Client Talking Points
If you really want to buy #GrowthAccelerating, stay with our Hedgeye playbook and only buy countries with #StrongCurrencies like the Pound. The UK PMI accelerates (again) to 57.3 in April versus 55.3 in March and the FTSE looks solid. Yes – currencies matter.
If I’m right, and inflation continues to slow U.S. growth in Q2, then 2.66% for the 10-year yield looks primed to test my TAIL risk line of 2.59%. It’s great news if you are long slow growth yield chasers (Bonds, Utilites, REITS, etc). Not so great if you’re long the Russell 2000 (IWM) etc.
The US Dollar is on its knees (at year-to-date lows) following the massive GDP miss – if all the weather experts nailed the weather, why didn’t they nail the number? Looks like both the currency and bond market is front-running a Yellen “un-taper” in May to me. Guess we’ll see.
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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
Denmark's unemployment rate drops to 4.0% (and to think they didn't need the Fed) @KeithMcCullough
QUOTE OF THE DAY
"Every worthy act is difficult. Ascent is always difficult. Descent is easy and often slippery." - Mahatma Gandhi
STAT OF THE DAY
One out of three Americans now live in a housing market where rent for a three-bedroom home eats up more than 30% of the monthly median income, the traditional threshold for affordability, according to RealtyTrac. Big demand for rental housing has helped push rents more than 21% higher since the housing market peaked in 2006. (CNN)