prev

INVESTING IDEAS NEWSLETTER

Takeaway: Current Investing Ideas: BNNY, CCL, FDX, FXB, GHL, HCA, MD, NKE, RH, SBUX, TROW and WWW

In light of the holiday shortened trading week, we have chosen to highlight three timely, topical and potentially profitable investment ideas below that we sent out recently to our institutional clients. We will resume our usual stock updates next week.

 

We would like to take a moment to thank you for making all that we have set out to achieve here at Hedgeye possible. We’re going on 6 years since the founding of our firm. You have helped us create 50 jobs in America. More to come. For that we are grateful.

 

Enjoy your holiday weekend.

 

* * * * * * *

 

Gold: Is It Time To Get Back In On The Long Side?

Right now may be a bit early, but gold is shaping up to be a compelling long idea heading into 2014 according to Hedgeye's Macro Team. Since the start of November, Keith has been trading gold with a bullish bias in our Real-Time Alerts signaling product. This is a marked shift from having traded gold with a largely bearish bias since late 2011. All told, we think a waning threat of tapering, at the margins, is likely to serve as a positive catalyst for the price of gold.

INVESTING IDEAS NEWSLETTER - gold

 

E-Cigs at the Thanksgiving Table

We continue to express great excitement in the growth prospects for the e-cigs, despite its current diminutive size (~ 1% of the $800B global tobacco market).  We expect consumer interest in and investment behind e-cigs to grow, especially following “Big Tobacco’s” entrance into the category.  We think e-cigs demonstrate truly disruptive and compelling innovation and are bullish on the U.S. and global runways for the category.

INVESTING IDEAS NEWSLETTER - ecig

 

#Rates-Rising: A Current Look At Rate Sensitivity Across Financials

Our Financials Sector Team led by Josh Steiner and Jonathan Casteleyn present their latest thinking about rate sensitivity across the Financials sector. Rates will be your best friend or worst enemy. Steiner and Casteleyn look across the FIG sector for the names with the most quantified exposure, + or -, to rates.

INVESTING IDEAS NEWSLETTER - interestrates

 

* * * * * * *

 

 

 

 


(Staying) Long the British Pound!

Takeaway: USD and EUR currencies wars suggest the Pound is the relative winner.

This note was originally published November 14, 2013 at 13:58 in Macro

Long GBP/USD (via the etf FXB)

(Staying) Long the British Pound! - 999

Our bullish call on the British Pound remains, an anchor of our Q4 2013 Macro theme of #EuroBulls presented on 10/11/13.  (Click here for our previous note “Get Long the Pound”)

 

We’re buyers of the cross above our TREND support line of $1.58 and long term TAIL support line of $1.56.  We could see the cross heading to the $1.65 - $1.70 range over the intermediate term. 

 

(Staying) Long the British Pound! - pound

 

In short, we expect currency wars to devalue the USD and EUR, and expect the British Pound to be the relative winner across both crosses. Here are some updated developments since the ECB unexpectedly decided last Thursday (11/7) to cut the main interest rate by 25bps to 0.25% that we think will boost our #PoundBullish call:

  • Continued signs that Bernanke/Yellen will burn the Greenback via delaying the call to taper (likely pushed out to March 2014); a very dovish Q&A from Yellen today (11/14) before the Senate Banking Committee suggesting the call to taper pushed further out.
  • Members of the ECB governing council suggesting further policy easing measures (since the cut):
    • ECB Executive Board member Peter Praet said negative interest rates could be adopted or assets purchased from banks if needed.
    • ECB Executive Board member Joerg Asmussen said that depending on how inflation develops, the central bank has not reached the lower bound on interest rates. He added that while he is wary of such a move, the ECB could also push the deposit rate into negative territory.
    • ECB Executive Board member Benoît Cœuré said that the central bank can further cut interest rates and provide the banking system with additional liquidity.
    • Austria’s Central Bank head and Governing Council member Ewald Nowotny said that the central bank's main concern is stagnation, not inflation. He added that unlike the Fed, the ECB had not yet reached the lower zero bound on interest rates.

 

In contrast, we expect sober hawkish policy from the BOE.  The UK was the first to issue austerity, which we think will continue to boost its growth profile above most of its European peers.  Improving economic data (more below) continues to confirm this position.  On policy, we expect interest rates to be on hold over the medium term, with expectation for a hike over the longer term, and the asset purchase program target (QE) to remain unchanged.  Both positions should strengthen the GBP/USD and GBP/EUR. 

 

 

Improving UK Data This Week:


BOE’s  Inflation Report-

  • brought forward the likelihood of 7% unemployment rate to Q3 of 2015
  • raised 2014 GDP forecast to 2.8% from 2.7%

High Frequency Data-

  • UK Retail Sales 1.8% OCT Y/Y vs 2% SEPT
  • UK ILO Unemployment Rate 7.6% SEPT vs 7.7% AUG
  • UK Jobless Claims Change -41.7K OCT vs -44.7K September
  • UK PPI Input -0.3% OCT Y/Y (exp. 0.1%) vs 0.9% SEPT
  • UK CPI 2.2% OCT Y/Y (Exp. 2.5%) vs 2.7% September.  We expect this move downward in inflation to aid consumer spending. 

For more information on how you can subscribe to Hedgeye research click here.


Consumer Staples Highest Conviction Ideas - Longs & Shorts

With a good majority of consumer staples companies having reported their quarterly results, below we give a round-up of our highest conviction ideas on the long and short sides over the intermediate term TREND.

 

Looking back at the quarter it’s interesting to note that while some things changed versus Q2 most remained the same. Here’s our update:

  • Valuation remained elevated: the Consumer Staples sector remains richly valued, with P/E at 18.9x, or two standard deviations above the five year mean of just under 15x (see valuation charts below).
  • The Fed’s Easy Policy: the reversal of our Q3 Theme call of #RatesRising has encouraged investment back into the yield chasing Consumer Staples sector. We expect this development to continue into the remaining weeks of the year and into the beginning of next year. From our purview, we expect Yellen to remain the ueber dove on policy and push out any QE taper expectations to at least late in Q1 2014.
  • The Macro Is Still Impactful: food and beverage companies such as KO, KRFT, K, and GIS (to name a few),  continued to site a challenged macro environment, be it continued weakness in Southern Europe and slower growth in the emerging market (China and Brazil in particular). Spirits and tobacco companies have cited lower demand due to a hangover of weaker economic and consumer confidence across geographies.
  • Policy Impacts: looking at the spirits companies, for example, China recently banned public funded gift giving during/for the Chinese New Year. This stands to greatly impact companies like Remy, Pernod, DEO, and LVMH. For tobacco companies with international exposure we continue to hear how excise tax hikes will erode future earnings. PM cited weakness due to such hikes in the Philippines and Russia in particular.  CCE has also long been a company to cite the impact of French excise tax hikes (and as a crutch to broader demand weakness).
  • Organic Is the Growth: for yet another quarter we remain interested in investing behind higher growth organic companies.  BNNY is included in our high conviction long list below, and we like the prospects of HAIN and Boulder Brands (BDBD), at a price, as a play to the evolving organic (and gluten-free) movement.
  • M&A Speculation Continues: interestingly there’s been no new news around PEP and MDLZ since the noisier activism witnessed last quarter.
  • Revenue Misses: of the Consumer Staples companies in the S&P500 that have reported results, on revenue just 15 Beat and 23 Missed, or 39% beat, which is tied with Materials for the worst performance of the 9 S&P500 sectors). On EPS, 26 Beat and 12 Missed, or 68% beat, putting Consumer Staples at the mid to lower range of the pack.  In fact, Consumer Staples underperformed the broad S&P500 (revenues beat 54%, and EPS beat 75%).

As a point of reference, directly below we’ve included the price performance of our highest conviction stocks following last quarter’s reported results (Q2). The price performance is somewhat arbitrary, as the entry price reflects the date of this report’s release last quarter (8/14/13) and not our specific entry point targets (the closing reports are based on yesterday’s close), however the numbers provide a reference point for our calls.

 

Q2 Top Longs: LO (43.52 – 51.54, +18.4%), HSY (96.09 – 97.72, +1.7%), TSN (31.80 – 31.65, -0.5%), SAM (211.70 – 246.20, +16.3%)

 

Q2 Top Shorts: PM (88.18 – 85.50, +3.0%), DPS (45.86 – 48.47, -5.7%), CCE (38.37 – 42.16, -9.9%), K (65.42 – 60.88, +6.9%), KMB (96.78 – 108.22, -11.8%)

 

 

Highest Conviction Stocks Following Reported Q3 2013 Results


Long Ideas

  • LO – we expect Lorillard to continue to see outperformance on strong demand for its full-flavored offerings and dominate share of menthol, both contributing to volume outperformance versus the industry (in the quarter LO’s +3.5% versus industry’s avg. -4%). Gross profit margins improved 80bps to 37.1% in the quarter as domestic retail share of the menthol market reached 40.4%, an increase of 0.8 share points versus the prior-year quarter, and the company rolled out Newport Gold, a non-menthol compliment to Red in the quarter. Electronic cigarettes continue to garner huge interest from the investor community. Despite only representing ~ 1% of the portfolio, LO was the first Big Tobacco company to market with Blu in April 2012, and in the quarter took leading market share from 40% to 49%! Further, the company became an international e-cig dealer through its purchase of UK-based SKYCIG in October 2013.
  • SAM – it’s hard to argue with Boston Beer’s results. We remain committed to this stock, but are closely managing its up-on-a-rope price level (up +17% since we published a similar note highlighting our bullish conviction on SAM last quarter). The company ever so slightly lowered its FY 2013 guidance range by 5 cents in the quarter to $5.05 – $5.35, and we see good runway in 2014 on balanced comps, continued support from Twisted Tea and Angry Orchard, and broad interest in the craft segment, in which SAM continues to be a favored, recognized brand. We expect the company’s increased cap-ex spend to build brewery capacity (including a new bottling and can line, announced last quarter) to boost 2014 shipping volumes and reverse recent bottle necks resulting from overcapacity and the higher costs associated with using third party breweries.  
  • HSY – Hershey’s reported another strong quarter, furthering our bullish outlook on the stock since last quarter, through solid core brand performance with momentum building going into the holiday season.  Net sales were driven squarely by volume (Volume +6.1%; Net Price +0.5%; FX -0.5%) in the quarter. Similar to SAM, we’re bullish on its intermediate to longer term strategy to build to grow: it announced plans to invest $250MM in cap-ex to build a new plant in Malaysia (to supply markets in Asia and assist existing capacity in China). Heading into year-end, the company reiterated its expectations for FY 2013 net sales of 7%, with no change to the input cost outlook, revised up its FY Gross Margins expectations to 240 to 250 bps vs a previous estimate of 220 to 230, and said it sees a more favorable tax rate and earlier Chinese New Year offsetting an increased marketing spend in Q4.  We’re bullish on HSY’s performance across retail channels and its determination to grow its international business, in particular China to its second largest business, and believe the additional cap-ex spend will allow it to enhance its manufacturing scale in China (currently it has a manufacturing JV facility) and across Asia.
  • BNNY – the company reported strong top and bottom line fiscal Q2 2014 results, yet saw some gross margin pressure from frozen pizza results. Despite some unevenness in the quarter we remain bullish on the company as its 2H outlook stands to benefit from product roll-out, COGS and SG&A efficiencies, including from its acquisition of Safeway’s manufacturing plant in Missouri, where the company has been producing over 50% of its snacks business since inception in 2002 (again, spending to grow similar to SAM and HSY). Over recent weeks the stock saw underperformance around a CFO shake-up and a secondary offering of 2.5MM common stock shares. We however remain long term bulls on Annie’s based on the company’s advantaged organic portfolio, strong retail positioning for growth, and easier top line and gross margin comparisons going into the back half of its fiscal year.  

Short Ideas

  • PM – Philip Morris’s headwinds are a continuation of last quarter’s: FX hits, large volume declines (-5.7%, a deceleration vs last quarter’s -3.9% and underperformance vs the industry) on weakness in core geographies (including the EU down -7% to -8% in 2014), increased excise taxes in key geographies like Russia (hit to volume est. -9% to -11%) and the Philippines (no guidance, could be larger than Russia), and an uptick in illicit trade. The company announced plans to accelerate the launch of an electronic cigarette to mid-2014 versus previous guidance of 2016/7.  While we applaud PM’s desire to keep up with its peers in the e-cig category (which as mentioned has captured huge investor attention) but it comes at an incremental $100MM price tag, which could also drag on results.  For now, for the third straight quarter this year the company revised down its FY EPS guidance, to $5.35-5.40 vs prior guidance of $5.43-5.53.
  • CPB – Are you into catching falling knives? The stock is down over -18% since its summer high of $48. In our minds CPB has failed to turn around its portfolio since it offered up big restructuring plans at CAGNY in FEB 2012, however the stock wouldn’t tell such a negative story over this period.  Management lowered its 2014 FY guidance in the quarter; we expect US Simple Meals and US Beverages to continue to underperform expectations next quarter, and margins to be hit as CPB plans to increase its marketing spend and accelerate the launch of 8 new products. We see more difficult comps ahead and no clearance on the value proposition of its strategy to offer more premium soups given a still strapped U.S. and global  consumer. We think there’s more room to run on the short side.

 

Our quantitative real-time set-up for Consumer Staples (etf: XLP) is bullish, trading above its intermediate term TREND line. 

 

Consumer Staples Highest Conviction Ideas - Longs & Shorts - zz. staples trade trend

 

Consumer Staples Highest Conviction Ideas - Longs & Shorts - z. staples pe

 

Consumer Staples Highest Conviction Ideas - Longs & Shorts - z. food pe

 

Consumer Staples Highest Conviction Ideas - Longs & Shorts - z. beverage pe

 

Consumer Staples Highest Conviction Ideas - Longs & Shorts - z. alcohol pe

 

Consumer Staples Highest Conviction Ideas - Longs & Shorts - z. tobacco pe

 

Consumer Staples Highest Conviction Ideas - Longs & Shorts - z. hpc pe

 

 

Matthew Hedrick

Associate

 

 


real-time alerts

real edge in real-time

This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.

Global Macro Doesn't Sleep

Client Talking Points

EUROPE

While the day after Thanksgiving is historically the lowest volume trading day of the year, there has actually been some important data out over the last 24 hours including: 1) Euro-area unemployment dropping to 12.1% from 12.2% in October and Eurozone flash CPI coming in at a anemic 0.9% (but higher versus last month’s 0.7%). Also, German retail sales came in at -0.8% month-over-month versus and estimate of +0.5%. These big macro data points don't point to any reason for European policy makers to change their views. If anything, there's only increased support for the current extremely dovish policies that are in place.

JAPAN

Last week we encouraged investors to consider taking off the Abenomics trade. As our analyst Darius Dale pointed out, there are a number of reasons to consider booking gains. 

  1. The Fed will likely dominate headlines with surprising levels of dovish monetary policy amid a 3-6 month monetary and fiscal policy vacuum in Japan;
  2. Sentiment towards Japanese equities amongst foreign speculators has reached euphoric levels; and
  3. Speculators have recently adopted an overwhelmingly bearish position on the yen. Historically, the USD/JPY cross has faded hard from such asymmetric setups in the futures and options market. Moreover, what’s bullish for the yen has been almost perfectly bearish for Japanese stocks.

Asset Allocation

CASH 42% US EQUITIES 8%
INTL EQUITIES 8% COMMODITIES 8%
FIXED INCOME 8% INTL CURRENCIES 26%

Top Long Ideas

Company Ticker Sector Duration
FXB

Our bullish call on the British Pound was borne out of our Q4 Macro themes call. We believe the health of a nation’s economy is reflected in its currency. We remain bullish on the regime change at the BOE, replacing Governor Mervyn King with Mark Carney. In its October meeting, the Bank of England voted unanimously (9-0) to keep rates on hold and the asset purchase program unchanged.  If we look at the GBP/USD cross, we believe the UK’s hawkish monetary and fiscal policy should appreciate the GBP, as Bernanke/Yellen continue to burn the USD via delaying the call to taper.

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. 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.

TROW

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

Just keep moving out there and take what these bubbles are going to give you. Don't get piggy. @KeithMcCullough

QUOTE OF THE DAY

"Everyone thinks of changing the world, but no one thinks of changing himself." - Leo Tolstoy

STAT OF THE DAY

Americans consume approximately 46 million turkeys on Thanksgiving Day compared to 22 million at Christmas and 19 million at Easter. 88% of Americans ate turkey this year. (Benzinga)



November 29, 2013

November 29, 2013 - Slide1

 

BULLISH TRENDS

November 29, 2013 - Slide2

November 29, 2013 - Slide3

November 29, 2013 - Slide4

November 29, 2013 - Slide5

November 29, 2013 - Slide6

November 29, 2013 - Slide7

November 29, 2013 - Slide8

November 29, 2013 - Slide9

 

BEARISH TRENDS

November 29, 2013 - Slide10

November 29, 2013 - Slide11
November 29, 2013 - Slide12

November 29, 2013 - Slide13


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

next