The Economic Data calendar for the week of the 13th of April through the 17th of April is full of critical releases and events. Here is a snapshot of some of the headline numbers that we will be focused on.
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Takeaway: Current Investing Ideas: VNQ, EDV, GS, ITB, TLT, MTW, MUB, RH
Below are Hedgeye analysts’ latest updates on our eight current high-conviction long investing ideas and CEO Keith McCullough’s updated levels for each.
Please note we added VNQ this week and removed UUP.
We also 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.
Stock markets in Europe love the smell of Burning Euros.
Since being added to Investing Ideas on March 25th, Goldman Sachs has more than doubled the return of the S&P 500. GS has risen 4.4% versus 1.9% for the benchmark index. Hedgeye Financials analyst Jonathan Casteleyn has no material update to his thesis this week. He will provide an update next Saturday.
We added Housing to Investing Ideas on March 4th. It has outperformed the S&P 500 by approximately 300 basis points since then. ITB is up 3.1% versus 0.17% for the S&P 500.
Our housing analysts are pleased to offer a mortgage applications note written earlier this week detailing recent developments. It was a positive update and offers further positive confirmation for our call.
Click here to access.
After our Q2 macro themes call and presentation this week, we’re adding US REITs to the long side of Investing Ideas and removing the U.S. dollar.
One way to invest in lower-for-longer, from an equity perspective, is being long US REITS (ETF: VNQ). While we still believe the USD could very well appreciate over the longer-term, our view on lower-for-longer on U.S. rates is firmly intact.
As outlined in last week’s Investing Ideas update, where we discussed the direction of the U.S. dollar, longer duration interest rates (forward-looking growth expectations) can move lower regardless of the direction of the currency:
“Both the Hedgeye macro team and your central planners in D.C. will continue to eye the labor market intently for direction on the U.S. dollar but remember that rates can go lower with the dollar going both ways (In 2014 rates reverted a whole 75bps even though the U.S. dollar declined -2% from January 1st to May 6th before going on a tear through the back half of 2015 into this year).”
The Hedgeye macro team has been straightforward about moving into long-duration, fixed-income securities when growth slows and rates move lower.
We expect good ole’ yield chasing at its finest when the Fed turns more dovish than the masses expect at its April 29th meeting.
Those positioned in slow-growth, longer duration fixed income securities will continued to get paid. Yes, we’re talking TLT, MUB, EDV, and VNQ.
We’ve had a barrage of questions over this week about Restoration Hardware’s new store productivity – or lack thereof. First off… there is absolutely positively nothing ‘funny’ going on here as it relates to asset productivity. Unlike an apparel retailer that adds four stores per week, RH is adding four this year. It is a different animal altogether, one where the timing of an opening date, revenue recognition, and whether or not a Legacy store is closed all meaningfully impact what people consider ‘New Store Productivity’. Second, this is absolutely positively nothing new. There have been anomalous factors impacting the reported numbers for nine months now. Someone simply decided to write a report yesterday highlighting it 2 weeks after the earnings report.
Also, let’s not forget the big picture here. This company just finished a seven-year period where it consistently shrunk its square footage footprint every year, and just started off an inverse period where it will grow square footage by 20-30% annually over another 5-7 years. Given its limited store count, unique customer ordering profile, and radical change in the box size, it’s a near certainty that there will be major swings in ‘new store productivity’. The good news is that what has hurt RH for the past nine months should start to go the other way later this year.
Punchline = if you’re worried about RH New Store Productivity, don’t be.
While Manitowoc reports 1Q earnings around the beginning of May and face relatively easy sales and margin comps, 2Q earnings could benefit from several tailwinds.
First, a large backlog will be converted to revenue for the second quarter, which is composed mainly of the VPC (Variable Position Counterweight) cranes ready to be shipped. The VPC cranes should give sales a boost at above average margins. Second, the Architecture Billings Index is continuing to indicate positive construction momentum for crane sales in the second and third quarters.
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ADDITIONAL RESEARCH CONTENT BELOW
Macro analyst Ben Ryan distills what's going on with oil prices and the dollar.
According to Hedgeye's Restaurants Sector Head Howard Penney, there has never been a time in the history of McDonald’s where following advice of its legendary founder has been more critical than it is today.
The replay of our video conference call earlier today is below. Topics discussed include recent trends in Macau, the Hedgeye Macau outlook, and direct VIP analysis.
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"My oh my are these stock markets in Europe incredible to watch," Hedgeye CEO Keith McCullough wrote this morning. "They love the smell of Burning Euros. How could you blame them?"
Hedgeye’s European analyst Matthew Hedrick will lead a discussion on our newest Best Idea, long the German equity market.
The call will be held on Tuesday, April 14th at 11am ET.
In the wake of ECB President Mario Draghi’s big QE announcement in January, we’ll discuss the impact of QE, where we see policy measures heading, and why we see Germany as the biggest ‘winner’ of central bank intervention.
KEY AREAS OF FOCUS:
Black Box Sales, Traffic Discouraging in March
Despite the industry registering its 9th consecutive month of same-store sales growth, Black Box results for March were relatively disappointing. This comes following a soft February, during which same-store sales and traffic decelerated 400 bps and 340 bps sequentially.
Restaurant same-store sales increased +0.8%, while same-restaurant traffic decreased -2.4% during the March month. These numbers were down 130 bps and 140 bps, respectively, on a sequential basis. Importantly, 1Q15 overall was a strong quarter from a sales perspective – the strongest in at least three years – with same-restaurant sales up +3.0%. Traffic during the quarter was less inspiring, slipping down 30 bps sequentially to -0.3% from a flat 4Q14.
The widening gap between sales (or average check) and traffic suggests that the industry does not have pricing flexibility. This could become a bigger issue down the road in 2015 as companies begin facing significant labor cost pressure.
Black Box noted that the New England region was the best performing in the month, while the Southwest was the worst performing.
Employment Growth Remains Solid
All age cohorts, save the 20-24 group, had positive employment growth during the month – continuing an impressive run. Although the 20-24 YOA cohort saw employment growth decline -0.84% in the month, it is not significant enough to give us cause for concern given the strength in the other categories. However, given the extent of the sequential drop in employment growth for this category, we must monitor it closely moving forward as a continuation in this trend could have negative implications on the fast food industry.
March Employment Growth Data:
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