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The Bernanke Bubble

Hedgeye CEO Keith McCullough recently spoke with The Money Show about how global growth has been slowing since March of 2012. From an earnings perspective, we’ve also seen earnings slowing across all sectors. As we come off peak margins at many corporations, we’re going to see several quarters of weak earnings. Keith discusses what sectors you don’t want to be exposed to and which have been inflated courtesy of the policies of the Federal Reserve. 


Watch the video for Keith’s full take on the global growth slowdown.


Twitter Is The New Tape

Hedgeye CEO Keith McCullough recently spoke with The Money Show and explained why Twitter is the new ticker tape. Traders and investors are increasingly turning to Twitter for new ideas and real-time news and Keith (@KeithMcCullough) has been a huge proponent of the movement. 


Keith explains how over the last 15 years, there was the actual ticker tape, then the Bloomberg terminal and now there’s Twitter. Breaking news comes at users at lightning-fast speed and now anyone can weigh in on news with their opinion in real-time. Keith explains how to sift through the noise and broken sources on Twitter to find users worth listening to.


You can watch Keith’s full interview on Twitter with The Money Show in the clip.


URBN: Still Like It

Takeaway: We think we’re at an inflection point of what we expect to be multiple upward EPS revisions in 2013. We see 25%+ upside over the next 12-mo.

We still like URBN even after the +6% move reflecting the positive QTD comp update after yesterday’s close of +HSD ahead of expectations (+5%E). It’s worth noting this outperformance came against the tougher half of the quarter – comps get easier over balance of 4Q. Revisions out over the last 24-hours will be the latest in what we expect to be a series of upward earnings revisions. We’re still +11% above consensus for F13 (half of which has been updated) and +19% above the Street for F14 representing an average of 28%+ EPS growth over the next two years.

Up next on the catalyst calendar is an update at ICR in mid-January right as Anthro is accelerating out of the turn and then earnings in early March. A year after reshuffling the senior ranks, it appears that management is hitting its stride and doing everything right.  In addition, with URBN breaking through its TRADE line of resistance at $38.92 this morning it has a bullish setup here according to Keith’s quantitative risk management levels.

With a favorable fundamental setup over the next several quarters, one of the best positioned e-commerce businesses in retail (20%+ of sales) headed into the holidays, and quantitative factors all in alignment, we see 25%+ upside from here in 2013.



Here are our thoughts from last week’s Idea Alert on URBN:


“We published it first on 3/22 with the stock at $28. Then again at $26 on 5/22. Today we have an opportunity to publish it again in the wake of a 'less than breathtaking' quarter. Though we think we'll have the opportunity to remind you of our thoughts again 20% higher a year out.

Underlying business trends came in largely as expected in the most recent 3Q, but importantly posted continued improvement in fundamentals. Importantly, Anthro is reaccelerating headed into a highly anticipated holiday season for the brand. With a rebound in comps along with new store, online, and international growth opportunities, we see a sustainable return to low double-digit top-line growth. Moderating markdown rates coupled with tighter inventories (see SIGMA below) is gross margin bullish at the same time the company is beginning to leverage its investment spending including its new DC. This call isn’t predicated on a return to prior peak margins (18%+) to work. In fact, we’re shaking out at +/- 16% margins over the next two years which will likely prove conservative.

The reality is that sentiment is still not overly bullish with 46% Buy ratings from the 31 firms that cover the name. While modestly more bullish than the 43% Buy rating mix YTD, it’s well below the 60%-80% mix from 2008 through 2010.

We’re shaking out ahead of the Street in the upcoming quarter as well as +12% and +20% above consensus EPS in 2013 and 2014 respectively. After nearly two years of declining estimate revisions, we think we’re at an inflection point of what we expect to be multiple upward earnings revisions in 2013. It's not cheap, and it’s a slow grind to full recovery. But from where we sit, boring can still work.”

URBN Risk Management Levels (on 12/4):


URBN: Still Like It - URBN TTT levels

URBN SIGMA is back in the sweet spot (sales outpacing inventory growth with margins expanding):

URBN: Still Like It - URBN SIGMA

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Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.


Our expectation of a strong December, with accelerated YoY growth from November, seems to be coming to fruition.  Average daily table revenues were HK$930 million, up 33% from the comparable period of 2011, and much higher than November’s ADTR of HK$769.  Our full month GGR projection for December is HK$25-26 billion, up 9-13% YoY.  Beyond December, we remain concerned with smoking restrictions to be implemented in January, stabilizing Mass hold %, China’s corruption crackdown, and the recent poor performance of the Shanghai stock exchange.




For market shares, MPEL, MGM and LVS are strong out of the gate here in December, all well above recent trend.  We are hearing that the market held high in the first 10 days with the exception of Wynn and Galaxy.  We continue to believe that LVS and MPEL are the most defensive stocks against our slowing growth theme.  LVS should continue to be a market share gainer over the next 12 months while MPEL is on track to handily exceed Q4 EBITDA projections.



WOOF: Room For Upside

We believe there’s a correlation between housing and pet care that’s worth exploring. One name that we see as a potential long idea is animal hospital operator VCA Antech (WOOF). Research shows that consumers in the 25-34 year old age bracket are the largest percentage of first time home and pet buyers. We believe the pet ownership life cycle begins when young couples get a dog when their children are young, followed by a second replacement dog. If housing continues to improve, then pet ownership would follow and same store trends for WOOF would also improve. 


WOOF: Room For Upside - Household Formation vs WOOF SS


WOOF: Room For Upside - New Home Sales vs WOOF SS


WOOF: Room For Upside - Pet ownership life cycle

DG: Tough to Smoke’em if you Don’t Got’em

Takeaway: DG’s EPS beat this morning is uninspiring. The bottom-line is that the top-line is slowing…

DG’s EPS beat this morning is uninspiring. The key trend to watch continues to be the rate of consumables growth. For the third quarter in a row consumables grew as a percent of sales, but at a decelerating rate sequentially (on a TTM basis).  This trend is notable because 1) consumables tend to be a lower gross margin business – a positive, and 2) they are a key traffic driver – not good. As such, it’s not surprising to see DG post comps +4% shy of expectations+4.6%E in the quarter. In addition, DG’s 4Q comp outlook of +3%-4% vs. +4.3%E suggests continued pressure on the top-line over the near-term.

One of the key factors to consider here is the recent introduction of tobacco at FDO. As one of DG’s chief competitors, this is a notable shift as it’s the only dollar store to sell tobacco to consumers over-indexed to smoking. It’s hardly a game changer for DG today, but when a key competitor needs to shift to Smokes to get its comp, it’s not exactly a positive sign for the space. We continue to think that ‘the consumables shift’, which has been driving comp for both major Dollar Stores, is getting long in the tooth to say the least.

Lastly, with inventories outpacing sales growth this quarter and a tough comp ahead in 4Q (including an extra week), this is not a good setup near-term for DG.


DG: Tough to Smoke’em if you Don’t Got’em - DG CatMix


DG: Tough to Smoke’em if you Don’t Got’em - DG S



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 80.51%
  • SHORT SIGNALS 78.32%