Investing Ideas Newsletter

Takeaway: Current Investing Ideas: EDV, HOLX, MUB, RH, TLT, XLP and YUM.

Below are Hedgeye analysts’ latest updates on our seven current high-conviction long investing ideas and CEO Keith McCullough’s updated levels for each.

 

Please note we added Hologic (HOLX) on Friday.

 

We feature two additional pieces of content at the bottom.

Investing Ideas Newsletter - levels1 

Trade :: Trend :: Tail Process - These are three durations over which we analyze investment ideas and themes. Hedgeye has created a process as a way of characterizing our investment ideas and their risk profiles, to fit the investing strategies and preferences of our subscribers.

  • "Trade" is a duration of 3 weeks or less
  • "Trend" is a duration of 3 months or more
  • "Tail" is a duration of 3 years or less

CARTOON OF THE WEEK

Investing Ideas Newsletter - Ball drop cartoon 12.31.2014

IDEAS UPDATES

TLT | EDV | XLP | MUB

 

Sticking With the Long Bond to Start 2015

 

Consistent with our intermediate-term view on the most probable trajectory of both rates and the reported inflation – i.e. lower – we remain bullish on the long bond (in TLT, EDV and MUB terms), as well as on equities with bond-like characteristics (in XLP, XLV and VNQ terms).

 

As most recently reiterated by today’s Markit and ISM Manufacturing PMI data, domestic economic growth slowed on the margin in 4Q14 and we will continue to receive such #GrowthSlowing data points throughout the month of January:

 

Investing Ideas Newsletter - dd1

 

Investing Ideas Newsletter - dd2

 

Additionally, there remains a 3-SIGMA net SHORT position in 10Y Treasury futures and options contracts; to the extent long-term Treasuries continue to rally, we think there is ample room for mass capitulation in the coming weeks on long-term.

 

Investing Ideas Newsletter - dd3

 

In summary, we continue to see ample risk of Consensus Macro having to cover [higher] securities that you already own.

RH 

Shares of Restoration Hardware closed 2014 up 43% and we think this name still has legs in the New Year.

 

We are modeling $2.40 in EPS for the 2014 fiscal year with a 45% EPS CAGR through 2018. At a mid-twenty multiple, that gets us to an RH stock price well over $250 by 2018.

 

It remains our favorite name in retail.

 

Investing Ideas Newsletter - rh

yum

We’ve previously mentioned that we believe YUM is vulnerable to activism, but in this week’s addition we seek to provide more detail on why now is an optimal time for change. YUM currently has both internal and external factors working for it. We believe the company is a change, or two, away from unlocking significant shareholder value.

 

Internal Changes are a Catalyst for Change

  • New CEO beginning in 2015
  • We believe the current CFO is likely more open to changes than the previous CFO
  • In 1Q15, YUM changed its reporting structure to align global operations outside of China and India by brand
  • This change in reporting structure allows for a clean sale or spinoff of brands
  • The new reporting structure also suggests little internal friction to a potential spinoff or sale of brands
  • YUM has been paying down debt and is now underleveraged relative to peers

 

External Environment Creates Possibilities


  • Restaurant multiples are at all-time highs
  • Restaurant IPOs are being very well-received by investors
  • Global asset-light business models are trading at a premium to the group
  • Significant liquidity in the fixed income markets
  • Significant liquidity in the franchisee finance market
  • It is a great time to be a seller of restaurant assets, especially of strong brands like YUM’s
  • The board needs to address the issue of increased volatility in the Chinese business
  • Gaming companies have successfully issued tracking on their Chinese assets
  • YUM China could be the largest consumer company in China and investor interest would be strong

 

Regardless of any major changes, upside to YUM shares in 2015 could also be driven by a recovery in China. The street is modeling a turnaround that is, in our view, rather tempered compared to expectations of past recoveries. If China recovers, the stock will take off. If not, we expect an internal or external force to effect change.

 

There are multiple ways to win here, which is why we continue to like YUM heading into 2015.

 

Investing Ideas Newsletter - yum

holx

We added Hologic on Friday. Here is the note which accompanied the addition.


 

* * * * * * * * * * 

ADDITIONAL RESEARCH CONTENT BELOW

ici fund flows: heavy inflow to passive funds

Investors have favored passive over active this year. Passive equity put up its largest inflow in the 52-week period.

 

Investing Ideas Newsletter - p7

podcast: morning macro call (Friday 1/2)

Hedgeye CEO Keith McCullough walks through the most important macro data on his radar screen and answers key questions from institutional subscribers.

Investing Ideas Newsletter - 5p


Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

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Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

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GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

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Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

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Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

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Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

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People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

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UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

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Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

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Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

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An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

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