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VIDEO: End of a Golden Era?

 

Hedgeye CEO Keith McCullough appeared on CNBC’s Fast Money this evening to talk stocks and how the gold market is breaking down. Keith notes that now that gold has been breaking down over the past four weeks, sell-side analysts are going to get bearish on it, which will only add to the sell off. To see Keith’s full take on gold, skip ahead to 2:35 in the video posted above.


VIDEO: Paying Dividends

 

Corporations are enjoying record high levels of cash, low amounts of debt and financial flexibility in the current economy. The question is: can companies continue to keep paying out sweet dividends? Hedgeye Director of Research Daryl Jones thinks dividends will increase over time and lays out his case starting at 0:45 in the above video. Names Jones likes include Darden Restaurants (DRI) and Proctor and Gamble (PG).


FTSE: Bullish On The Margin

This week's PMI reports for the UK and Germany weren't as bad as people thought they'd be and in turn, the market was pleased enough to continue buying up UK equities. The FTSE 100 index is in bullish formation now across all three durations: TRADE, TREND and TAIL. Even if it's just a story of funds shifting capital into UK equities, it's impressive enough to garner our attention nonetheless. 

 

FTSE: Bullish On The Margin - FTSE100


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Holler At The Dollar

We've said it before and we'll say it again: get the dollar right and you get a lot of other things right. With the US Dollar being up seven of the last eight weeks, two things happen that correlate decently with the currency: stocks are heading higher and commodities are getting crushed. On a 60-day basis the correlation between the US Dollar Index and the SP500 is now +0.81; bullish is as bullish does.

 

Holler At The Dollar - dollarholler


SPY: Watch Your Levels

The S&P 500 (SPY) hit a new all-time high intraday today of 1572 after yesterday's attempt, which saw the index testing our TRADE line of support at 1556 by the close on light volume. Chasing the broader macro market and buying high and selling low just doesn't work. We'll keep an eye on the S&P 500 as well as the US dollar; a strong dollar drives down commodity inflation and boosts the S&P 500. All the more reason to stay the course and remain bullish on the market.

 

SPY: Watch Your Levels - SPXRUSSEL

 

We also bought the Russell 2000 (IWM) yesterday when the index and S&P 500 both held their TRADE lines of support. Sticking to our process is a must.


BUY BJRI AHEAD OF EPS?

With only one sell-side analyst, according to Bloomberg, advising clients to sell BJ’s Restaurants’ stock at this price, and the eye-catching underperformance versus the S&P 500, it is tempting to get on board with BJRI.  At this point, we intend on waiting until after the 1Q13 print on 4/26, at the earliest.

 

Reasonable Expectations

 

One of the major reasons why BJRI is tempting on the long side is that expectations seem reasonable.  In fact, at $1.25, we are ahead of the Street’s FY13 EPS estimate of $1.22.  That said, our confidence in our estimate is not as firm as we would like and we are not overly confident that the market will take “beats” versus consensus as a reason to bid up the stock significantly.  We are waiting on the 1Q print and any sign that returns are sequentially accelerating.  We expect returns to improve throughout the year, but not soon enough that we would rush to buy the stock.

 

 

Returns, Returns, Returns

 

Return on Incremental Invested Capital has been key to the share price of this, and many other restaurant companies.  Empirically, this has proven to be especially true of growth stocks.  Until we become confident that management is seeing stable returns on incremental invested capital, we’ll be advising our clients to be patient.   

 

BUY BJRI AHEAD OF EPS? - bjri roiic stock price

 

 

Traffic

 

Same-restaurant sales growth has been erratic over the past year, missing expectations in two quarters during 2012.  The company’s Gap-to-Knapp has come in drastically over the last few years and this has pressured returns.  In 1Q, we will be waiting to see a strong recovery in traffic trends, sequentially, on a two-year average basis, to gain the necessary confidence to get behind this name.  If traffic trends don’t recover, it will be difficult for the investment community to consider this a growth stock and we expect the multiple will remain in the 8-10x EV/EBITDA range.

 

BUY BJRI AHEAD OF EPS? - bjri srs compo

 

 

Howard Penney

Managing Director

 

Rory Green

Senior Analyst

 

 


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