Investing Ideas Newsletter

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.

Investing Ideas Newsletter        - levl1 

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        - Draghi inferno cartoon 04.10.2015

Stock markets in Europe love the smell of Burning Euros.

IDEAS UPDATES

GS

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.

ITB

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. 

vnq | TLT | MUB  | EDV

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.

Click to enlarge

Investing Ideas Newsletter        - zen1

RH

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. 

MTW

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.   

 

Investing Ideas Newsletter        - wuz1

 

Investing Ideas Newsletter        - wuz2

 

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ADDITIONAL RESEARCH CONTENT BELOW

oil: quick check-in with u.s. production machine

Macro analyst Ben Ryan distills what's going on with oil prices and the dollar.

Investing Ideas Newsletter        - Oil cartoon 04.09.2014a

mcdonald's: boom, like that

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. 

Investing Ideas Newsletter        - z99


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