Client Talking Points
The 10-year yield smoked to fresh year-to-date lows 2.57% on a #ConsumerSlowing Retail Sales (24% of GDP) report for April (newsflash, it wasn’t just the February weather). Buy either inflation or slow-growth-yield-chasing, not high multiple growth stocks, IWM, QQQ.
It’s a tasty morning for the #InflationAccelerating theme as oil (both Brent and WTI) confirm a TREND breakout to the upside and Gold makes another higher-lows after holding Hedgeye TREND support of $1,271.
Interesting morning for Europe as Scottish employment hits its best level since 1992 on #StrongPound, but the 2014 leaders in European Equities lag (Portugal -1.7%, Italy -0.3%, making lower-highs too). Is this as good as the news gets? Sell in May? Meanwhile, Bank of England Governor Mark Carney is teaching Americans a policy lesson – let a currency strengthen and an economy does alongside it.
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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
After closing down almost 1% yesterday, Russell 2000 is -7.2% since March #GrowthSlowing @KeithMcCullough
QUOTE OF THE DAY
"The way to get started is to quit talking and begin doing." - Walt Disney
STAT OF THE DAY
Unemployment in Scotland fell by 18,000 to 178,000 between January and March while employment reached its highest level since records began in 1992. The jobless rate was 6.4%, which was below the average of 6.8% for the whole of the UK. (BBC)