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January 5, 2015

January 5, 2015 - Slide1

 

BULLISH TRENDS

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January 5, 2015 - Slide3

January 5, 2015 - Slide4

 

BEARISH TRENDS

 

January 5, 2015 - Slide5

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January 5, 2015 - Slide7

January 5, 2015 - Slide8

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The Week Ahead

The Economic Data calendar for the week of the 5th of January through the 9th of January is full of critical releases and events.  Attached below is a snapshot of some of the headline numbers that we will be focused on.

 

 

The Week Ahead - 01.02.15 Week Ahead

 

 

 


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.


 

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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


real-time alerts

real edge in real-time

This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.

Commodities: Weekly Quant

Commodities: Weekly Quant - chart1 divergences

Commodities: Weekly Quant - chart2 deltas

Commodities: Weekly Quant - chart3 usd correls

Commodities: Weekly Quant - chart4 volume

Commodities: Weekly Quant - chart5 open interest

Commodities: Weekly Quant - chart6 volatility

Commodities: Weekly Quant - chart7 sentiment

 

Ben Ryan

Analyst

 


The Best of This Week From Hedgeye

Here's a quick look at some of the top videos, cartoons, market insights and more from Hedgeye this past week.

HEDGEYE TV

IS UA THE NEXT NKE?

On December 18, the Hedgeye Retail Team hosted a Black Book call on the athletic apparel and footwear space.  On Wednesday we released this excerpt, in which Sector Head Brian McGough explains how his opinion of athlete endorsements has evolved (which is particularly relevant given $UA's recent signing of Andy Murray) and reveals what Under Armour needs in order to become the next Nike.

This institutional conference call focused on Athletic footwear and apparel space. Specific names included Nike (NKE), Adidas (ADDYY), UnderArmour (UA), Foot Locker (FL), Hibbett (HIBB), Dick's Sporting Goods (DKS), and Finish Line (FINL) - which collectively offer up a good mix of LONGS and SHORTS.

 

 

HEDGEYE CEO KEITH MCCULLOUGH SHARES THE TOP THREE THINGS IN HIS MACRO NOTEBOOK MONDAY MORNING.

 

 

DETECTING DECEPTION 

In December our Restaurants Team held a conference call for institutional investors Statement Analysis - Putting Companies Through a Linguistic Polygraph Test with former U.S. Deputy Marshall Mark McClish.

 

Mark McClish is the author of I Know You Are Lying and the creator of the Statement Analysis method. In this brief excerpt Mark explains how to identify signs of deception and dissects an excerpt from HAIN’s Q1 earnings call as an example.

Reading conference call and analyst meeting transcripts is a key part of the analyst’s job. We all use words to define our reality, and our choice of words can be revealing. The premise of Statement Analysis is that a person’s choice of specific words can reveal when there might be an attempt at deception. This Statement Analysis exercise looks exclusively at a company’s written and verbal statements. Using these hidden clues, we can dig deeper into a company’s public pronouncements for signals of potential concerns in a company’s reporting.

 

CARTOON

Oil Plunge!

The Best of This Week From Hedgeye - Oil plunge 12.31.14

Oil prices slumped almost 50% in 2014, set for the biggest annual decline since 2008. "It's flat out ugly for whoever is long inflation expectations in Energy terms," says Hedgeye CEO Keith McCullough.

 

 

The Sound of Deflation

The Best of This Week From Hedgeye - Deflation balloon 12.29.14

That sound you're hearing around the globe? Deflation.

 

CHART

Real- Time Alerts: Historical Closed Position Return Distribution 

The Best of This Week From Hedgeye - COD RTA 12.30.14

 

The brief excerpt below is from Tuesday's Morning Newsletter written by Hedgeye U.S. macro analyst Christian Drake.

 

We’ve #TimeStamped 2,969 signals in Real-Time Alerts since 2008.  The historical data is there to see and download on our website and in the Chart of the Day below we show the return distribution across RTA’s 6+ year history.  In our attempt to further the evolution towards an investing meritocracy, we feel we’ve built a better Risk Management mousetrap. 

 

As always, you are free to disagree.  We happily accept and consider all (thoughtful) criticism as we work to continually evolve the process.  

 

 

2014 Outperformance in Low Beta: #PAIN

The Best of This Week From Hedgeye - COD low beta 1.2.15

 

This is a brief excerpt from Friday's Morning Newsletter by Hedgeye CEO Keith McCullough.

 

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If you’re a U.S. equity only investor, the lower-volatility + higher-absolute-and-relative returns came in mostly slow-growth, lower-beta, #YieldChasing sectors:

  1. Number 1 (within the Top 9 S&P Sectors) for 2014 was Utilities (XLU) at +24.3% YTD
  2. Number 2 for 2014 was Healthcare (XLV) at +23.3% YTD

Yep, instead of being long #deflation (Energy stocks, XLE, DOWN -10.6% YTD), these slower-growth, lower-volatility sectors had similar returns to what? Yep – the Long Bond.

 

 


Cartoon of the Day: Ode to Mario

Cartoon of the Day: Ode to Mario - Draghi cartoon 01 02 2015

Mario, Mario, Quite Contrary-O

How Does Your QE Go?


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 80.64%
  • SHORT SIGNALS 78.57%
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