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Takeaway: Current Investing Ideas: DE, VIRT, KATE, PENN, GIS, GLD, VNQ, EDV & TLT

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Below are Hedgeye analysts’ latest updates on our nine current high-conviction long and short investing ideas as well as CEO Keith McCullough’s updated levels for each.  

Please note we removed ZOES, FNGN and ITB from the long side this week as well as HIBB (short).

We added DE and VIRTon the short side.


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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



We’re all-in on Kate Spade at current levels.

The Hedgeye Retail team notes that the stock is off 34% over the past 2 months, due to sentiment concerns around 'the space' (KORS is off 31%), but our fundamental outlook has not changed one bit. The business remains very strong. We think that comps are accelerating into the double digits in 2H, and we think that KATE’s margin guidance for this year will prove conservative.

Ultimately we think that numbers this year are 10% too low – a delta that widens to 20%+ next year, and to 50%+ by 2018 when we think KATE has $2.50 to $3.00 in earnings power. Using decelerating multiples as growth accelerates and the P&L matures gets us 50%+ upside in a year and a 2-3-bagger by 2018. 


Our Gaming, Lodging and Leisure team reiterates its high-conviction thesis on Penn National Gaming. PENN remains one of our favorite names on the long side. It maintains the best new unit growth story in domestic gaming.

PENN's property in Massachusetts has had an excellent start. We expect June to be as strong as May, setting up Q2 to be estimate-beating quarter for PENN.



  • Net sales: Net sales increased 1% on a constant-currency basis to $17,630mm, coming in just shy of consensus at $17,635. The 53 week contributed roughly 1 point of net sales growth and the addition of the Annie’s business provided another 1 point lift. So backing those out sales were down roughly 1%. This year started off rough, but gained traction in the 2H, and we expect this momentum to continue into FY16.
  • Segment operating profit: Declined 2% on constant-currency basis to $3,035mm coming in above consensus estimates of $2,899mm.
  • Adjusted diluted EPS: Totaled $2.86 for the full year, up 4% from a year ago levels on a constant-currency basis. The 53rd week drove much of the improvement versus last year, contributing $0.04 of EPS for the full year.

Gaining Share in Key Categories: General Mills improved their share in key growth categories of U.S. Retail. Increasing Grain snacks share by 168 basis points (bps), Frozen Hot Snacks by 97bps, Yogurt by 88bps, RTE Cereal by 26 bps and Frozen Pizza by 23bps. Now, not all the performance was positive they lost substantial share in underperforming categories. Frozen vegetables lost 168bps, Dessert Mixes down 144bps and Dry Packaged Dinners down 72bps, all categories that we believe need to be divested.

Robust growth seen across the International segment, on a constant-currency basis, Latin America increased 17%, Asia / Pacific up 5%, Europe up 5% and Canada was about flat. This robust growth was driven by innovation in key markets like Brazil with Yoki and China’s dumpling and ice cream businesses.

Convenience & Foodservice continues to improve the product portfolio by pruning lower performing SKUs, freeing the business to focus on the key priority platform. These platforms (cereal, snacks, yogurt, mixes, biscuits and frozen breakfast) are providing all the growth for the division, collectively up 9% this year.

FY16 Hedgeye Guidance ―

Looking into FY16 we are excited about the possibilities. Management is working hard on their “Consumer First” initiative and making great changes to current product while also introducing new products.  Below is not a comprehensive list but some of the biggest things that we are looking forward to this year:

  1. Yoplait in China
  2. Gluten-Free Cheerios
  3. No artificial colors or flavors in the cereal
  4. Granola innovation / Muesli
  5. Greek Plenti / Whips
  6. Original yogurt sugar reduction
  7. Renovation on Grain Snacks
  8. Strong push on Natural & Organic products
  9. Delivering Value to consumer on brands like Totino’s and Hamburger Helper
  10. Bringing U.S. innovation International

Bottom line is they are still struggling; we don’t want to shy away from that. But the core of the portfolio is growing and management seems to be working tirelessly on implementing changes to grow the rest of the portfolio, especially cereal.  We also still believe that to have continued growth into the future a sizeable acquisition or divestiture would be beneficial to the business. 


Investing is difficult, but investing in shares subject to weather conditions adds to the challenge.  Welcome to Ag Equipment. 

We see the agricultural equipment down cycle as a multi-year affair with a good deal further to run.  The significant move higher in agricultural commodity prices from 2006-2013, along with ethanol mandates and equipment tax incentives, facilitated an accelerated refresh of the large agricultural equipment fleet.  A young fleet should depress new equipment demand for the next several years.

Used equipment inventories are also elevated, adding to industry pressure.  Farm land values, the dominant asset in the farm balance sheet, have declined recently after years of strong gains in a potential negative for confidence. Other key markets, like Brazil, have already shown sharp declines in equipment demand. 

For Deere in particular, we expect another leg down in production volume to have a meaningful impact on profitability given present utilization.

We are using the recent strength in DE shares associated with its FY2Q beat and a bounce in grain prices since mid-June as an entry point.  A key risk to our view is that agricultural commodity prices continue to move higher, perhaps driven by unfavorable growing conditions in key regions (i.e. weather).  Still, we expect sales of large agricultural equipment to normalize in coming years, pushing DE’s results below current estimates.  


Financials Sector Co-Head Jonathan Casteleyn writes that, "shares of newly issued Virtu Financial are very richly valued. Despite principal risk in their daily trading operations, the stock is being priced in-line with the exchanges."

He adds that VIRT has no tangible equity capital to absorb a potential trading loss. It would have to draw down credit lines should their historical track record in trading break down. He estimates shares are worth $18 per share or the mid point of our scenario analysis.


The Hedgeye Growth, Inflation, Policy (GIP) model is signaling a move into QUAD 3 for the second half of 2015. This is a set-up for the domestic economy where growth is slowing and inflation is accelerating.

We reiterate our intermediate to long-term bullish bias on long-duration Fixed Income and gold.

Our back-testing results cast a favorable outlook for Long-Term Treasuries, REITs, and Gold with a favorable set-up as seen in the first three charts below. When growth is slowing (QUAD 3 and QUAD 4), long term rates tend to move lower.  The logic is simple:

  • #GrowthSlowing: As growth slows, a revision in forward-looking growth expectations manifest in lower yields
  • #InflationAccelerating: Commodity prices have made a significant move off of the 2015 lows as seen in the last chart below, and we expect the follow-through to play out in Q3 inflation readings. CPI readings track the commodity price sample used in chart #4 below very closely and CPI compares are easy in 2H 2015 vs. more difficult GDP comps (QUAD 3)       

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