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OZM: Adding Och-Ziff to Investing Ideas

Takeaway: We are adding OZM to Investing Ideas.

Hedgeye is adding Och-Ziff Capital Management Group (OZM) to Investing Ideas. Financials analyst Jonathan Casteleyn will send out a report this week detailing our bullish case.

 

OZM: Adding Och-Ziff to Investing Ideas - och1



Retail Callouts (6/16): Ideas List, TGT, NKE, KATE, WMT

Takeaway: TGT - country wide POS malfunction. NKE introduces first product using ColorDry technology. KATE adds new head of International.

HEDGEYE RETAIL IDEAS LIST

 

*Added LULU to Best Idea list 6/15/14 (https://app.hedgeye.com/feed_items/36119-lulu-adding-to-best-ideas-list-as-a-long?page=1)
 

Retail Callouts (6/16): Ideas List, TGT, NKE, KATE, WMT - ideas

 

EVENTS TO WATCH

 

Wednesday (6/18)

  • H&M - Earnings Call: 2:00pm

 

COMPANY NEWS

 

TGT - Target says glitch at registers across U.S. not hacker-related

(http://www.startribune.com/business/263231891.html)

 

  • "Target Corp. confirmed Sunday night that a 'glitch' in its system had caused delays at registers at some of its U.S. stores, but added that it is not in any way related to a data security issue or a hacker."
  • "Customers around the country took to social media Sunday night reporting long check-out lines due to ­registers not working."
  • "Target did not elaborate on the exact problem or problems, but said it would provide updates as they became available. It also was not immediately clear how many stores were affected by the glitch."
  • "On Sunday night, Target employees tried to placate shoppers irritated by the long lines by handing out $3 coupons in some stores that said 'We are sorry for any delay you experienced in our store.'”

 

Retail Callouts (6/16): Ideas List, TGT, NKE, KATE, WMT - chart4 6 16

 

Takeaway: The POS glitch appears to have affected stores nationwide. Terrible PR for the company as it tries to recover from the data breach. What we can't figure out is, how this slipped through the cracks? Where's quality control, where's the IT support? TGT has some serious organizational issues to iron out and they won't be cheap to fix.

 

NKE - NIKE INTRODUCES FIRST PRODUCT WITH COLORDRY TECHNOLOGY

(http://nikeinc.com/news/nike-introduces-first-product-with-colordry-technology#/inline/30470)

 

  • "NIKE, Inc. today unveiled the ColorDry Polo in a palette of vibrant colors – Nike’s first product available to consumers using ColorDry technology that dyes fabric with zero water."
  • "It takes 30 liters of water to dye a T-shirt using traditional dyeing methods. ColorDry technology removes water from the dyeing process by using recycled CO2 to infuse fabric with intense, saturated color. The technology also saves energy and eliminates the need for added chemicals in the fabric dyeing process."
  • "The breakthrough of waterless dyeing is combined with another sustainable apparel innovation: recycled polyester. The ColorDry Polo is 100 percent recycled polyester, made from polyester manufacturing scraps and recycled plastic bottles that are washed, chopped into flakes and melted down to produce fine yarn used to create the polo's fabric. An equivalent of 16 recycled plastic bottles is used to make each polo."
  • "The ColorDry Polo release follows Nike’s February 2012 strategic minority investment in Dutch start-up, DyeCoo Textile Systems B.V...Last December, Nike announced the opening of a waterfree dyeing facility at its Taiwanese contract manufacturer Far Eastern New Century Corp."

 

Retail Callouts (6/16): Ideas List, TGT, NKE, KATE, WMT - chart2 6 16

 

Takeaway: Not new product, just new processes from NKE. We don't know if using old plastic bottles to make polo shirts will be margin accretive or help drive sales, but it does score the company serious brownie points in the sustainability camp. 


OTHER NEWS

 

KATE - Kate Spade Appoints Roy Chan

(http://www.wwd.com/business-news/human-resources/kate-spade-appoints-roy-chan-7729939)

 

  • "Kate Spade & Co. has appointed Roy Chan senior vice president of international, a new post."
  • "Chan is responsible for the strategic oversight and international expansion for Kate Spade New York, Kate Spade Saturday and Jack Spade. He reports to Craig Leavitt, chief executive officer of Kate Spade."
  • "Most recently, Chan was president of international at Jones Group. Before that, he was acting ceo of Band of Outsiders after serving as global chief operating officer of Japanese brand Evisu."

 

WMT - Wal-Mart India Woos Mom-and-Pop Stores to Tap $50 Billion

(http://www.bloomberg.com/news/2014-06-15/wal-mart-india-woos-mom-and-pop-stores-to-tap-50-billion.html)

 

  • "Wal-Mart Stores Inc. has opened an e-commerce website to supply goods to mom-and-pop merchants in India as the world’s largest retailer seeks to dominate a market it estimates will be valued at $50 billion by 2020."
  • "The Indian website is only for existing users of its members-only cash-and-carry stores and may help draw orders from small businesses more than 20 kilometers (12 miles) from outlets and that aren’t serviced by sales representatives, said the company’s chief executive for India Krish Iyer."
  • "Unlike the Sam’s club and other member-based store formats, India’s cash-and-carry services are only for mom-and-pop shops and other traders who need government tax documents to become members. Ordinary shoppers are not allowed to enter the stores or shop on this new website."

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Just Charts - Consolidation Continues

INVESTMENT IDEAS

The table below lists our current investment ideas as well as a list of potential ideas we are in the process of evaluating (watch list).  We intend to update this table regularly and will provide detail on any material changes.

 

Just Charts - Consolidation Continues - 111

 

Consumer Staples fell -1.2% week-over-week versus the broader market (S&P500) down -0.7 %.  XLP is up 4.0% year-to-date versus the SPX at 4.8%.

 

 

EVENTS THIS WEEK

 

6/17/14 Deutsche Bank Global Consumer Conference:  CP; TUP; NWL; CLX

6/18/14 Deutsche Bank Global Consumer Conference:  PG; CHD; IFF; CCE.   Jefferies Global Consumer Conference:  MJN

6/19/14 Jefferies Global Consumer Conference:  JAH

 

XLP remains bullish on immediate term TRADE and intermediate term TREND durations from a quantitative set-up.

 

Just Charts - Consolidation Continues - 222

 

The Hedgeye U.S. Consumption Model has shown steady improvement over the past month, with 6 of the 12 U.S. Economic Indicators flashing green.

 

Just Charts - Consolidation Continues - 333

 

Despite the bullish quantitative set-up for the sector, we continue to believe that the group is facing numerous headwinds, including:

  • U.S. consumption growth is slowing as inflation rises, in-line with the Macro team’s 1Q14 theme of #InflationAccelerating, and Q2 2014 theme of #ConsumerSlowing
  • The economies and currencies of the emerging market – once the sector’s greatest growth engine – remain weak with the prospect of higher inflation in 2014 eroding real growth
  • The sector is loaded with a premium valuation (P/E of 19.8x)
  • Less sector Yield Chasing as Fed continues its tapering program
  • The high frequency Bloomberg weekly U.S. Consumer Comfort Index (recently rescaled for cosmetic and not component reasons) has not seen any real improvement over the past 6 months, but rose to 35.5 versus 35.1 in the prior week

Just Charts - Consolidation Continues - 444

Just Charts - Consolidation Continues - 555

Just Charts - Consolidation Continues - 666

 

 

NEWS


HSH – the company confirmed this morning that its board of directors has unanimously decided to withdraw its recommendation of the pending acquisition of Pinnacle Foods (PF) in light of the $63/share proposal from TSN.  Tyson expects to realize annual synergies in excess of $300M and PF would stand to receive a $163M termination fee if the deal with TSN is finalized.  The deal reflects consumers’ growth in demand for high protein foods. HSH is up a monster +85% ytd.  

 

LO – LO was up just slightly on the week. The investment community still wonders if LO will be taken out, likely by Reynolds American (RAI).  We continue to suggest that investors hold this stock into potential news of the buyout or until our long-term fair value price of the stock at $80/share is realized.  We continue to assert that the company’s powerful earnings generation is anchored 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 as a Best Idea on 2/26/14.

 

 

TOP 5 WEEK-OVER-WEEK DIVERGENT PERFORMANCES


Positive Divergence:  RDEN 18.6%; BNNY 14.3%; TAP 6.8%; HSH 4.9%; LO 2.3%

Negative Divergence:  TSN -11.7%; HAIN -6.2%; SMG -4.4%; NUS -3.8%; ADM -3.0%

 

 

RECENT NOTES

 

QUANTITATIVE SETUP 

Just Charts - Consolidation Continues - 777

Just Charts - Consolidation Continues - 888

Just Charts - Consolidation Continues - 999

Just Charts - Consolidation Continues - 101010

Just Charts - Consolidation Continues - 111111

Just Charts - Consolidation Continues - 121212

Just Charts - Consolidation Continues - 131313

Just Charts - Consolidation Continues - 141414

Just Charts - Consolidation Continues - 151515

Just Charts - Consolidation Continues - 161616

 

Howard Penney

Managing Director

 

Matt Hedrick

Associate

 

Fred Masotta

Analyst 


MACAU: WEEK 2 MUCH WEAKER THAN EXPECTED

As we warned everyone last week, we knew the week 2 faced a challenging comparison, but week 2 results were even lower than we expected.  Week 2 yielded an ADTR of HKD $801M representing a YoY decline of 27% and a WoW decline of just over 15%.  Based on Week 2 results and ADTR of the past two weeks, we expect full month June GGR to be flattish. 

 

Anecdotally, the mass activity continues to show strong numbers and that volumes in the VIP have continued to soften.  Week 2 market share movement dominated by Galaxy due to the possibility of soft VIP volumes being compounded by a low win percentage.  MGM has had a good start to June. 

 

MACAU: WEEK 2 MUCH WEAKER THAN EXPECTED - m1

 

MACAU: WEEK 2 MUCH WEAKER THAN EXPECTED - m2


Fund Flows: 'Painfully Lackluster'

Takeaway: Taxable bonds have just put up their 17 consecutive week of inflow assisted by tax-free inflows at 21 consecutive weeks.

This research note was originally published June 12, 2014 at 09:43 in Financials. For more information on how you can subscribe to Hedgeye click here.

Investment Company Institute Mutual Fund Data and ETF Money Flow:

 

In the most recent 5 day period, fund flow in both asset classes was painfully lackluster with both fixed income and equity flow below the year-to-date averages. However the quarter-to-date trends for 2Q14 greatly favor fixed income with $20.0 billion flowing into the total bond category thus far in the quarter versus just $6.8 billion that has flowed in all equity funds. This is highlighted by 17 consecutive weeks of inflow into taxable bonds assisted by 21 consecutive weeks of inflow into tax-free fixed income funds.

 

Total equity mutual funds put up a modest inflow in the most recent 5 day period ending on June 4th with $2.1 billion coming into the all stock category as reported by the Investment Company Institute. The composition of the $2.1 billion subscription continued to be weighted towards international equity funds with $3.2 billion coming into international stock funds which was offset by a $1.1 billion outflow in domestic products. This outflow within domestic equity funds has become an intermediate term trend with now the sixth consecutive week of outflow in the category. The aggregate subscription of $2.1 billion for the recent five day period was below the year-to-date average for equity funds of a $2.6 billion inflow, which is now running below the $3.0 billion weekly average inflow from 2013. 

 

Fixed income mutual fund flows also had a lackluster week of production ending June 4th, with just $1.1 billion flowing into all fixed income funds. This interest level was a deceleration from the $2.0 billion that came into bond products the week prior, however the inflow into taxable products was the 17th consecutive week of positive flow and the inflow into municipal or tax-free products was the 21st consecutive week of positive subscriptions. The 2014 weekly average for fixed income mutual funds now stands at a $2.0 billion weekly inflow, a vast improvement from 2013's weekly average outflow of $1.5 billion, but still a far cry from the $5.8 billion weekly average inflow from 2012 (our view of the blow off top in bond fund inflow). 

 

ETFs had a stronger showing than mutual funds last week with both equity and bond products experiencing inflows above the 2014 year-to-date average. Equity ETFs experienced a decent $4.5 billion inflow, while fixed income ETFs put up a $1.3 billion subscription. The 2014 weekly averages are now a $765 million weekly inflow for equity ETFs and a $1.2 billion weekly inflow for fixed income ETFs. 

 

The net of total equity mutual fund and ETF trends against total bond mutual fund and ETF flows totaled a positive $4.1 billion spread for the week ($6.6 billion of total equity inflow versus the $2.4 billion inflow within fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds). The 52 week moving average has been $7.0 billion (more positive money flow to equities), with a 52 week high of $31.0 billion (more positive money flow to equities) and a 52 week low of -$37.5 billion (negative numbers imply more positive money flow to bonds for the week). 

 

Mutual fund flow data is collected weekly from the Investment Company Institute (ICI) and represents a survey of 95% of the investment management industry's mutual fund assets. Mutual fund data largely reflects the actions of retail investors. Exchange traded fund (ETF) information is extracted from Bloomberg and is matched to the same weekly reporting schedule as the ICI mutual fund data. According to industry leader Blackrock (BLK), U.S. ETF participation is 60% institutional investors and 40% retail investors.   

 

Fund Flows: 'Painfully Lackluster' - cast1

 

 

Most Recent 12 Week Flow in Millions by Mutual Fund Product:

 

Fund Flows: 'Painfully Lackluster' - ICI chart 2

 

Fund Flows: 'Painfully Lackluster' - ICI chart 3

 

Fund Flows: 'Painfully Lackluster' - ICI chart 4

 

Fund Flows: 'Painfully Lackluster' - ICI chart 5

 

Fund Flows: 'Painfully Lackluster' - ICI chart 6

 

 

Most Recent 12 Week Flow Within Equity and Fixed Income Exchange Traded Funds:

 

Fund Flows: 'Painfully Lackluster' - ICI chart 7

 

Fund Flows: 'Painfully Lackluster' - ICI chart 8

 

 

Net Results:

 

The net of total equity mutual fund and ETF trends against total bond mutual fund and ETF flows totaled a positive $4.1 billion spread for the week ($6.6 billion of total equity inflow versus the $2.4 billion inflow within fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds). The 52 week moving average has been $7.0 billion (more positive money flow to equities), with a 52 week high of $31.0 billion (more positive money flow to equities) and a 52 week low of -$37.5 billion (negative numbers imply more positive money flow to bonds for the week). 

 

Fund Flows: 'Painfully Lackluster' - ICI chart 9 

 

 

Quarter-to-date trends for 2Q14 greatly favor fixed income with $20.0 billion flowing into the total bond category thus far in the quarter versus just $6.8 billion that has flowed in all equity funds. This is highlighted by 17 consecutive weeks of inflow into taxable bonds assisted by 21 consecutive weeks of inflow into tax-free fixed income funds. These trends continue to support our favorite long amongst the traditional asset managers, Legg Mason (see Hedgeye LM research here).

 

Fund Flows: 'Painfully Lackluster' - ICI chart 10

 

 

Jonathan Casteleyn, CFA, CMT 

203-562-6500 

jcasteleyn@hedgeye.com 

 

Joshua Steiner, CFA

203-562-6500

jsteiner@hedgeye.com


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.64%
  • SHORT SIGNALS 78.57%
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