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The Best of This Week From Hedgeye



Hedgeye technology sector head and semiconductor analyst Craig Berger gives three reasons why a host of stocks, including Qualcomm, Intel, Samsung and others, might be impacted by what’s happening in the technology supply chain.



What's in a name? In this case, it’s two long ideas for investors. 

The Best of This Week From Hedgeye - Gold Bond cartoon 07.10.2014


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GOLD has been rock solid amidst US domestic growth style factors going haywire.

The Best of This Week From Hedgeye - mrt



This week, we asked: Are you bullish or bearish on Gold through 2014?


77% of respondents voted they are BULLISH on Gold, while 23% voted BEARISH.


In the one-minute video below, macro analyst Ben Ryan briefly discusses some of the reasons we became bullish on Gold and added it to Investing Ideas.






Hedgeye Risk Management CEO Keith McCullough sat down with Fox Business’ Maria Bartiromo for an hour on “Opening Bell” Thursday and explained why he’s cautious on the markets, his concerns about stagflation, and why he continues to like gold.

The Week Ahead

The Economic Data calendar for the week of the 14th of July through the 18th of July is full of critical releases and events.  Attached below is a snapshot of some of the headline numbers that we will be focused on.


The Week Ahead - 07.11.14 Week Ahead


Earlier today the Hedgeye Macro Team, led by CEO Keith McCullough, hosted their quarterly Macro Themes conference call in which they detailed their Top 3 Global Macro Investment themes for 3Q14.  The Replay and Presentation Materials can be accessed via the links below



Presentation:  CLICK HERE



  • #Q3Slowing:  Against a backdrop of harder growth and easier inflation compares in 3Q14, the conflation of rising inflation, static nominal wage growth, and an ongoing deceleration in housing should drive a sequential deceleration in domestic economic growth. Growth sentiment, meanwhile, has been improving with 3Q GDP estimates rising as consensus again back-end shifts misguided 1H estimates. We expect that optimism to be marked to [a more dour] reality as we progress through 3Q.  
  • #DollarDevaluation: Given that the Fed's 2H14 and full-year growth forecasts are still too optimistic, the outlook for an easier Fed and future dollar devaluation looks probable. The negative correlations between the dollar and commodity prices should tighten further as the Fed surprises consensus by getting more dovish. 
  • #VolatilityAsymmetry: Across global financial markets, measures of volatility are at historically-depressed levels. While low levels of volatility aren't necessarily a timely harbinger of financial market calamity in and of themselves, other signals - such as the economic cycle rolling over and pervasive complacency among investors and corporations - would seem to suggest we are well into the latter innings of this bull market.

 - Hedgeye Macro

the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

VIDEO: Why We’ve Liked Lorillard Since February ($LO)


Hedgeye Consumer Staples analyst Matt Hedrick and Director of Research Daryl Jones tell us why we added Lorillard as a best idea on the long side in February. Lorillard stock surged today on confirmed reports that the company is in merger talks with Reynolds.

Cartoon of the Day: The 4 Most Dangerous Words

Takeaway: Our advice? If you hear somebody utter the following four words ... run.

Cartoon of the Day: The 4 Most Dangerous Words - Bull goes... 07.11.2014

Riding Out the LO Gravy Train!

The big news overnight and into this morning is that all parties that may be involved in a deal to acquire LO (directly or not) acknowledged through press releases that in fact the parties are underway in discussions yet noted that there is “no certainty that any deal will take place”.  This not-so-new-news (rumors have persisted since March of this year of a deal between RAI and LO), is bolting LO as high as 5%+ intraday (to $66) as of this writing.


We are riding out our long position in LO, which we initiated as a Best Idea Long on 2/26/14 at $47.74, to a price target of $80. We expect to see RAI and LO work closely to get this deal done, and attach an 85% probability that a deal in fact gets done.  Assuming yesterday’s (7/10) closing price of $63.09, we assume there’s an additional 26% upside to our target, and ~ 8% of downside to $58 should a deal not get done.


Facts Around a Deal:

  • British American Tobacco (BAT) owns 42% of RAI and would have to approve any merger. The company has indicated it wishes to maintain its existing stake
  • Imperial Tobacco Group may be a key buyer of select RAI brands to assuage any U.S. antitrust concerns.  As is, RAI+LO would command 67% of U.S. menthol market – definitely an antitrust flag, so we expect divestiture from RAI’s menthol properties
  • Imperial targets from RAI’s menthol brands could include Kool, Winston and Salem, or ~5% of its business. [For more on Imperial’s Positioning see Imperial Sweetens Potential RAI-LO Deal]
  • Whispers are Imperial may have $7B to spend – it’s interested in building out a U.S. business
  • We suspect that RAI’s new CEO Susan Cameron (announced in late April) was positioned by the board to get a deal done (and transform the company) rather than simply accept a buy-out from BAT



  • RAI+LO would have annual sales of $13B and market cap of $56B, or 42% share of U.S. tobacco, second to #1 MO at 51%
  • Per the chart below we expect LO’s blu business to propel the entire business to a higher growth rate over the next 5 years
  • The tobacco group (PM, MO, LO, RAI) is currently trading at a forward P/E of 16.8x vs 13.2x 5-YR historical average
  • Superior fundamentals of LO’s menthol business, leading share of e-cigarette category in blu (45% across all channels), and the synergies involved in a combined RAI+LO (estimated ~ $500-$600M) should command/propel a higher P/E multiple as tobacco moves into an even more tightly consolidate industry = additional pricing power to defend declining volume trends
  • We suggest LO should command a P/E of 17x to 18x
  • We expect LO to command at least $80/share. Below is a sensitivity chart to assess various ranges based on 5-yr forward EPS estimates and discount rate applied

Riding Out the LO Gravy Train! - z4


Howard Penney

Managing Director


Matt Hedrick



Fred Masotta