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EWG: Adding German Equities to Investing Ideas

Takeaway: Adding German Equities to Investing Ideas

We are adding German Equities (EWG) to Investing Ideas today. Please see the note below from Hedgeye CEO Keith McCullough and watch a special video excerpt featuring Europe Analyst Matt Hedrick from a call held earlier this week below.

 

 

Our Europe Analyst, Matt Hedrick (German American dude) hosted a bullish Institutional Research call on Germany earlier this week and the highlights were as follows:

  • QE is only just beginning; the Euro will continue to weaken; Germany will disproportionately benefit due to exports; and asset classes like equities will inflate due to money creation (the German economy sits in the sweet spot to benefit from a weaker euro as its exports account for a monster 47% of German GDP)
  • Since the ECB announced QE on 1/22/15 the correlation between the DAX and EUR/USD is -0.84, a strong negative correlation that we expect to persist as the ECB keeps its foot on the QE pedal for longer than its intended target (late 2016)
  • Recommending long the DAX (HEWG or EWG) and short EUR/USD (FXE)

 

 

 




VIDEO | Three Reasons To Stay Bearish On Oil

 

In this Hedgeye Macro Minute, Director of Research Daryl Jones discusses the three biggest bearish data points on oil for both intermediate and long-term durations.


Early Look

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Flash Call | PNRA: The Activist Playbook

Takeaway: We’re hosting a flash call tomorrow, April 17 at 11am EST to run through the activist playbook on PNRA. Dial-in details and materials to fol

Last night Panera announced in a press release that its Board of Directors approved an increase to the company’s share repurchase program to $750 million. The company expects to repurchase $500 million over the next twelve months.  The release also highlighted the progress that Panera is making in its previously announced refranchising initiative.  The company has entered letters of intent to sell 73 cafes and is expected to reach its refranchising goal by year end (50-150 cafes).  This initiative, which is expected to be accretive to earnings, was reflected in management’s 2015 EPS guidance.

 

On March 3, 2015 we penned an open letter to CEO Ron Shaich detailing our activist playbook on the company:

 

Note: PNRA: RON SHAICH MUST BECOME AN ACTIVIST CEO


In this letter, we recommended five steps he should consider taking in order to unlock significant shareholder value:

  1. Sell-off non-core assets
  2. Slowdown the rollout of Panera 2.0 and begin molding a concept of the future
  3. Slow unit growth and cut capital spending
  4. Cut excessive SG&A spending
  5. Aggressively refranchise stores

We believe these changes to the business model will significantly enhance the margins, returns, and overall earnings power of the company.  We put the baseline earnings power of the company between $8-10 per share and the implied stock price between $240-300.

 

We look forward to further articulating these recommendations on the call tomorrow.


Keith's Macro Notebook 4/16: Commodities | Australia | Eurozone

 

Hedgeye Director of Research Daryl Jones  shares the top three things in CEO Keith McCullough's macro notebook this morning.


Commodities, Australia and Greece

Client Talking Points

COMMODITIES

A weaker dollar is positive for commodities, as the Fed downwardly revised growth and inflation targets on March 18th the USD has been down about 1.6% against the CRB Index which has been lead by Energy. Our immediate-term risk range for the USD is 98.01-100.24 (the USD remains in a bullish formation).

 

AUSTRALIA

The Australian Dollar is up about 1.3% this morning after a strong employment report. They added more than expected full time jobs in March about 37.3K, Australia's unemployment rate has now fallen to 6.1%. The labour force participation rate jumped to 64.8% in March from a revised 64.7% in February.

GREECE

The major index in Greece is down about 5.5% on the week, the big challenge here is that there has been little to no progress with Greece’s international creditors. Germany’s Finance Minister effectively came out yesterday and said no one expects a deal to be made next week (the Eurogroup is meeting on April 24th).

Asset Allocation

CASH 33% US EQUITIES 13%
INTL EQUITIES 15% COMMODITIES 2%
FIXED INCOME 29% INTL CURRENCIES 8%

Top Long Ideas

Company Ticker Sector Duration
MTW

Manitowoc  (MTW) is splitting the business into two companies. While the crane business receives the most attention in part due to its cyclicality and because they are well, more noticeable, Manitowoc’s other business, Foodservice equipment, is the larger of the two in terms of operating income (60% vs. 40% for Cranes). Several indicators are pointing towards upward momentum for MTW’s Foodservice business. Restaurant same store sales have benefitted since the drop in oil prices. Furthermore, an indicator by the National Restaurant Association, RPI Capital Expenditures Index, has surged recently in part due to lower fuel prices driving restaurant traffic and restaurant owners’ outlook.

ITB

iShares U.S. Home Construction ETF (ITB) is a great way to play our long housing call. The housing data was again strong in the latest week with Pending Home Sales, HPI and Purchase Demand all accelerating to close out March. Pending Home Sales rose +3.1% sequentially in February with signed contract activity up a remarkable +12% YoY, taking the index to a new 19-month high. Mortgage Purchase Applications – the most real-time, high frequency housing demand indicator - rose +5.7% WoW on the back of last week’s +4.9% advance and accelerated to +7.6% on a year-over-year basis. HPI: The Case-Shiller 20-city series showed home prices grew +4.6% year-over-year in January.  A stabilization/inflection in home price growth is important as housing related equity performance tracks the slope of home price growth strongly.

TLT

It was another week of declining long-term yields getting you paid on the long-side of Low-volatility Long Bonds (TLT). To reiterate our view over the longer-term, we pin a good chance the U.S. Dollar will reach new highs ($120 anyone?) with the probably of long-term Treasury yields reaching all-time lows very much in play.

Three for the Road

TWEET OF THE DAY

Former Fed Chairman Ben Bernanke to be senior adviser to Citadel Investment - NY Times

@HedgeyeEurope

QUOTE OF THE DAY

Never say never, because limits, like fears, are often just an illusion.

Michael Jordan

STAT OF THE DAY

By one estimate U.S. online political advertising could quadruple to nearly $1 billion in the 2016 election (Reuters).


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

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