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INVESTING IDEAS NEWSLETTER

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

INVESTING IDEAS NEWSLETTER - hlink

In this weekend's edition of Investing Ideas, we feature our regularly scheduled updates on Hedgeye analysts' nine current high-conviction stock ideas. As we're sure you already know, 2013 was a very good year to be an Investing Ideas subscriber. From Nike to Starbucks, to Wolverine World Wide and many more, our analysts uncovered myriad stocks which outperformed the benchmark S&P 500 which itself was up 30%.

 

We are also pleased to highlight two institutional research notes following the stock updates which shed some macro light on current market and economic dynamics.

 

Finally, please see below CEO Keith McCullough's refreshed levels for our current high-conviction stock ideas. 

 

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Trade :: Trend :: Tail Process - These are three durations over which we analyze investment ideas and themes. Hedgeye has created a process as a way of characterizing our investment ideas and their risk profiles, to fit the investing strategies and preferences of our subscribers. 

  • "Trade" is a duration of 3 weeks or less
  • "Trend" is a duration of 3 months or more
  • "Tail" is a duration of 3 years or less

Investing Ideas

CCL Shares of Carnival have risen 11% since we added it to Investing Ideas just before Thanksgiving. For comparison's sake, the S&P 500 is up 2% during that time. The Gaming, Leisure & Lodging team remains bullish on CCL and says there are no new news or catalysts this week.

 

FDX Shares of FedEx closed the week north of $140, near its all time high. Industrial Sector Head Jay Van Sciver says all the negative press around delayed Christmas deliveries is likely to have little relevance for FDX shares, which he adds is one advantage of operating in a rough domestic duopoly. If anything, higher than expected capacity utilization in the capital intensive Express segment would seem favorable. The press also highlights FDX’s exposure to e-commerce, which could again become a solid growth narrative. Van Sciver expects the next key data point in UPS’s earnings report on January 30th.

 

FXB Positive economic data out over the holiday week, while sparse, offered further, confirmatory evidence of emergent strength in the UK economy. UK mortgage approvals hit a 6-year high, net consumer credit accelerated sequentially, and the UK Manufacturing PMI (57.3) reflected another month of healthy expansionary activity. Moreover, the UK Construction PMI printed 62.1 for December, just below the 6-year high recorded in November. In addition, with the FTSE and British Pound both holding in Bullish Formation, the quantitative risk management signal continues to support our positive, fundamental view on the UK economy.

 

In short, we believe a strengthening UK economy coupled with the comparative hawkishness of the Bank of England (versus Janet Yellen et al.) will further propel #StrongPound over the intermediate term.


GHL Greenhill & Company announced a solid pipeline of advisory mandates over the course of December, including a $2 billion mandate to advise AT&T in the sale of its wireless assets in the state of Connecticut. As a reminder, at $2.0 billion this was the largest advisory win for GHL since October.

 

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Shares of Greenhill remain a favorite idea of Senior Financials sector analyst Jonathan Casteleyn’s. One of the intermediate to longer-term dynamics in play will be rising interest rates, which have historically led to growth in deal activity. Corporations tend to focus less on dividends and buybacks, and more on strategic M&A activity to reward shareholders.

 

The recent uptick in Greenhill activity during the past week is being validated by overall industry volumes. According to Bloomberg, weekly announced M&A volume in December in both the U.S. and Europe is showing signs of both a sequential and year-over-year improvement. Weekly U.S. M&A volume has hit $33.8 billion thus far in December, over a doubling from the $16.3 billion per week last month in November, and also a 16% improvement from weekly activity in December 2012.

 

HCA HCA Holdings was up 4% this week compared to a 0.72% gain for the S&P 500. Healthcare Sector Head Tom Tobin is on vacation and will provide an update on HCA in next week's Investing Ideas.

 

MD – Mednax finished the trading week up almost 1% compared to a 0.72% gain for the S&P 500. Healthcare Sector Head Tom Tobin will provide an update next week.

 

RH Restoration Hardware disclosed a few days before Christmas that two of its Independent Directors, Thomas Mottola and Mark Demilio, purchased approximately $1 million and $500 thousand worth of RH stock, respectively. Insider buying and selling is something that we track on an ongoing basis, and it makes up a considerable part of one of our most important financial screens – the "Retail Sentiment Monitor," which we provided for you in the 12/21 installment of the Investing Ideas Newsletter.

 

We track these sales and purchases for good reason. At the end of the day, company Executives and Directors are motivated by the same forces as everyone else – profit. We could reference countless Sentiment charts where the price line fills up with red circles (indicating an insider sell) and the price sinks like a stone soon after, and the same is true for the inverse.

 

Company insiders have unparalleled access to the health records of the company, so insider buys are generally viewed as a bullish event and sells would be bearish. As we stated earlier, this is simply an idea screen and isn’t sufficient analysis on its own. However, when coupled with a deep dive on the fundamentals, it can provide an insider’s take on the trajectory of the business. In the case of RH, it only serves to strengthen our conviction in our thesis.


TROW T. Rowe Price remains a favorite long idea of Senior Financials sector analyst Jonathan Casteleyn as rates continue to rise. Fed tapering is fueling bond selling, which, in turn, is driving outflows from bond funds. These outflows are begetting further selling, and around and around it goes. Bonds are currently still in the early stages of underperformance and that underperformance will lead to further outflows.

 

Some of those bond outflows are going to find their way into actively managed US equity funds, and historically the funds that garner the biggest share of inflows are Morningstar 4 and 5 star rated funds. TROW stands out among peers on this front, as it has 72% of its fund assets held in 4 and 5 star rated funds. By comparison, fund manager Janus has just 34% of its fund assets in 4 and 5 star rated funds. This positively disposes

 

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WWW –  Wolverine World Wide announced that they will be presenting at the annual ICR conference on January 14th. Retail Sector Head Brian McGough will be there in Orlando to hear management first hand. He will report back after the conference. In the meantime, McGough remains the bull on WWW. Shares of Wolverine are up over 42% since he added it to Investing Ideas. The S&P 500 is up 15%. Not a bad run.

 

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Please click on the titles below to unlock the institutional research notes.

 

3 for 3 to Start 2014

A second week of “clean” initial claims data confirms a return to the Trend rate of improvement, ISM New Orders and Employment both continued their respective advances to multi-year highs and, while Bloomberg’s weekly confidence data deteriorated marginally WoW, the positive reversal for consumer sentiment in December was unanimous across all the primary survey’s.  

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Industrials Fishfinder: Improving Process

(Editor's note: The following note was written by Industrials Sector Head Jay Van Sciver)

 

After a long tenure on the buy side, I can only evaluate a year by performance.  A research and investment process that fails to generate performance is of no value.  Capital markets are noisy, making it difficult to extract the feedback needed to improve one’s process rapidly.  But a year is a good chunk of market time and year-end is a decent moment to reflect on what is working and what is not.  So how did we do in 2013?  Pretty well and we can get better.

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We thank you for your trust and your business. 


THE WEEK AHEAD

The Economic Data calendar for the week of the 6th of January through the 10th is full of critical releases and events.  Attached below is a snapshot of some (though far from all) of the headline numbers that we will be focused on.

 

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Daily Trading Ranges, Unlocked

This Daily Trading Ranges note was originally published for subscribers on January 03, 2014 at 07:58. If you would like to learn more information about how you can subscribe please click here.

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BULLISH TRENDS

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BEARISH TRENDS

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What's New Today in Retail (1/3)

Takeaway: AMZN now taxing 50% of biz. NKE gears new NTC App for women. 10%+ labor cost boost. WMT Donkey-gate. Good COLM China deal. F21 FW ASP +100%.

COMPANY NEWS

 

AMZN - Amazon Now Charging Sales Tax in Indiana, Nevada, and Tennessee 

(http://www.sportsonesource.com/news/article_home.asp?Prod=1&section=9&id=49275)

 

  • "With the new year, Amazon is charging sales on purchases in three more states - Indiana, Nevada, and Tennessee. Amazon agreed to begin collecting sales tax in the three states in 2014, bringing to 19 the states in which it automatically adds tax to purchases."
  • "In 2016, South Carolina will join them, bringing the number up to an even 20. Amazon's warehouse expansions have given it a physical presence in more and more regions, speeding up deliveries but also opening it up to taxes. Some observers have estimated the retailer is now collecting sales taxes from half its customers."

 

Takeaway: No surprises here…We've had visibility into this issue for quite some time. The most surprising factor is that more states have not joined in. If the statement above that AMZN collects tax from half of its customers is true -- and it sounds right to us -- the most interesting fact is that AMZN's business remains on fire despite a narrowed competitive gap vs. brick and mortar retailers.

 

NKE - Nike Launches Updated N+TC App

(http://www.wwd.com/fashion-news/fashion-scoops/nike-launches-updated-ntc-app-7328275)

 

  • "Nike’s updated N+TC app, which launched Tuesday for Nike Training Club’s nearly 11 million members, comes just in time for annual New Year’s resolutions. The upgrade boasts new features such as more than 100 customizable workouts, four-week programs to meet specific goals, milestone rewards that will be shareable via social media and a library of regimens inspired by professional athletes…"

 

What's New Today in Retail (1/3) - chart1 1 3

 

Takeaway: This new NTC (which we've used already) has some notable enhancements. We can't call them 'improvements' because that would suggest that the previous iteration was lacking -- which it wasn’t. The biggest takeaway is that the workouts are almost entirely geared towards women. That's not to say that dudes can't do the workouts (that statement was an attempted face-saver for me), but almost all of the digital instructors are women.  Last time Nike led with Allyson Felix (Olympic Gold Medal sprinter) and Manny Pacquiao (Filipino Boxer/National Hero). This time, its Serena, Sharapova, and a host of (extremely fit) women we've never seen before. Our sense is that all the data Nike collected over the years from NTC users allowed it to fine-tune its app and focus on a more commercial audience -- women.  Separately, most people don't know this, but many Nike retail stores host NTC classes in the stores -- much like how LULU clears the floor to host yoga class, Nike does it for circuit training.

 

WMT - Wal-Mart Adds DNA Tests in China After Donkey-Meat Recall

(http://www.bloomberg.com/news/2014-01-02/wal-mart-adds-dna-tests-in-china-after-donkey-meat-recall.html)

 

  • "Wal-Mart Stores Inc. said it’s adding DNA tests of meat it sells in China after recalling donkey products from a local supplier that authorities said contained fox DNA."
  • "Wal-Mart withdrew all products from vendor Dezhou Fujude Food Company Ltd., after fox DNA was identified in samples, the retailer said yesterday in a statement. Yucheng, China authorities put Dezhou Fujude officials in “criminal detention,” and Wal-Mart is considering legal action, according to the statement."
  • "Wal-Mart said it’s offering compensation to customers and that the testing it’s adding goes beyond what is legally required in China."

 

Takeaway: We're usually good for a comment on just about any topic. This one, however, leaves us without words.

 

M, JCP, MSO - Macy’s and Martha Stewart Living Omnimedia Settle Legal Dispute

(http://phx.corporate-ir.net/phoenix.zhtml?c=84477&p=irol-newsArticle&cat=news&id=1887421)

 

  • "Macy’s, Inc. today issued the following statement: 'Macy's has resolved its breach-of-contract lawsuit against Martha Stewart Living Omnimedia. We are pleased to be able to put this matter behind us. The terms of our settlement are confidential, will not be disclosed, and are not deemed to be material to Macy’s. We can now return our focus to what we do best – bringing beautifully designed, high quality, affordable products to consumers nationwide. We look forward to a continued, successful partnership together. This settlement does not affect Macy's outstanding claim against J.C. Penney, which remains subject to the court's decision.'”

 

Takeaway: The big loser in this whole mess is Martha Stewart. Let's face it, her reputation isn't exactly stellar. And then the goes ahead and inks an exclusive agreement with JCP when she is already locked into one with Macy's? Perhaps blame it on Ackman and Johnson -- but Martha was central to the deal. If you ran a retailer, would you really want to do business with MSO again?

 

COLM - Columbia Sportswear Company and Swire Resources Announce Commencement of New Joint Venture in China

(http://investor.columbia.com/releasedetail.cfm?ReleaseID=816639)

 

  • "Columbia Sportswear Company said its joint venture with Swire Resources Ltd. commenced operation as planned on Jan. 1, 2014. Also, as previously planned and announced, 29-year Swire Resources veteran Samson Wong was appointed president of the joint venture - Columbia Sportswear Commercial (Shanghai) Company - headquartered in Shanghai."
  • "The joint venture inherits the broad distribution network established over the past nine years by Swire Resources, which has acted as Columbia's exclusive distributor in China since 2004. That network consists of 51 wholesale dealers that, at December 31, 2013, operated approximately 660 Columbia Sportswear retail locations and 47 Mountain Hardwear retail locations in 180 cities. In addition, the joint venture directly operates approximately 70 Columbia branded retail locations in 7 cities."
  • "Reflecting Columbia's 60 percent ownership stake, the joint venture will be fully consolidated in Columbia Sportswear's operating results and financial position beginning with the first quarter of 2014…"

 

Takeaway: This is a good deal. Much of the Outerwear market in China is counterfeit/knock off, or just poor quality unbranded product. While COLM already has a presence there, it will now be with a much stronger partner, and one with which it has greater financial interest.  Despite the brand's presence in China, the market remains wide-open.

 

Forever 21 - Forever 21 Expands Footwear Line

(http://www.wwd.com/footwear-news/retail/forever-21-expands-footwear-line-7327782?module=Footwear%20News-Retail-main)

 

  • "The Los Angeles-based retailer, which operates more than 630 stores in the U.S., is set to launch a premium leather shoe collection this week, featuring 10 styles."
  • "The leather collection, which will retail from $49 to $79, is a step up from the current selection, priced below $40. Some of the new styles feature cutouts, buckles, metallic hues and gold hardware."
  • "The line debuts online today and will roll out to L.A. stores on Jan. 3, eventually reaching nationwide shops by Jan. 10."

 

Takeaway: This is a big deal. Aside from the fact that whatever Forever 21 does it usually does right, it's noteworthy that price points vs existing products are going up by upwards of 100%. They better get the value proposition right, otherwise the consumer will vote very quickly.

 

Coupons.com - IPO Prospect Coupons.com to Buy Yub for $30 Million

(http://blogs.wsj.com/digits/2013/12/31/ipo-prospect-coupons-com-to-buy-yub-for-30-million/)

 

  • "On the way toward a possible initial public offering, digital-coupon company Coupons.com has agreed to acquire Yub, according to a person familiar with the agreement."
  • "Yub works with retailers to offer loyalty programs to lure shoppers into brick-and-mortar stores. Coupons.com could use the Mountain View, Calif., company’s technology and affiliate network to better track which online offers lead to in-store purchases."
  • "Coupons.com will pay about $30 million for Yub, according to a merger document reviewed by The Wall Street Journal."

 

Takeaway: Ordinarily, we'd dismiss something as minor as this. But the reality is that with the emergence of sites like eBates.com and Coupons.com (and possibly Groupon -- but that's a stretch), we're left with powerful discounting mechanisms online that are still in the early stages of proliferation.

 

NXT - Next Raises Forecast After Christmas Sales Exceed Hopes

(http://www.bloomberg.com/news/2014-01-03/next-raises-forecast-after-christmas-sales-exceed-hopes.html)

 

  • "Next Plc, the U.K.’s second-largest clothing retailer, raised its full-year profit forecast and plans to pay a special dividend to shareholders after holiday sales 'significantly' exceeded company expectations."
  • "The shares rose as much as 11 percent, the steepest gain in about five years, after Next said pretax profit for the year ending this month will be 684 million pounds ($1.1 billion) to 700 million pounds. That compares with October’s forecast of 650 million pounds to 680 million pounds."

 

Takeaway: There's a little trend for you…two retailers smoked sales expectations. 1) H&M, and 2) Next. US clothing retailers have got to have 'sales envy'.

 

BRK - Brooks Signs Nick Symmonds

(http://www.wwd.com/footwear-news/people/brooks-signs-nick-symmonds-7329292)

 

  • "The Seattle-based footwear firm, which celebrates 100 years in 2014, added Olympian Nick Symmonds to its roster on Thursday. The move, the company said, is an example of a deepened commitment to competitive running this year."

 

Takeaway: But can he sell shoes? We can think of a dozen slow runners that can sell more shoes than elite runners. We're not sure with this guy -- but it's a question that should be asked. (If he was really marketable, Nike would have grabbed him).

 

INDUSTRY NEWS

 

IBM Digital: Holiday Online Sales Rise 10.3 Percent 

(http://www.sportsonesource.com/news/article_home.asp?Prod=1&section=2&id=49277)

 

  • "According to the IBM Digital Analytics Benchmark, fourth quarter online sales were up 10.3 percent year over year."
  • "Department Stores: Fourth quarter online sales grew by 62.8 percent over 2012, with mobile sales growing by 49.6 percent year over year."
  • "Health and Beauty: Fourth quarter online sales grew by 14.7 percent over 2012, with mobile sales growing by 81.7 percent year over year."
  • "Home Goods:  Fourth quarter online sales grew by more than 46.4 percent over 2012, with mobile sales growing by 38 percent year over year."
  • "Apparel:  Fourth quarter online sales grew by 10.2 percent over 2012, with mobile sales growing by 54.5 percent year over year."

 

2014: Global Sourcing to be More Costly as Worldwide Minimum Wages Continue to Rise

(https://www.sourcingjournalonline.com/minimum-wages-steadily-rising-low-cost-sourcing-countries-td/)

 

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Cambodia Worker Protests Turn Deadly

(http://www.wwd.com/business-news/government-trade/cambodia-worker-protests-turn-deadly-7329920?module=hp-topstories)

 

  • "Security forces opened fire on protesting garment workers here on Friday, killing at least two or three people according to a local politician and a workers' union representative."
  • "The violence erupted during a demonstration at Canadia Industrial Park, coming after more than a week of peaceful protests and demonstrations by workers demanding high wages."


A DECEMBER SURPRISE

After an Oct/Nov bounce off the September disaster, are investors due for a shock?

 

  • We project mature regional gaming markets to post -9% in SSS revenues in December – as bad as September which crushed Q3 earnings.
  • Remember that the stocks recovered in later Q4 as October and November rebounded
  • PENN and PNK are particularly at risk
  • Look for the states to begin releasing numbers next week
  • Based on early feedback from Pennsylvania and Missouri, a double digit monthly decline in revenues is possible for both of those states.  Pennsylvania may release monthly numbers as early as today.
  • December 2013 has one less Saturday than prior year 

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investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

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