Chambers #Grind

“I really grinded over those four or five-footers – that was the difference.”

-Jordan Spieth


Love that quote. After acknowledging that “I didn’t have my best ball striking”, that’s how an impressively transparent and accountable young man boiled down his #history making win at the US Open yesterday.


In sharp contrast, Dustin Johnson (who 3 putted from 12 feet to lose the Championship) said “I did everything I was supposed to do. I hit the ball well – I just really struggled to get it in the hole – I wasn’t hitting bad putts, they just weren’t going in.”


Actually, getting the ball in the hole (under pressure) is what you are supposed to do, Dustin. I don’t care who you are. Nice ball striking is, well, nice. But If you want to be a Champion, you gotta #grind boy. #Grind, grind, grind.


Chambers #Grind - 44


Back to the Global Macro Grind


So you have “nice” short ideas and did all your bottom-up research but missed that A) the Fed was going to be Lower-For-Longer last week and B) that Greece was going to extend and pretend again this morning?


SP Futures +19 handles pre-open! #Fun


Or at least more fun than trying to stick some of those greens at Chambers Bay. No matter what conditions your game is best suited for, you need to play the macro game that is in front of you.


The “buy everything” call we’ve had into a prevailing consensus wind of “it’s just time for the Fed to hike” has a few very simple components:


  1. Down Dollar = asset price reflation
  2. Down Rates = #YieldChasing


And here’s how those 2 core factors off the tee box looked last week (golfers, think of them like wind and pin):


  1. US Dollar Index down for the 3rd straight week into and out of the Fed meeting, -0.9% week-over-week
  2. US 10yr Treasury Yield down for the 2nd consecutive week, -13 basis points week-over-week to 2.26%


US stocks enjoyed that (Dow Jones Industrials Index up for the 2nd straight week putting it back in the black for 2015 at +1.1% YTD), but the biggest recipient to Down Dollar + Down Rates = Up Gold, absolutely loved that, closing +1.8% on the week.


Actually let me take that back – not all “stocks” liked the Dovish Down Dollar + Down Rates move. Here’s how our two favorite S&P Sector Shorts and Global Equities did with the pin tucked in the front, and some USD devaluation tailwind:


  1. US Financial Stocks (XLF) down -1.2% week-over-week, taking them back to 0.0% for 2015 YTD
  2. US Industrial Stocks (XLI) down another -0.4% week-over-week to down -1.5% for 2015 YTD
  3. European Stocks (EuroStoxx600) down -1.0%, taking their 3-month correction to -3.8%


If you stayed out of those big performance pot-bunkers, you were probably pleased. That said, you still had to grind over those putts once you got on the greens. There were two holes in particular that had huge breakers:


  1. Chinese Stocks (Shanghai Composite) -13.3% week-over-week, but +25.1% in the last 3 months
  2. Greek Stocks (Athens Index) -11.3% week-over-week, taking them to -5% in the last 3 months


Sure, Greek stocks are up +8% this morning on whatever extension and pretension macro market players are going to have to deal with next, but they’re also still -11.3% in the last month so this isn’t for the faint of heart.


In terms of how we’re setup right now (you can see my tilts in the Hedgeye Asset Allocation Model every day), we have one of our lowest cash positions since April. I’d characterize our cross-asset class weights being as balanced as they’ve been in a while too.


If you’d like me to rank our Best Ideas in ETF terms, here’s what I’m thinking (Top 3):


  1. ITB - US Housing Stocks (they’ve corrected on rate fears)
  2. XLV – US Healthcare Stocks (they haven’t corrected, and should continue to outperform)
  3. GLD – Gold, yep – #grind


Japanese Stocks (DXJ) are still our favorite in the International Equity bucket. And I’d be a seller of European Equities on this morning’s Greek ramp. If you’re looking for a natural head-to-head twosome, I’d put Japan up against Germany, long/short.


I’m also thinking I should stop with the golf metaphors and just get ready to #grind. Today’s gap-up open in both European and US equities is going to provide for quite a day. Like the reasons or not – we still need to put the alpha ball in the hole.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 2.16-2.38%

SPX 2094-2126
Nikkei 20109-20609
USD 93.88-95.40
EUR/USD 1.11-1.14
Oil (WTI) 59.05-61.35

Gold 1185-1204


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Chambers #Grind - z 06.22.15 chart

The Macro Show Replay | June 22, 2015


June 22, 2015

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Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.


Takeaway: All the conversations I’m having with investors about DRI are focused on the potential of an Olive Garden REIT.

DRI is due to report FY4Q15 earnings on Tuesday and it’s going to be a great quarter!


Three things to think about following the print:

  1. Are the margin trends sustainable?
  2. What is the stock discounting?
  3. What is management doing to fix Olive Garden?

The current street consensus has DRI FY4Q15 EPS at $0.93, up 150% year-over-year.  Personally, I don’t think it’s out of the question that the company can print $1.00 for the quarter.  The headlines will make for great press as the current management team is doing a great job realigning the cost structure of the company.  Like Bob Evans recent announcement, I also suspect DRI will formally announce it is looking to do a bigger deal in the real estate space. 


Other themes coming out of the FY4Q15 earnings call will be similar to the FY3Q15 themes:

  1. Management is attacking G&A and bringing it to the bottom line
  2. There is significantly less discounting in FY4Q15 vs FY4Q14
  3. Olive Garden sales trends have improved but signs of a renaissance remains elusive
  4. Restaurant margins will improve 130bps in FY4Q15 vs 66bps in FY3Q15
  5. Operating margins will improve 343bps in FY4Q15 vs 264bps in FY3Q15
  6. There will be an intense focus on Olive Garden’s real estate and the potential for a REIT


With the stock at $69 and trading at 11.12x EV/NTM EBITDA, the street is discounting that DRI is going to have a great quarter.  The question becomes how great is great and what is the upside from here?  The bigger question shareholders need to ask is with all the improvement in profitability are they starving Olive Garden of essential capital and the initiatives to be relevant again? 


All the conversations I’m having with investors about DRI are focused on the potential of an Olive Garden REIT. The potential for a REIT was a big focus of the Starboard presentation on value creation.  To be clear, all of the talk of a REIT is temporary as it’s the last financial lever the board can pull to create value. The REIT discussion is also distracting the conversation away from the real issue and that is the Olive Garden renaissance plan. 


I have no edge on the potential of a REIT, but the chances of a REIT seem very slim in the restaurant space.  Contributing to the heightened expectations for DRI REIT are Hudson's Bay, Bob Evans and others announcing plans to potentially monetize their real estate into separate publically traded companies?  Time will tell!


So what is DRI stock discounting?

Using the same price to Price/Sales analysis we used to determine that DRI was undervalued three years ago now shows that the company is overvalued.  At the very least, there is a significant component of the current value that accounts for the value of the real estate portfolio.


Referring to the Starboard presentation on the Darden real estate opportunity, the investors valued the DRI real estate portfolio (including Red Lobster) at $3.8-$4.2 billion.  Assuming Red Lobster was $2.2-$2.5 billion of the total, the remaining Olive Garden real estate is worth around $1.4-$1.7 billion (before tax leakage).


Our sum-of the parts analysis of DRI has the collective brands worth an enterprise value of $7.4 billion or approximately $49.74 per share.  This implies that the market is valuing the DRI real estate at $2.4 billion or more than 100% of the value of Olive Garden’s real estate. With the stock at theses levels there is significant pressure on management and the Board to come up with a creative real estate transaction that makes Olive Garden relevant again.


If a deal can’t get done does DRI run the risk of becoming the Sears holdings of the restaurant industry? Nobody wants to follow the example of Sears Holdings Corp, Eddie Lampert, who had been criticized for starving the retailer of the capital reinvestment needed to keep stores refreshed and relevant in the minds of consumers.


Once we get past the DRI financial engineering and cost cutting the ultimate value of this company will be driven by Olive Garden and right now it’s being starved of capital to be relevant to the consumer.








  • FDA increased regulations on partially hydrogenated oils, a main source of trans-fats. Even with all the reports out there that this is going to cost manufacturers billions of dollars we remain optimistic. Recognizing that our top ideas and many other food manufacturers have worked to drastically reduce the use of trans-fat over the last decade.
  • One new Avian Flu case was confirmed in Wright County, Iowa on Thursday. One million commercial chickens were taken by this particular outbreak, bringing the total number of affected birds in the U.S. to 48 million. This ended an 8 day outbreak-free period.
  • Post Holdings released a brief Avian Flu update on Thursday regarding a company-owned flock in NE that had presumptively tested positive for AI. The flock went through a number of testing rounds with the USDA under quarantine, but today was released from such, as the outbreak was not confirmed.




  • GIS may benefit from the essential trans-fat ban brought on the FDA, as it has reduced trans-fat content in 350 of its product since 2008. The thought-to-be unsafe anti-stick trans-fats are still used in their Betty Crocker, Bisquick and Pillsbury brands. It will be difficult to use alternatives for those lines. 
  • Company named to Newsweek’s 2015 Green Rankings, placing 48th out of 500 US publicly traded companies, and 77th out of 500 global companies.
  • In the food and beverages industry alone, GIS came in 4th of 19 in the top 500. “[We will] continue pursuit to create economic, social and environmental value in the countries where we operate.” –Jerry Lynch, VP & Chief Sustainability Officer.




  • Sentiment remains high on WWAV after the acquisition of Vega was announced last week. The price has been on a slow but steady increase. Please contact us at for our WWAV Black Book we released last week.




  • The street continues to like the stock, but after yesterday’s close, it is trading at -1.48% from its 52-wk high. Low EPS estimates and current P/E valuation are, however, beginning to weaken the confidence of consensus. We are sticking to our guns that HAIN is not an organic company, and does not deserve its current valuation!




  • Jana Partners LLC has filed an SC 13D form against ConAgra Foods (CAG) with activist intentions. They have stated their plans of making changes to the Board of Directors. Changes to this consumer staples giant will likely bring on more long term competition for other industry players.
    • Jana believes that the company has underperformed in creating shareholder value, stemming as a result of their recent acquisition of Ralcorp, Inc.
  • HSY announced a productivity initiative, anticipating the elimination of about 300 jobs, beginning with a voluntary separation option in which transitioning employees will receive help. The program will yield up to $75 million in savings, which will be reinvested in the company, in part, to create long term shareholder value.
  • HSY also lowered EPS guidance for FY15 from $4.30-$4.38 to $4.10-$4.18, due to growth expectations in China having not been up to par for May and April. Trends on a more macro scale are affecting consumer behavior, in addition to increased competition within the category in China.
  • Nestle is reducing its African workforce by 15%. The company says it is partially due to an extremely small and static regional middle class, and also because the turnover in the region has failed to grow as was expected in previous years.


Food and Organic Relative Performance versus the SPX



Consumer Staples Best Ideas List




REPLAY: LONG WWAV | A Truly Healthy Company

Last Thursday we presented our 102 page Black Book on WWAV and why it is deserving of being on Hedgeye Consumer Staples’ Best Ideas list as a Long.



Presentation: CLICK HERE


Our thesis builds off of three main pillars:

REPLAY: LONG WWAV | A Truly Healthy Company - CHART 1 


WWAV has been on Hedgeye’s Consumer Staples Best Idea list as a Long since 4/11/14, and since then has risen approximately 80%. But we don’t believe it is stopping here, management at WWAV is just warming up.


REPLAY: LONG WWAV | A Truly Healthy Company - CHART 2 


Since their IPO in 2012 WWAV has added three businesses, Earthbound Farm, So Delicious and most recently Vega.  One sector they do not play in currently is meat alternatives, and we believe this could be a big growth driver for them in the future.


REPLAY: LONG WWAV | A Truly Healthy Company - CHART 3 


This company has been performing admirably, with low-double digit organic growth over the last eight quarters.


REPLAY: LONG WWAV | A Truly Healthy Company - CHART 4 


We strongly believe that the growth of plant-based foods is just beginning ― they have barely penetrated 30% of households in the U.S.


REPLAY: LONG WWAV | A Truly Healthy Company - CHART 5 


Another alternative to creating shareholder value is the potential of a competitor buying WWAV. We believe that there is a strong possibility of this happening within the next 1-3 years. Given the desperation for growth in this industry, companies have to be looking at WWAV as a possibility.


REPLAY: LONG WWAV | A Truly Healthy Company - CHART 6 


Commodity pricing is always going to be an issue for a natural organic CPG company or any CPG for that matter. WWAV management has been able to keep the affects in check as they maximize efficiencies across their supply chain. Additionally, WWAV has amazing brand loyalty, highlighted by their Horizon brand, in which all top line growth recently is driven by price, signifying that customers need the product and are willing to pay the premium.


REPLAY: LONG WWAV | A Truly Healthy Company - CHART 7 replace 


Bottom line this is one of the best companies we can find in the consumer staples space. And we are looking forward to continuing to keep you up to date on all the action.


REPLAY: LONG WWAV | A Truly Healthy Company - CHART 8 replace v2 


Please reach out if you have any questions.

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