Takeaway: 75% voted for WENDY’S, 25% voted for BURGER KING
Our Restaurants and Consumer Staples teams are conducting research on fast-food industry preferences. This morning we were interested in learning which quick service restaurant you prefer - Burger King or Wendy’s.
In the video below Restaurant Analyst Fred Masotta touches on why we prefer Wendy’s (WEN) as a long idea and how the poll results are reinforcing our view that the Company is making notable improvements and consumers are noticing.
If you had to eat at either Burger King or Wendy’s, which one would you choose?
At the time of this post, 75% voted for WENDY’S, 25% voted for BURGER KING.
Those who would prefer to dine at WENDY’S had this to say:
Voters who favor BURGER KING reasoned:
Takeaway: Market sentiment suggests investors are preparing for the next geopolitical catalyst.
This note was originally published June 25, 2014 at 17:18 in Macro
Brent has now closed in the red 3 out of the last 4 days but remains within 1% of year-to-date highs reached last Thursday:
Despite the relatively light volumes and inactivity over the last several days, BRENT, WTI, and Natural Gas are flashing bullish @Hedgeye TREND signals:
With the week-over-week increase, investors at NYMEX have the most bullish exposure of 2014. Weekly data from the CTFC detailing futures and options positions shows investors are leaning long 479K contracts in BRENT futures, a level more than 2 standard deviations above the trailing twelve-month average. Net futures and options positions increased significantly moving into this week: +8.9% for BRENT and +8.1% for Natural Gas.
With all of uncertainty in global energy markets, implied volatility in BRENT spot contracts spiked last week and has held its level, hovering slightly above 1 standard deviation from its trailing 12-month average.
The week-over-week increase in bullish sentiment and implied volatility, coupled with relatively lighter volumes, points to the uncertainty in the next geopolitical catalyst that may roil supply lines.
The Hedgeye Macro team will be hosting an expert call featuring Dr. Meghan O'Sullivan, Kirkpatrick Professor of the Practice of International Affairs and Director of the Geopolitics of Energy Project at Harvard University's Kennedy School. The call will be on Friday, June 27th at 1:00pm EDT. We hope to gain a better understanding of the regional tension in the Middle East from someone who has firsthand experience:
Meghan served as special assistant to George W. Bush and National Security Advisor for Iraq and Afghanistan from 2004-2007. She has spent two years in Iraq, most recently in the fall of 2008 at the conclusion of the security agreement and strategic framework agreement between Washington and the government of Iraq. Prior to her current post, Meghan was a senior director for strategic planning and southwest Asia in the NSC as well as political advisor to the coalition provisional authority administrator and deputy director for governance in Baghdad.
Please ping email@example.com for more information on joining the call.
The combination of a slow start to 2014 performance and a renewed focus on a pending legal issue has knocked Och Ziff (OZM) shares to an attractive level for new long positions and we are adding the stock to our Best Ideas list.
INTERMEDIATE TERM (TREND) (the next 3 months or more)
We are taking the view that the intermediate to long term duration is positive for OZM shares and that outside of some negative short term issues the company is displaying good, solid fundamentals including an industry-leading organic growth rate and a valuation reflecting only its base management fees (with no multiple on its highly-accretive incentive fees). Historically, when shares have traded with no multiple on incentive fees it has been a good time to buy the stock. We calculate that the stock has over 30% upside just from mean reversion to its historical multiple versus the traditional asset managers and just 13% downside should the stock fall back to its all time lows on this metric. This creates a favorable upside/downside ratio of 2.5-to-1 which does not include the firm's estimated forward dividend yield of 9.9% (although we acknowledge roughly 4.4% of this forward yield is dependent on the firm earning incentive fees this year).
LONG-TERM (TAIL) (the next 3 years or less)
The $18.8 trillion U.S. pension fund market is continuing to incrementally allocate additional funds to the alternative asset allocation which would primarily benefit the biggest hedge funds, private equity, and real estate firms that have leading scale and performance. Potential net inflows of $180 billion per year on the current $3 trillion in U.S. alternative assets would produce an organic growth rate of ~6%, well in excess of the 2% rate of growth within the nascent return of equity fund flow in the mutual fund industry. As a top five hedge fund by assets-under-management with industry leading historical performance, OZM stands to benefit from this trend.
We estimate that the pension fund opportunity is already showing up in Och Ziff results. Year-to-date, OZM has put up an industry-leading 24% organic growth rate (annualized net new asset growth as a percentage of beginning assets) thus far in 2014. By comparison, Och Ziff's YTD growth rate compares to much more modest growth rates at T Rowe Price, which has generated just 5% annualized growth, BlackRock which is annualizing at just 2.4% growth, and Franklin Resources which actually has a negative decay rate in its client assets currently.
Currently, the confluence of a slow start to 2014 performance for the company and ongoing legal headlines have knocked OZM shares to levels solely on base management fees that historically have been near trough levels. Och Ziff shares are currently trading at just 16.6x base management fee earnings, a 23% discount to the long term average of 21.7x. Furthermore current valuation levels are approaching a range where the stock bottomed on this metric in the middle of 2011 and at the end of 2008 at just over 12.0x management fees.
OZM shares are in a growth category in the alternative investment management industry and the firm is putting up industry-leading organic growth in client assets on new, record AUM. The recent slow start to the year in the firm's performance and ongoing legal headlines have knocked the stock down to a range which historically has been a good entry point for intermediate to long term shareholders. Despite this slow start to 2014 investment performance, we point to a industry leading 20 year track record of strong performance that make any short term performance issue less worrisome. In addition, the Street's current assumptions around important year-end incentive fees don't seem unachievable at this point considering the ground that the firm needs to make up at this point is not outside of their historical annual compounded returns. As a result we are adding the stock to our Best Ideas list as a long position.
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