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Monday Mashup: Changes to Our Investment Ideas List

Monday Mashup: Changes to Our Investment Ideas List - 11

 

 

We made several changes to our Investment Ideas this week.  In the coming weeks, we will be outlining these changes in more detail.

 

Perhaps the two most notable moves are the relegation of JACK and PLKI from the Long List to the Long Bench.  We like both names longer-term, but believe the impressive recent outperformance means the street is beginning to understand the long thesis and incremental good news is likely baked-in.

 

We’ve also expanded our Short Bench with the addition of several casual dining names.  We’re looking to get aggressive on the short side, after we roll easy comps, as we head into the spring.

 

recent notes

01/05/15 Monday Mashup: BWLD, SBUX and More

01/08/15 SBUX: Why We Think It’s a Short

01/08/15 Knapp Headlines Strong, But…

01/09/15 SBUX: Part of the Story is Going Untold


Events This Week

Monday, January 12th

  • ICR XChange Conference: JACK, KKD, DNKN, DFRG, BBRG, FRSH, ZOES, PLKI, LOCO, SONC, FRGI, CBRL, GTIM

Tuesday, January 13th

  • ICR XChange Conference: KONA, RRGB, JMBA, DENN, NDLS, HABT, DPZ, TAST, RUTH

Wednesday, January 14th

  • DPZ Investor Day

 

Chart of the Day

Monday Mashup: Changes to Our Investment Ideas List - chart2

 

Recent News Flow

Monday, January 5th

  • BOBE upgraded to buy at Janney Capital with a $60 PT.
  • DPZ upgraded to buy at Janney Capital with a $110 PT.
  • LOCO upgraded to outperform at RW Baird with a $34 PT.
  • PBPB upgraded to outperform at RW Baird with a $17 PT.
  • BWLD PT increased to $205 from $180 at UBS.
  • BWLD downgraded to neutral at RW Baird with a $180 PT.
  • SBUX downgraded to neutral at Janney Capital with an $85 PT.
  • LOCO announced an extension of its Under 500 line with four new menu items, each under 500 calories.  The new offerings include the Chicken & Shrimp Grilled Tostada, Double Chicken Wet Burrito, Grilled Chicken & Kale Salad, and Skinny Chicken Quesadilla.
  • DFRG opened its newest Del Frisco’s Grille in Pasadena, CA.  The restaurant spans more than 7,000 square feet and can entertain about 200 people between both indoor and outdoor seating.

Tuesday, January 6th

  • LOCO announced the opening of three new franchised locations in California (Victorvile, Stockton, and Santa Paula) and one new franchised location in Nevada (Reno).
  • DIN Applebee’s introduced its new Pub Diet menu which features fiber and protein rich dishes with less than 600 calories.  The menu includes four dishes starting at $9.99: Pepper-Crusted Sirloin & Whole Grains, Cedar Grilled Lemon Chicken, Shrimp & Broccoli Cavatappi, and Savory Cedar Salmon.
  • DNKN announced its intention to replace its senior secured credit facility with a new securitized financing facility, expected to be comprised of $2.3 billion of senior fixed-rate term notes and $100 million of variable funding notes.

Wednesday, January 7th

  • FRGI announced the promotion of three of its top executives.  CFO Lynn Schweinfurth was promoted to senior vice president, Chief Counsel Joseph Zirkman was promoted to senior vice president, and Chief Development Officer John Todd was promoted to vice president.

Thursday, January 8th

  • DNKN announced expansion plans in China with the signing of a development agreement that calls for the development of more than 1,400 restaurants across China over the next 20 years as part of a joint venture between Jollibee Worldwide Pte Ltd. and Jasmine Asset Holding Ltd.
  • LOCO celebrated the grand opening of its newest location in Goodyear, Arizona – its 19th restaurant in the state.  The 3,000 square foot restaurant has room for 62 guests.
  • SBUX announced COO Troy Alstead will take a leave from the company, effective March 1st.  The company will provide detail on transition plans during the company Q1 earnings call on January 22, 2015.

 

Sector Performance

Monday Mashup: Changes to Our Investment Ideas List - 3

 

Monday Mashup: Changes to Our Investment Ideas List - 4

XLY Quantitative Setup

Monday Mashup: Changes to Our Investment Ideas List - 5

Casual Dining Restaurants

Monday Mashup: Changes to Our Investment Ideas List - 6

 

Monday Mashup: Changes to Our Investment Ideas List - 7

Quick Service Restaurants

Monday Mashup: Changes to Our Investment Ideas List - 8

 

Monday Mashup: Changes to Our Investment Ideas List - 9


EVENT: P Best Idea SHORT call

Takeaway: Join us for our call Thursday, January 15th at 1:00pm EST. Call details will be posted Thursday morning.

We will be hosting a call outlining their Best Idea Short thesis on Pandora Media (P).  P’s user retention issues and waning TAM create a precarious setup into 2015.  Further, its monetization strategy will only make this worse.

    

Join us for our call Thursday, January 15th at 1:00pm EST.

 

 

KEY TOPICS WILL INCLUDE  

  • Users to Decline in 2015: P’s waning TAM isn’t large enough to compensate for its heightened attrition issues.
  • Tug of War: P will need to continue increasing ad load to drive much of its revenue growth, which will exacerbate its attrition issues.
  • Lofty Consensus Revenue: P would require a considerable acceleration in ARPU growth to hit 2015 estimates.  If P falls short in 2015, 2016 would be unattainable.

 

CALL DETAILS

We will be posting call details Thursday mornings.  Ping us or email  for more information.

 

 

 

Hesham Shaaban, CFA

@HedgeyeInternet

 


Commodities Weekly Sentiment Tracker

Note: Using the z-score in the tables below as a coefficient of variation for standard error helps us flag the relative market positioning of the commodities in the CRB Index. It is not intended as a predictive signal for the reversion to trailing twelve month historical averages. For week-end price data, please refer to “Commodities: Weekly Quant” published at the end of the previous week. Feel free to ping us for additional color.    


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1.       CFTC Net Futures and Options Positioning CRB Index: The Commodities Futures Trading Commission (CFTC) releases “Commitments of Traders Reports” at 3:30 p.m. Eastern Time on Friday. The release usually includes data from the previous Tuesday (Net Positions as of Tuesday Close), and includes the net positions of “non-commercial” futures and options participants. A “Non-Commercial” market participant is defined as a “speculator.” We observe the weekly marginal changes in the overall positioning of “non-commercial” futures and options positions to assess the directionally-biased capitulation risk among those with large, speculative positions.

  • The SUGAR, HEATING OIL, AND SILVER markets experienced the most BULLISH relative positioning changes week-over-week
  • The WHEAT, COTTON, AND ORANGE JUICE markets experienced the most BEARISH relative positioning changes week-over-week

Commodities Weekly Sentiment Tracker - chart1 sentiment

 

2.       Spot – Second Month Basis Differential: Measures the market expectation for forward looking prices in the near-term.

  • The RBOB GASOLINE, BRENT CRUDE, AND CORN markets are positioned for HIGHER PRICES near-term
  • The HEATING OIL, LIVE CATTLE, AND COCOA markets are positioned for LOWER PRICES near-term

Commodities Weekly Sentiment Tracker - chart2 spot 2nd month basis

 

3.       Spot – 1 Year Basis Differential: Measures the market expectation for forward-looking prices between spot and the respective contract expiring 1-year later.

  • The BRENT CRUDE, NATURAL GAS, AND WTI CRUDE markets are positioned for HIGHER PRICES in 1-year  
  • The LEAN HOGS, LIVE CATTLE, AND COCOA markets are positioned for LOWER PRICES in 1-year  

Commodities Weekly Sentiment Tracker - chart3 spot 1 yr basis

 

4.       Open Interest: Aggregate open interest measures the amount of opened positions in all actively traded futures contract months. Open interest can be thought of as “naked” or “directionally-biased” contracts as opposed to hedgers scalping and providing liquidity. Most of the open interest is created from large speculators or participants who are either: 1) Producers/sellers of the physical commodity hedging their cash market exposure or 2) Large speculators who are directionally-biased on price.


Commodities Weekly Sentiment Tracker - chart4 open interest

 

Ben Ryan

Analyst


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MACAU WEEKLY ANALYSIS (JAN 5-11)

Takeaway: The bottom isn’t in – bad 2nd week of January

CALL TO ACTION

Week #2 in January was a weak one for table revenues in Macau. Feedback from the ground indicates widespread weakness with Union Pay scrutiny adding to the long list of issues. Analysts making the “bottom is in” call last week may want to rethink their thesis. While estimates are finally getting cut ahead of the Q4 earnings season, it may not be enough. The near and intermediate risks continue to mount and the numbers are worsening. 

 

Please see our detailed note:  http://docs.hedgeye.com/HE_Macau_1.12.15.pdf


Same Global #Deflation Story

Client Talking Points

#QUAD4

In our model, when both growth and inflation are slowing, globally, the Long Bond works and so do Consumer Staples (XLP) and Healthcare (XLV) stocks. With Energy (XLE) down -4% and SPX -0.7% last week, XLV and XLP were +2.3% and +1.6%, respectively – stay with this macro playbook (we like Industrials, XLI, short side too).

EUROPE

After dropping -5% and -6%, respectively last week, Italy and Spain are bouncing +0.5-0.9% this am – whatever Mario Draghi is trying to prove, he’s not proving it to the equity market. Russia leads equity losers again this morning -2.6%; Portugal and Norway -0.5-6% too; does he have enough in the central planning gun for JAN 22?

OIL

Maybe Draghi should just buy Oil and SPX futures (Wall St did last week, with both net LONG futures/options positions at 6 month highs – yes, that’s a contrarian indicator); WTI -2.3% this morning after a -8.4% week – just nasty #Quad4 Deflation.

Asset Allocation

CASH 53% US EQUITIES 7%
INTL EQUITIES 3% COMMODITIES 0%
FIXED INCOME 29% INTL CURRENCIES 8%

Top Long Ideas

Company Ticker Sector Duration
EDV

The Vanguard Extended Duration Treasury (EDV) is an extended duration ETF (20-30yr). As our declining rates thesis proved out and picked up steam over the course of the year, we see this trend continuing into Q1.  Short of a Fed rate hike, there’s no force out there with the oomph to reverse this trend, particularly with global growth decelerating and disinflationary trends pushing capital flows into the one remaining unbreakable piggy bank, which is the U.S. Treasury debt market.

TLT

As growth and inflation expectations continue to slow, stay with low-volatility Long Bonds (TLT). We believe the TLT has plenty of room to run. We strongly believe the dynamics in the currency market are likely contribute to a “reflexive deflationary spiral” whereby continued global macro asset price deflation and reported disinflation both contribute to rising investor demand for long-term Treasuries, at the margins.

HOLX

Hologic (HOLX) is a name our Healthcare Sector Head Tom Tobin has been closing monitoring for awhile. In what Tom calls his 3D TOMO Tracker Update (Institutional Research product) of U.S. facilities currently offering 3D Tomosynthesis, month-to-date December placements signaled a break-out quarter after a sharp acceleration in October and slight correction to a still very high rate in November. We believe we are seeing a sustained acceleration in placements that will likely drive upside to Breast Health throughout FY2015. Tom’s estimates are materially ahead of the Street, but importantly this upward trend in Breast Health should lead not only to earnings upside, but also multiple expansion and a significant move in the stock price.

Three for the Road

TWEET OF THE DAY

$LULU guides up rev, 6-7% comp on constant $ basis, EPS +$0.06 on low end, $0.04 on the high end, Still one of our top picks #hedgeyebestidea

@HedgeyeRetail

QUOTE OF THE DAY

Who would want to use it anyway?

-President Rutherford B Hayes on the telephone, 1876

STAT OF THE DAY

The UST 10YR Yield was down -16 basis points on the week to -10% already for the year-to-date and Commodities (CRB Index) deflated another -1.2% on the week to start 2015 -1.9% year-to-date.


CHART OF THE DAY: Sector Style Factors: Macro #Alpha

CHART OF THE DAY: Sector Style Factors: Macro #Alpha - 01.12.15 chart

 

*  *  *  *  *  *  *  

This is a brief excerpt from today's Morning Newsletter.


If you’ve evolved your process to Cross-Disciplinary Macro you should be killing it right now. There are major asset classes like Long Duration Sovereign Bonds (think TLT) that are going straight up at the same time that others (like Commodities) are going straight down. 



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