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.
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.
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:
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.
In summary, we continue to see ample risk of Consensus Macro having to cover [higher] securities that you already own.
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.
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
External Environment Creates Possibilities
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.
We added Hologic on Friday. Here is the note which accompanied the addition.
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ADDITIONAL RESEARCH CONTENT BELOW
Investors have favored passive over active this year. Passive equity put up its largest inflow in the 52-week period.
Hedgeye CEO Keith McCullough walks through the most important macro data on his radar screen and answers key questions from institutional subscribers.
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.
Here's a quick look at some of the top videos, cartoons, market insights and more from Hedgeye this past week.
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.
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.
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
That sound you're hearing around the globe? Deflation.
Real- Time Alerts: Historical Closed Position Return Distribution
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
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:
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.
The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.