Sell in May and Go Away?

Client Talking Points

VOLUME

Our total U.S. Equity market volume reading was down -26% and -40%, respectively, versus the one- and three-month average volume studies yesterday. It’s easily one of the worst up price/down volume readings I have ever seen.

FOOD

#InflationAccelerating continues (Wheat and Corn up +1.9% yesterday; Coffee up another +0.9%; US meat prices hitting all-time highs) into the USDA’s global grain harvest report on Friday. Meanwhile, ramping US cost of living continues to augment our #ConsumerSlowing and US #HousingSlowdown calls.

EUROPE

Sell in May and go away? It’s been a great run for Italian Equities (up +14.4% year-to-date), the Euro, the Pound, etc. but on good Service PMI prints out of the UK, Spain, and Italy this morning, equities don’t seem to care. I’m watching lower-highs very closely. We still like European growth more than US growth, but don’t have to wear it all summer long.

 

Asset Allocation

CASH 30% US EQUITIES 0%
INTL EQUITIES 6% COMMODITIES 24%
FIXED INCOME 20% INTL CURRENCIES 20%

Top Long Ideas

Company Ticker Sector Duration
HOLX

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.

OC

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.

DRI

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

Whatever u do today, do not quote America's Currency Credibility (USD) hitting fresh YTD lows @KeithMcCullough

QUOTE OF THE DAY

“Great thoughts speak only to the thoughtful mind, but great actions speak to all mankind.” –Theodore Roosevelt

STAT OF THE DAY

The German drug maker Bayer has agreed to acquire Merck’s consumer care business for $14.2 billion. The deal will make Bayer one of the largest providers of over-the-counter products, giving it control of several well-known brand names, including Claritin, Coppertone and Dr. Scholl’s. (New York Times)