In this edition of Real Conversations, Hedgeye CEO Keith McCullough has a wide-ranging conversation with Steve Hanke, a Professor of Applied Economics at Johns Hopkins University and a Senior Fellow at the Cato Institute.
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Takeaway: We are removing OC from our high-conviction stock idea list.
We will take the hit here in OC. We have been wrong on the name and don’t want to compound that error by holding it in a volatile market that is inhospitable to underperforming smaller capitalization names. While our long-term research view on OC remains favorable, we expect 3Q 2014 results to be poor and are not sure if the company will lower 2014 guidance. In a less volatile market, we would assume that the weak 3Q numbers had already been priced in. In the current volatile market, that could prove a risky assumption.
We are pulling OC right as the company implements price increases in its roofing and insulation businesses. It will take a couple of quarters for those price increases to be reflected in financial results, however. As a result, we do not see a rush and expectations for 4Q 2014 are still elevated.
We do expect to re-enter OC and this might be viewed as a trading call. Those who have invested during (or traded in) periods of high volatility may agree that OC will likely have poor top-down risk style factors for such an environment. We could be wrong in pulling the name, but can also return to OC once the storm has passed – even if the shares are higher.
Earlier today the Hedgeye Macro Team, led by CEO Keith McCullough, hosted a Flash Call #Bubbles or Bottom? On the call Keith highlighted the best places to "hide out in" in order to weather the market volatility.
We encourage you to check out the Video Replay (click on the image below).
*This video is available for Hedgeye Macro Subscribers only.
To access the presentation referenced in this call CLICK HERE.
Our industry-leading fundamental macro research and proprietary quantitative risk management systems suggest a heightened probability of a market crash over the intermediate term. When juxtaposed against the consensus narrative of, "where do I buy the dip?", we think this is a call no one can afford to miss.
Don’t let today’s bounce in the markets fool you. This won’t end well.
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