Client Talking Points
Let's be clear: Europe is not the USA. Not by a long shot. With #StrongEuro and Pound, my model still says you buy Europe over the U.S. (Cyclical Equities). Today’s pullback of -1.2% in Germany (DAX) and MIB Index (Italian business confidence hits new highs for February at 99.1 versus 97.7 January) are buys. Russia down -2%? Not so much. It's careening to fresh year-to-day lows (worst stock market in the world at -12.5% YTD).
The Yen is still ramping versus the Burning Buck as Janet "Mother of All Doves" Yellen prepares to chirp dovishly to the Senate Banking Committee this morning. USD/YEN weakness continues to keep a lid on every Nikkei bounce to lower highs (-0.32% overnight to -8.3% YTD).
A big week to be long bonds, and I like it (US #GrowthSlowing as inflation accelerates). Don’t buy them today with the 10-year yield signaling immediate-term TRADE oversold (within its bearish TREND @Hedgeye) at 2.65%. The risk range is 2.64-2.80%.
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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
QUOTE OF THE DAY
"There are no seven wonders of the world in the eyes of a child. There are seven million." - Walt Streightiff
STAT OF THE DAY
Tesla's grand expansion plans will be funded in part by raising $1.6 billion through a bond issue announced Wednesday. The money will be used to build what founder Elon Musk has dubbed the "Gigafactory" and for production of a more affordable, new mass market vehicle. The massive factory is expected to produce more lithium ion batteries annually by 2020 than were produced worldwide in 2013. (CNN)