Client Talking Points
The best economic news of the week is Oil continuing to break down. In case you missed it, Oil is diverging big time versus food inflation. Both Brent and WTIC remain below our long-term TAIL risk lines of $108.42 and $100.32, respectively. Brent is more decisively broken than WTI in our model.
Well, what do you know? Putin power gets limp in the face of falling oil prices. #GoodNews. Meanwhile, Russian stocks are back to signaling a negative divergence versus both Europe and Global Equities this week. Tough sledding for the RTSI which is down -0.9% this morning to -16% year-to-date.
The 10-year yield tested my intermediate-term TREND resistance of 2.81% yesterday and has so far failed this morning. This clearly makes tomorrow’s U.S. jobs report all the more important. Expectations are high, so a miss could give you 10 to 15 basis points of immediate-term downside in the 10-year yield. We’re watching this closely.
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Top Long Ideas
Hologic is emerging from an extremely tough period which has left investors wary of further missteps. In our view, Hologic and its new management are set to show solid growth over the next several years. We have built two survey tools to track and forecast the two critical elements that will drive this acceleration. The first survey tool measures 3-D Mammography placements every month. Recently we have detected acceleration in month over month placements. When Hologic finally receives a reimbursement code from Medicare, placements will accelerate further, perhaps even sooner. With our survey, we'll see it real time. In addition to our mammography survey. We've been running a monthly survey of OB/GYNs asking them questions to help us forecast the rest of Hologic's businesses, some of which have been faced with significant headwinds. Based on our survey, we think those headwinds are fading. If the Affordable Care Act actually manages to reduce the number of uninsured, Hologic is one of the best positioned companies.
Construction activity remains cyclically depressed, but has likely begun the long process of recovery. A large multi-year rebound in construction should provide a tailwind to OC shares that the market appears to be underestimating. Both residential and nonresidential construction in the U.S. would need to roughly double to reach post-war demographic norms. As credit returns to the market and government funded construction begins to rebound, construction markets should make steady gains in coming years, quarterly weather aside, supporting OC’s revenue and capacity utilization.
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
Stay with the process folks - buy the low end of range, sell the high @KeithMcCullough
QUOTE OF THE DAY
"I never panic when I get lost. I just change where it is I want to go." - Rita Rudner
STAT OF THE DAY
Doctors in Britain were paid £38.5 million by drugmakers last year, slightly less than 2012, according to new data underscoring the links between the pharmaceutical industry and prescribers. Industry payments to doctors have come under increased scrutiny following a number of scandals over sales practices, notably in the United States, and concerns that such ties could put commercial interests ahead of the best outcome for patients. (New York Times)