The Economic Data calendar for the week of the 13th of July through the 17th of July is full of critical releases and events. Here is a snapshot of some of the headline numbers that we will be focused on.
Takeaway: Current Investing Ideas: DE, VIRT, KATE, PENN, GIS, VNQ, EDV & TLT
Below are Hedgeye analysts’ latest updates on our EIGHT current high-conviction long and short investing ideas as well as CEO Keith McCullough’s updated levels for each.
Please note we removed Gold from the long side this week.
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.
Gaming, Lodging and Leisure Sector Head Todd Jordan reiterates his team's bullish high-conviction thesis on Penn National Gaming. The company remains one of our favorite names on the long side and boasts the best new unit growth story in domestic gaming.
Jordan further notes that with more states releasing their June gaming revenues this past week, we feel more confident in our higher than consensus Revenue, EBITDA, and EPS estimates.
We held a "Flash Call" on Kate Spade recently to address the concerns we’ve been fielding about the brand and company from institutional investors in light of the selloff since the company reported earnings in early May.
Here were our conclusions from the call:
General Mills remains on the Hedgeye Consumer Staples Best Ideas list as a LONG. Closing out the year, many people are looking at the sales miss and as a result are bearish on the stock. But those people appear to be sheep, listening to and following whatever the media tells them. If you look at the full story GIS has a lot of things going for it and they are going to show it in the top and bottom line this year.
Over the last couple of months, the company has announced the removal of artificial colors and flavors from their cereals. More recently, they have committed to using only cage-free eggs. Many of these small actions that management is taking are going to have a snowball effect as they go throughout FY16.
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:
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.
Flooding in key farming areas has helped to reduce expected crop yields, pushing grain prices higher in recent weeks. Higher grain prices are a key short-term risk for our bearish view of Deere.
While we have used this wet weather and DE’s 2Q beat as an entry point, sustained higher prices would likely delay the downward normalization of farm equipment sales.
While we cannot accurately forecast the weather, we can look at normalized fleet dynamics. On that basis, we continue to view DE’s results as cyclically inflated and at risk of a sharper than expected decline.
Financials Sector Co-Head Jonathan Casteleyn reiterates his view that shares of 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.
It looks like more deflation on our screens.
We’re removing GLD from Investing Ideas as a result. As we’ve attempted to communicate through all of the central planning hoopla, we like gold most when both the USD and rates are declining.
Earlier this week, we presented our Q3 2015 macro themes deck to our institutional customers. In it, we outlined the case for #LowerForLonger on interest rates highlighting our work on #SECULARSTAGNATION and our view on the #CONSUMERCYCLE (hint: It’s autumn).
The third component of the deck was devoted to #EUROPESLOWING. On Europe slowing, we expect the relative central planning monetary policy from Draghi in reaction to Europe’s woes to weaken the Euro (EURO down, USD up, COMMODITIES come under pressure).
We have no doubt the economy will cycle as it always has; additionally, the empirical evidence for #SECULARSTAGNATION is hard to refute. If the up cycle has officially run-out of steam, and the facts supporting the secular stagnation thesis come to fruition, we’re more confident than ever in #LowerforLonger.
Long-term Treasury rates remain the best proxy for forward-looking growth expectations.
We outline three components of secular stagnation below to explain the SAVINGS/INVESTMENT GLUT that is at the heart of the academic argument for current policy measures:
Please see the three charts below supporting our thesis:
Finally, as you may have read, Ben Bernanke and Larry Summers have been going back and forth with one another on the secular stagnation debate. While one agrees and the other disagrees that the savings to investing glut has perpetuated secular stagnation, and is a real structural hindrance to growth, they’re both in agreement on the most highly debated topic in macro right now:
We’re nowhere near ready policy normalization (rate hikes)
On today's edition of The Macro Show, Hedgeye CEO Keith McCullough offers an uncensored take on this week's NYSE halt and how the #OldWall brass chooses to handle such mishaps.
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Takeaway: We are removing Gold (GLD) from Investing Ideas today.
Today, DFRG announced the resignation of Jeff Carcara, Chief Operating Officer, effective immediately. According to the press release Mr. Carcara chose to leave the Company to pursue an executive leadership opportunity at a private restaurant company.
We view this change in the management team as good news for DFRG. The change in senior management team clears the path for the company to close underperforming Del Frisco Grille stores and halt new unit expansion plans too. For the better part of two years, the construction of new Del Frisco Grille stores has been destroying shareholder value of DFRG.
In addition, our sum of the parts valuation suggests only 10% downside from these levels.
Depending on how the stock behaves with the current news flow and what the future plans look like we are going to add it to the Hedgeye Restaurants LONG bench.
More to come when we get more details on what the future looks like for DFRG.
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