Grant: Why You Should Buy Gold


James Grant, founder and editor of Grant's Interest Rate Observer, explains to Hedgeye CEO Keith McCullough the reasons why investors ought to seriously consider adding gold to their portfolios in this edition of "Real Conversations."

YELP: Not a Takeout Candidate

Takeaway: For those of you looking for an entry point on the short side, you found it today

This is hardly worth a note, so we'll keep it short.  The market is driving YELP up 12% on the OPEN acquisition.  YELP isn't a viable acquisition target; there are two simple reasons why. 


  1. YELP IS NOT OPEN: YELP's business model is predicated on driving new account growth in excess of the absurd attrition it experiences on an annual basis; it does so through aggressive salesforce expansion (there is no leverage in the model).  YELP trades at almost 3x OPEN's market cap, so there aren't that many potential acquirers that can afford to pay a premium on top of YELP's bloated $4.7 billion market cap. OPEN on the otherhand, has a corner on the Electronic Reservation Book (ERB) Market with 99% customer retention, and found a buyer who operates the same model in a different industry.
  2. BANKER SUICIDE: Remember that in any M&A deal, the advisors to the potential acquirer will get an in depth look at YELP's financials.  That means a detailed look at YELP's customer profile, including who they are, and how long they have been doing business with the company.  Management can dodge our collective questions all they want on its customer retention issues, but it will not have that luxury if its in discussions to be acquired.  If a banker and/or advisor somehow successfully pitches YELP to an acquirer (by not disclosing its attrition issues), that will likely be the last deal they do together.  Given there are only so many companies that could afford to do a deal of this size, that would be one very large M&A client to lose.  


If you have any questions, or would like to discuss in more detail, let us know.



Hesham Shaaban, CFA





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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.

BOBE: Reiterating Best Idea Long

We added BOBE to the Hedgeye Best Ideas list as a long on 05/02/2014 at 47.21/share.  We continue to believe there is a significant opportunity for value creation at the company that activist investor Sandell Asset Management is working hard to unlock.  This is our highest conviction long idea. 


All told, we aren’t expecting much good news when BOBE reports next Tuesday and highly recommend buying into any weakness.  If you missed our Best Idea call, we encourage you to review our thesis in the deck below.

Presentation – Best Idea: Long BOBE

The Bob Evans story has flown under the radar for quite a while, but is beginning to generate some well-deserved attention.  Earlier this week, Tyson Foods (TSN) won a bidding war to acquire Hillshire Brands (HSH), the maker of Jimmy Dean sausage and Ball Park hot dogs, at a substantial premium valuation.  But that’s not all.  Last night, BOBE was featured on Jim Cramer’s “Mad Money” during which he recommended the stock as a long for reasons similar to ours.  We believe this heightened attention will help Sandell build considerable momentum in its pursuit to unlock significant shareholder value.


Considering the robust demand for protein companies, we believe now is the appropriate time to spinoff BEF Foods in what would be a value enhancing breakup.  We also see opportunities for significant SG&A reductions and believe the restaurants business would be best served by transitioning to an asset light model. 


If Sandell is successful in their efforts to effect change, we see at least +45% upside to BOBE shares.  Please view our presentation for specific scenario analyses.  Interestingly enough, the market is currently betting against Sandell (which we believe is a mistake), making it an opportune time to get into the name.


BOBE: Reiterating Best Idea Long - 1


BOBE: Reiterating Best Idea Long - 2


BOBE: Reiterating Best Idea Long - 3


Call with questions.


Howard Penney

Managing Director


Fred Masotta


It’s Almost Mathematically Impossible to Get to Consensus Macro GDP Estimates.

Takeaway: The Great American Economic Muddle continues...

The big rip in oil prices all but ensures a big U.S. #ConsumerTax hike this summer. At $106.90/barrel this morning, WTI Crude is up +9% for the year-to-date now. This very much augments our U.S. #ConsumerSlowing Macro Theme.


Meanwhile, CRB Commodities Index (19 commodities) are up +1.6% for the week and +10.3% year-to-date.


In other words, it’s almost mathematically impossible to get to Consensus Macro GDP estimates for Q314 if the Deflator reflects #InflationAccelerating.


It’s Almost Mathematically Impossible to Get to Consensus Macro GDP Estimates. - drake22


LEISURE LETTER (06/13/2014)

Tickers: IGT, PENN, GLPI


  • Tues-Thur June 17-19: Todd in Singapore & Macau for meetings
  • Wed-Thurs June 18-19:  Hedgeye Cruise survey (pre-CCL F2Q)
  • Thurs June 19: LA May revs released


IGT – S&P announced Cimarex will replace IGT in the S&P 500 after the close on June 20, 2014.

Takeaway: This event was entirely expected by the Hedgeye team as on March 28, 2014 in our "IGT: Another Shoe to Drop?" we highlighted IGT's likely removal from the S&P 500 Index due to a market cap shortfall.  


PENN / GLPI – A federal bankruptcy judge denied PENN's request to stop the Iowa Racing and Gaming Commission from closing Argosy Sioux City on July 1.  PENN is expected to file motions in Iowa requesting an emergency stay of the July 1 closing.

Takeaway: Is this really the highest and best use of shareholder capital?  Given the mounting legal costs, we expect a one-time charge related to the closing of Argosy Sioux City.  Recall, it is illegal for a casino to operate without a valid gaming license and were the casino to operate without a license, such an event would set-off events leading to forced property closures in other jurisdictions. 


Insider Transactions

H - Director Pamela M. Nicholson purchased 1,600 shares of Hyatt stock on Tuesday, June 10th at $60.97/share and now owns 3,010 shares.


Iowa Gaming Expansion – The Iowa Racing & Gaming Commission voted 3-2 to approve a 19th commercial casino license for the development of a 525 slot, 14 table casino and adjoining 71-room hotel by Wild Rose Entertainment (WRE) in Jefferson, Iowa.  WRE owns and operates two other properties in Iowa, the 527 slot, 14 tables games WRE Emmetsburg as well as the 544 slot, 12 table WRE Clinton.

Takeaway:  Getting crowded in Iowa but a few more slots for the suppliers.  We found the 3-2 decision interesting in that the IRGC voted 4-1 two months ago to decline the license application for the 840 slot, 30 table games Cedar Crossing Casino in Cedar Rapids, Iowa on the basis of cannibalization of neighboring casinos.  


Macau Ferry Accident – a high-speed ferry carrying 220 people crashed into a breakwater in the Macau harbor earlier today injuring 22 people. The Shun Tak Holdings operated ferry departed Hong Kong and hit the breakwater at about 9:30 am Macau time.  This was the second accident involving a Turbo-Jet ferry over the past month - the prior Turbo-Jet accident occurred on May 22 when a Macau-bound ferry collided with a cargo ship injuring more than 30 passengers.

Takeaway: This second accident may result in increase government oversight. 


Illegal World Cup Betting – Police seized more than HK$20 million in illegal World Cup bets during the first day of the World Cup across the Hong Kong SAR on Thursday.

Takeaway: The first of many headlines, we expect.


Cyprus Gaming Expansion – Nicosia, the capital of Cyprus, yesterday launched its big push to secure the license for the island’s first-ever casino resort, and like each of the other main districts, says the capital is the only location that makes the most business sense. The Cypriot government announced last month the gaming licenses would be awarded in Spring 2015 would include an integrated resort in one district plus two more branches, or satellite casinos in two other districts.

Takeaway: The political and public relations sparring begins.


Russia Gaming Expansion (GGR Asia) Russian President Vladimir Putin did a U-turn and he now supports the creation of a gambling zone in Sochi, which in February hosted the 2014 Winter Olympics. Mr Putin had previously talked against the idea saying the Black Sea city would lose its traditional holidaymakers if it had casinos.  Recall, in April, Mr Putin submitted a draft law to the Russian parliament to establish a gambling zone in Crimea, which would be the fifth in the country.

Takeaway: A potential new jurisdiction and large integrated resort...would be incremental slot equipment demand. 

Australian cruise market (Cruise Currents) In 2013, the number of Australians setting sail increased by a record 20%, a larger increase in cruise passengers than any other market in the world.  In addition to a 20% growth rate, a record number of 3.6% of Australians chose a cruise vacation last year, beating North America’s 3.3%.  


Recently, Carnival Cruise Lines deployed their first ship to the region, the Carnival Spirit, which will soon be joined by sister ship Carnival Legend this coming September.  Both ships will sail year round from Sydney, offering sailings to the South Pacific.  RCL also recently announced it will begin sailing from Brisbane, offering a variety of Australia and South Pacific sailings aboard Legend of the Seas beginning in 2015.  The line is also opting to increase capacity in the region, replacing the smaller Rhapsody of the Seas in Sydney with the larger, newer Explorer of the Seas in 2015.

Takeaway: Bodes well for a potential growth market


China May Home Sales - (Bloomberg) China's home sales fell 11% y/y in May amid slowing demand. The value of homes sold declined to 446B yuan ($72B) from 503B yuan in the same month last year. The value of sales from Jan to May fell 10.2% y/y to 1.97T yuan. 


Hedgeye remains negative on consumer spending and believes in more inflation.  Following  a great call on rising housing prices, the Hedgeye

Macro/Financials team is turning decidedly less positive. 

Takeaway:  We’ve found housing prices to be the single most significant factor in driving gaming revenues over the past 20 years in virtually all gaming markets across the US.


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