Client Talking Points
The Burning Buck arrested its decline for all of 24 hours off its year-to-date lows (the Nikkei loved that!). With that said, I will likely short the bounce and buy more Gold (and bonds) on that as both US Dollar and UST 10-year yield fail our Hedgeye TREND resistance. Check out those slow-growth Utilities (XLU) ripping +6.7% YTD.
Got currency-correlation volatility? The Yen down 20 basis points versus the US Dollar and the Nikkei rips up +2.9% on that (after being down -2.2% in the session prior). The Nikkei VIX (volatility) is wicked hot as central planners turn the stock market into a pachinko parlor.
Did you take our lead on #StrongPound? I hope so as it continues to drive accelerating consumption growth in the UK (see Retail Sales for January up +4.3% year-over-year – yes, even with the weather!). We still like both European currencies and growth investments more than the USA, Asia, or Latam.
|FIXED INCOME||12%||INTL CURRENCIES||15%|
Top Long Ideas
We remain bullish on the British Pound versus the US Dollar, a position supported over the intermediate term TREND by prudent management of interest rate policy from Mark Carney at the BOE (oriented towards hiking rather than cutting as conditions improve) and the Bank maintaining its existing asset purchase program (QE). UK high frequency data continues to offer evidence of emergent strength in the economy, and in many cases the data is outperforming that of its western European peers, which should provide further strength to the currency. In short, we believe a strengthening UK economy coupled with the comparative hawkishness of the BOE (vs. Yellen et al.) will further perpetuate #StrongPound over the intermediate term.
Las Vegas Sands has transformed into that rare stock that should appeal to “Growth,” “Value”, and “Dividend/Cash Flow” investors alike. The stock now yields higher than the S&P 500 (43% sequential quarterly dividend increase), and the company is buying back $200 million + in stock a quarter, yet still retains a pristine balance sheet. The significant capital deployment opportunities can be funded out of annual free cash flow of nearly $4 billion. Management has indicated they are willing to raise leverage 1.5x which would still keep them well below industry average and if directed toward dividends, would result in a yield of over 6%. And we haven’t gotten to the $10-14 billion in mall assets that could be monetized. We know of no other stocks in consumer land that provide this combination of cash flow, growth, cash return to shareholders, and value levers.
Darden is the world’s largest full service restaurant company. The company operates +2000 restaurants in the U.S. and Canada, including Olive Garden, Red Lobster, LongHorn and Capital Grille. Management has been under a firestorm of criticism for poor performance. Hedgeye's Howard Penney has been at the forefront of this activist movement since early 2013, when he first identified the potential for unleashing significant value creation for Darden shareholders. Less than a year later, it looks like Penney’s plan is coming to fruition. Penney (who thinks DRI is grossly mismanaged and in need of a major overhaul) believes activists will drive material change at Darden. This would obviously be extremely bullish for shareholders and could happen fairly soon driving shares materially higher.
Three for the Road
TWEET OF THE DAY
NATGAS: up another +3% to $6.25 this morning (despite the warmer weather) = +48% YTD @KeithMcCullough
QUOTE OF THE DAY
“No one ever drowned in sweat.” - USMC
STAT OF THE DAY
Approximately 1 in 600 Americans kids are registered to play ice hockey. Meanwhile, north of the border, 1 in 55 Canadians are.