Client Talking Points
Jobs and More Jobs
Today’s unemployment report came in largely as expected, but don’t get too fixated on it. We don’t believe the government’s monthly report is necessarily predictive of economic growth – we take our cues from the non-seasonally adjusted jobless claims numbers, and those numbers are showing their fastest rate of improvement in more than a year. We’ve been making the call that the economic growth is accelerating and that the jobs picture is improving for months now.
Bills and Bonds and Rates, Oh My
They say, “Don’t fight the fed.” We say, “Don’t fight economic gravity.” If you look at soaring yields on two-year and ten-year Treasurys, the bond market is doing anything but fighting economic gravity. It’s telling us economic growth is real.
The Institutional Investor survey just his year-to-date lows in the percentage of investors who call themselves bullish (37.1%). Will the S&P to hit its all-time high of 1709? That number is in play just as most investors are not positioned for it.
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Top Long Ideas
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. We think that the prevailing bearish view is very backward looking and leaves out a big piece of the WWW story, which is that integration of these brands into the WWW portfolio will allow the former PLG group to achieve what it could not under its former owner (most notably – international growth, and leverage a more diverse selling infrastructure in the US). Furthermore it will grow without needing to add the capital we’d otherwise expect as a stand-alone company – especially given WWW’s consolidation from four divisions into three -- which improves asset turns and financial returns.
Health Care sector head Tom Tobin has identified a number of tailwinds in the near and longer term that act as tailwinds to the hospital industry, and HCA in particular. This includes: Utilization, Maternity Trends as well as Pent-Up Demand and Acuity. The demographic shift towards more health care – driven by a gradually improving economy, improving employment trends, and accelerating new household formation and births – is a meaningful Macro factor and likely to lead to improving revenue and volume trends moving forward. Near-term market mayhem should not hamper this trend, even if it means slightly higher borrowing costs for hospitals down the road.
Financials sector senior analyst Jonathan Casteleyn continues to carry T. Rowe Price as his highest-conviction long call, based on the long-range reallocation out of bonds with investors continuing to move into stocks. T Rowe is one of the fastest growing equity asset managers and has consistently had the best performing stock funds over the past ten years.
Three for the Road
TWEET OF THE DAY
“Was there an eclipse? France is considering cutting the corporate tax rate from 33% to 30%.”
QUOTE OF THE DAY
“Losers assemble in little groups and complain. Winners assemble as a team and find ways to win.” – Emlen Tunnell
STAT OF THE DAY
7 and 43, The number of touchdown passes Denver quarterback Peyton Manning threw in last night’s NFL season opener. It was the first time in 43 years that a quarterback threw that many touchdown passes in a single game.