INVESTING IDEAS NEWSLETTER

Takeaway: Current Investing Ideas: GLD, HCA, HOLX, LM, LO, OC, RH, and ZQK

Below are Hedgeye analysts' latest updates on our EIGHT current high-conviction investing ideas and CEO Keith McCullough's updated levels for each.

 

We also feature three research notes from earlier this week which offer valuable insight into the market and economy.

 

INVESTING IDEAS NEWSLETTER - levels

 

Trade :: Trend :: Tail Process - These are three durations over which we analyze investment ideas and themes. Hedgeye has created a process as a way of characterizing our investment ideas and their risk profiles, to fit the investing strategies and preferences of our subscribers.

  • "Trade" is a duration of 3 weeks or less
  • "Trend" is a duration of 3 months or more
  • "Tail" is a duration of 3 years or less

HEDGEYE CARTOON OF THE WEEK

INVESTING IDEAS NEWSLETTER - GDP cartoon 5.28.2014 

IDEAS UPDATES

GLD  We continue to like Gold  on the long-side in the face of a downward GDP revision (-1.0% annualized in Q1 vs. expectations of -0.5%) and a yield spread that continues compressing (-9 bps w/w to 210 bps wide). Confirming our #GrowthSlowing theme, the 10-year yield decreased another 6 basis points week-over-week to 2.42% after breaking our 2.61% TAIL line of resistance two weeks ago. Reiterating our non-consensus call, we think the 10-year yield may test 2.2-2.3% before the route bottoms. The likelihood of Fed tapering shrinks relative to expectations as data surprises to the downside, and we prefer to be long GLD to hedge the dovish monetary response as the printing press operates overtime. As outlined in our Q2 macro themes call, rather than buying into underperforming, consumer-driven sectors like the Russell 2000 or Consumer Discretionary Stocks (both down -2% YTD), we like holding utilities (XLY +12% YTD), commodities (CRB  Index +9% YTD), and treasuries (TLT +12%) as growth slows and inflation accelerates.   


HCA –  Hedgeye Healthcare sector head Tom Tobin remains bullish on HCA Holdings, but has no new updates this week. 


HOLX ­­– We held a call with an expert this week who has been one of the few people we've found who has intimate knowledge of the process by which 3D tomosynthesis will receive a Medicare code and a reimbursement amount.  He confirmed our optimistic view, based on a significant amount of research, of the reimbursement level that will be announced this year.  


We will be updating our 3D facility tracking data next week.  As of this week there were 580 facilities in the United States who had at least one system out of a total of 8700 potential sites.  That's roughly 6.4% penetrated, leaving a lot of upside from here.  The reimbursement will be key to the penetration rising even faster.

 

LM – The pace of fixed income flow trends within the U.S. mutual fund complex quickened during the week with the latest trends from the Investment Company Institute (ICI) continuing to flash building momentum in bonds versus declining interest in equities. During the most recent week, $2.3 billion of new funds came into all U.S. bond funds according to the ICI versus just $670 million that was collected by equity funds last week. This trend is running into more important intermediate term trends with the second quarter of 2014 shaping up to be the first quarter in 9 months where fixed income is outpacing equities. Thus far in 2Q14, over $17.0 billion in total has moved into fixed income within mutual funds versus just the $8.7 billion that has moved into all stock funds. Leading bond fund managers including Legg Mason and Franklin Resources (BEN) stand to benefit from this emerging trend of which we prefer LM with still dour sell-side recommendations (only 5 Buy recommendations from 19 analysts) and still stubbornly high short interest in the stock (which will need to be covered) as bond trends improve.

 

INVESTING IDEAS NEWSLETTER - lm

 

LO – To be or not to be taken out?  This is the question that remains square on many investors minds. 
 

We maintain Lorillard’s fair value long-term price is $80/share.  Should LO get taken out at that price (RAI is rumored to be interested) or appreciate to that level over time, we stand by our belief in the company’s earnings power on its advantaged tobacco and e-cigarette portfolio.
 

Bottom line: we do not think LO will be imminently purchased and are staying long the stock that we added to Investing Ideas on 3/7/14.

 

OC – While Owens Corning quietly approaches the end of 2Q, its sector is becoming louder about the upcoming quarter and the rest of 2014. Here are a couple of quick notes:

  • AWI, a floor and ceiling maker, called 2014 an inflection point for the commercial market at their Investor Day last week citing improving nonresidential data.
  • AWI expects the remodel and repair spending to grow in the mid-single digits.
  • Other building product names, Saint-Gobain and USG, expect a rebound in 2Q in both commercial and residential activity.
  • U.S. roofing volumes should snap back for 2Q according to Saint Gobain, a top 4 player in the U.S. roofing market
  • Headwaters and AWI both note the construction recovery is still in the early stages with sales bottoming in 2010 and volume bottoming in 2013.
  • In a recent Investor Presentation, Terex sees the repair and remodeling market increasing FY 2014.
  • The NAHB Remodeling Market Index improved ~10% YoY for April. 

 

*Special note from Hedgeye Retail team on RH and ZQK: 

Below we take a detailed look at sentiment for our two retail investing ideas. The primary tool we use is our Hedgeye Sentiment Monitor. What it does is uses a quantitative scale to combine Sell-Side Ratings, Buy Side Short Interest, and Insider Trading activity. We pretty much catch all angles.

 

We use this tool in two different ways; 1) First, we look at directional changes in sentiment for each stock. 2) Second, we analyze the absolute level for each security. A reading above 90 has statistically proven to signal that the market is overly bearish on a name, and that it’s often advantageous to go the other way. Conversely, a reading below 10 suggests that the market is overly bearish, at which time it is usually prudent to go long. 

 

RH – Restoration Hardware is near an all time low sentiment score. With short iterest accounting for 12.8% of the float. 2014 marks the first year of square footage growth in the past six. That coupled with new categories to fill the bigger footprint Design Galleries are the key pillars in our thesis that calls for a $200+ stock in 2018. It continues to be our favorite name in the retail space.

 

INVESTING IDEAS NEWSLETTER - RH sentiment

 

ZQK –  Quiksilver’s sentiment reading has held steady since the announcement that Andy Mooney would be replace founder Bob McKnight as CEO in January of 2013. The company reports earnings Monday (6/2) after the close and we are expecting an inline quarter. The company is still cycling through product discontinuations and brand divestitures this quarter, but the comps get much easier in the back half of the year. Plus, we continue to expect revenue reacceleration in 2H as the company’s new product design, sourcing, and marketing initiatives begin to take hold. That sets up 2015 for outsized revenue and earnings growth.

 

INVESTING IDEAS NEWSLETTER - ZQK sentiment


*   *   *   *   *   *   *
 

Click on each title below to unlock the institutional content.

 

Pending Home Sales Remain Sluggish

April pending home sales rose 40 basis points month-over-month, but are down 9% year-over-year, which is consistent with the trend over the last four months.

INVESTING IDEAS NEWSLETTER - sale 

PLKI: Delivering the Goods

Restaurants sector head Howard Penney explains why Popeyes Louisiana Kitchen stock is up double-digits and rightfully so.

INVESTING IDEAS NEWSLETTER - popeyes wicked chicken

 

Mexican Standoff: Claims vs. GDP vs. Expectations

Initial Jobless Claims say the Labor Market continues to improve, 1Q14 GDP & April Pending Home Sales say “escape velocity” remains a Panglossian phantasm, and consensus growth expectations continue to sing a sirenic but delusional tune around 2014 growth.

INVESTING IDEAS NEWSLETTER - mexicanstandoff


Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more