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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 normal

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


REPLAY: MACAU MARCH CONFERENCE CALL

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.

 


Cartoon of the Day: Draghi Inferno!

Cartoon of the Day: Draghi Inferno! - Draghi inferno cartoon 04.10.2015

"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?"


the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

CALL INVITE | Germany: Best Idea Long

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:

  • Draghi’s influence on the capital markets vs the real economy
  • Why Germany’s economy is poised to most benefit from QE
  • An overview of German fundamentals
  • Key investment conclusions across durations

CALL DETAILS

  • U.S. Toll-Free Number:
  • U.S. Toll Number:
  • Confirmation Number: 39466899
  • Materials: CLICK HERE (the slides will be available approximately one hour prior to the start of the call

CALL INVITE | Germany: Best Idea Long - Draghi cartoon 01.20.2015


Sales and Traffic Downtrend Continues in March

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.

 

Sales and Traffic Downtrend Continues in March - 1

 

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.

 

Sales and Traffic Downtrend Continues in March - 2

 

Black Box noted that the New England region was the best performing in the month, while the Southwest was the worst performing.

 

Sales and Traffic Downtrend Continues in March - 3

Sales and Traffic Downtrend Continues in March - 4

 

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:

  • 20-24 YOA -0.84% YoY; -374.9 bps sequentially
  • 25-34 YOA +2.64% YoY; +4.4 bps sequentially
  • 35-44 YOA +0.46%; +23.9 bps sequentially
  • 45-54 YOA +0.50%; -83 bps sequentially
  • 55-64 YOA +2.63%; +66.9 bps sequentially

 

Sales and Traffic Downtrend Continues in March - 5

 


McCullough: My Meetings In NYC Yesterday

Takeaway: Macro markets, across durations, are non-linear.

I spent all day yesterday in New York City with my team meeting and debating some of the smartest institutional investors in the world.

McCullough: My Meetings In NYC Yesterday - z44

The debate (in most meetings) was as vibrant as it has been in a long time. You can read all about it in my Morning Newsletter. Lots of learning equals less mistakes.

 

Some quick thoughts:

 

Right now, there are a lot of people looking for the US Dollar to decline and Oil to rise. It’s just not happening as the USD is +2.6% week over week to 99.29 on the USD Index and WTI is re-testing a breakdown through $50.

 

Meanwhile, Euros continue to burn, $1.06 last – we’re staying with our #StrongDollarDeflation theme.

 

On a related note…my, oh my, are these stock markets in Europe incredible to watch!

 

In Germany, the DAX is +1.7% this morning to fresh year to date highs of over +26%. Places like Denmark are up over +35% year to date. They love the smell of Burning Euros. How could you blame them?

 

European profit margins are going up on this epic FX move like US ones did when the USD was devalued.

 

Click image to enlarge.

McCullough: My Meetings In NYC Yesterday - z34


investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

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