC has made the news recently by pushing for state law change in North Carolina aimed at redefining electronic cigarettes as a vapor product instead of a tobacco product. John has also made a public statement in favor of prohibiting the sale of e-Cigs to minors.

 

Ballantyne Brands have two e-Cig companies, Neo and Mistic. Mistic e-Cigs are being sold in all Wal-Mart’s as of April 18, 2013. 

  

 

CALL DETAILS

  • Toll Free Number:
  • Direct Dial Number:
  • Conference Code: 548729#
  • Materials: CLICK HERE (Slides will download one hour prior to the start of the call)

 

For more information please email

 


#EMERGINGOUTFLOWS ACCELERATE

Takeaway: Value traps are sprouting up across the EM space; don’t get sucked in... We remain the bears on emerging market asset prices.

SUMMARY BULLETS:

 

  • Per Bank of America Merrill Lynch data, redemptions from EM debt and equity funds totaled $8.9 billion last week, which the third largest week ever for aggregate outflows (bested only by outflows during MAR ’07 and JAN ’08).
  • We remain the bulls on the US Dollar with respect to the long-term TAIL and our analysis shows that a sustained bout of dollar appreciation (and its ancillary effects) tends to be a major headwind for EM capital markets and currencies.
  • All told, we remain the bears on emerging market asset prices. And while many EM asset classes are oversold on our quantitative risk management signals, we would be inclined to fade any dead-cat bounces in this space.

 

Per Bank of America Merrill Lynch data, redemptions from EM debt and equity funds totaled $8.9 billion last week, which the third largest week ever for aggregate outflows (bested only by outflows during MAR ’07 and JAN ’08). The $2.5 billion in outflows from EM debt funds was the second largest weekly outflow on record and the $6.4 billion in outflows from EM equity funds was the largest weekly outflow since AUG ’11.

 

According to their Investment Strategy Team’s EM Flow Trading Rule, another $8-10 billion of outflows next week or $11-12 billion of outflows over the next two weeks from EM equity funds would trigger a “contrarian buy” signal, as the trailing four weeks of outflows would then equal 3% of total AUM, up from 1.9% currently.

 

#EMERGINGOUTFLOWS ACCELERATE - EM Outflows Trading Rule

 

We are obviously inclined to fade such a signal – particularly given that it doesn’t necessarily source economic history across multiple cycles. One of the most common mistakes we see analysts make is not pulling the charts back far enough – particularly with respect to any sort of mean reversion-based analysis.

 

In light of this, we’d certainly be interested to see how the aforementioned analysis held up during the 1990s (and even 1980s) emerging market crises cycles. Needless to say, we have our doubts.

 

At any rate, a “contrarian buying opportunity” is only a buying opportunity if EM equities are poised to meaningfully rally from here. Irrespective of the #WeakDollar sweet nothings Jon Hilsenrath continues “blog” about, we think our #EmergingOutflows thesis paints a pretty clear picture on why that is a low probability scenario. Moreover, we remain the bulls on the US Dollar with respect to the long-term TAIL and our analysis shows that a sustained bout of dollar appreciation (and its ancillary effects) tends to be a major headwind for EM capital markets and currencies.

 

#EMERGINGOUTFLOWS ACCELERATE - USD and EM Crises

 

#EMERGINGOUTFLOWS ACCELERATE - EO Asset Allocation Shift

 

In the event you missed our 122-slide and 61-slide presentations detailing our bearish thesis on emerging markets, please shoot us an email we’d be delighted to walk you through them.

 

All told, we remain the bears on emerging market asset prices. And while many EM asset classes are oversold on our quantitative risk management signals, we would be inclined to fade any dead-cat bounces in this space.

 

Have a great weekend,

 

Darius Dale

Senior Analyst


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