Note: The excerpt below was written earlier this morning by Hedgeye CEO Keith McCullough. Stay tuned for more details from our Restaurants sector head Howard Penney.
In staying with the process, another Macro Exposure we want to be adding to (on down days, oversold signals, etc.) is Big Cap Liquidity (vs. Small Cap Illiquidity, in Russell 2000 #bubble terms, on the short side).
From a bottom-up perspective, one of our Research Team's Best Ideas (Institutional Research longs and shorts) on the LONG side right now is Howard Penney's bullish view of Yum Brands. And, from a top-down factoring perspective, the other thing I like (at a price) are consumer companies whose cost structure will be the recipient of commodity #deflation.
On YUM specifically, Howard thinks there are three ways you can win on the long side:
- The Company is vulnerable to activism
- Opportunity for a transformational transaction (for the better part of the past two years, management has been asked about a potential spinoff of the China business).
- We also believe there is an opportunity to increase leverage (to repurchase stock or pay a special dividend), cut excess SG&A, refranchise additional restaurants and command a premium valuation.
Buy red, sell green.