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HOLX: Adding Hologic to Investing Ideas

Takeaway: We are adding Hologic to Investing Ideas today.

Please note we are adding Hologic (HOLX) to Investing Ideas today. Below is a brief explanation from Hedgeye CEO Keith McCullough. Our Healthcare team led by Tom Tobin will provide additional color going forward.

 

HOLX: Adding Hologic to Investing Ideas - z gg

 

Buy signals in HOLX have been hard to come by (the stock hasn't gone down much), but a sell-side firm downgraded it today so it's tapping the low-end of our immediate-term risk range. Tom Tobin remains The Bull.

 

On Wednesday July 22 we are hosting a conference call and live studio event for institutional subscribers to review our outlook for HOLX.  We first added HOLX to the Hedgeye Best Idea List as a long in April 2014 when the stock was in the low $20s.  

 

Since then, our original thesis has played out, with the stock doubling as we predicted, and many of the fundamental and sentiment drivers maturing on schedule.   We will review the path into the $50s on our call next week ahead of HOLX earnings report July 29.

 

Buy red,

KM


REPLAY: IS CONSENSUS RIGHT ON CHINA?

Earlier this afternoon, we hosted a live conference call on China which detailed our revised outlook for the Chinese economy, our expectations for monetary and fiscal policy, as well as the associated investment implications.

 

Watch the video replay of the presentation below.

 

CLICK HERE to download the associated presentation in PDF format.

 

KEY TAKEAWAYS:

 

  • Section One: Correction or Collapse? (slides 4-33)
    • Summary: China’s secular growth outlook is likely more dour than the average “China bear” is willing to admit, which implies the recent margin-fueled melt-up in Chinese equities is little more than a bubble that has now popped. Conversely, the outlook for capital markets reform in China is supportive of expectations for much higher share prices over the intermediate-to-long term. While we view these conflicting forces as a fair fight, we are inclined to side with the stated reform drive of Chinese policymakers and believe the key decision an investor has to make with respect to adopting a bullish or bearish stance on Chinese equities from here is how much they believe in the efficacy of the “Beijing Put”. All told, we are happy sheep – for now at least.
  • Section Two: Asset Class “Re-Rotation” Risk (slides 34-63)
    • Summary: Our analysis is picking up on a positive inflection in the Chinese property market. To the extent this nascent recovery is sustained, we expect two things to occur: 1) mainland Chinese investors are likely flow capital back into real estate in lieu of stocks, at the margins; and 2) Chinese economic growth is likely to stabilize and potentially inflect higher from a cyclical perspective. The latter is key risk for the Chinese equity market(s) in terms of reduced expectations for fiscal and monetary stimulus.
  • Section Three: RMB Internationalization Impact (slides 64-73)
    • Summary:  Ahead of this year’s likely rebalancing, Chinese policymakers have lobbied strongly in favor of the yuan to be included in the IMF’s Special Drawing Rights (SDR) basket. Regardless of any near-term success with this initiative, we believe Chinese policymakers are serious regarding their pledge(s) to accelerate capital account reform. We believe an incrementally deregulated Chinese capital account will prove to be a positive influence upon both the Chinese and global economy.
  • Associated Investment Implications (slide 74)
    • Summary: Over the intermediate term, we think H-Shares represent an active opportunity on the long side but are cognizant of the elevated spillover risk resulting from another potential leg down in the A-Shares. Longer term, however, we think both markets are poised to trade materially higher amid the confluence of key capital markets and capital account reforms. Meanwhile, China’s secular growth outlook should continue to impart deflationary pressure upon commodity prices and the nominal exchange rates of commodity-producing nations.

 

As always, please feel free to follow up with any questions. There are lots of moving parts here to discuss.

 

Kind regards,

 

The Hedgeye Macro Team


Builder Confidence | Optimism Builds

Takeaway: Builder confidence in July remains at 10-year highs with Lot & Labor shortages topping the list of concerns.

Our Hedgeye Housing Compendium table (below) aspires to present the state of the housing market in a visually-friendly format that takes about 30 seconds to consume.

 

Builder Confidence | Optimism Builds - Compendium 071615

 

Today's Focus: July NAHB HMI (Builder Confidence Survey)

Builder Confidence in July held flat at an index reading of 60 against upwardly revised June estimates (revised from 59 to 60), marking the highest level in builder confidence since November 2005 (116 months).  With SF Starts and Pending, Existing and New Home Sales all at or near post-crisis highs in recent months, the sustained build of positive sentiment among builders comes as little surprise inclusive of the recent back-up in rates. 

 

Across the survey indicators the +1 pt gains in Current Sales and +2 pt gain in 6M Expectations was offset by a -1pt decline in Current Traffic of Prospective Buyers.  Geographically, the Northeast (+3), Midwest (+2) and West (+2) all showed modest gains sequentially while the -1 pt decline in the South was the first retreat in sentiment in 5 months for the region.   

 

On our Call with NAHB Chief Economist David Crowe (Slide Deck: HERE) back in June, he highlighted the re-emergence of Lot and Labor shortage concerns  being reported by builders – a challenge he reiterated alongside this morning’s HMI release. 

 

While Lot availability and affordability is, indeed, an emergent concern, we’d take an equivocal-to-positive view of the reported labor tightness.  

 

While the symptom of a tighter residential construction labor market in the form of upward pressure on wages could be viewed negatively, the cause (rising demand) is a fundamentally positive development for the industry and historical episodes of labor tightness have corresponded to strong periods of construction activity and equity performance.  In short, from a top-down perspective, it’s hard to take a fundamentally negative view on rising demand. 

 

In regards to NAHB commentary around the July data: 

 

NAHB Chairman Tom Woods commented: 

“The fact that builder confidence has returned to levels not seen since 2005 shows that housing continues to improve at a steady pace…As we head into the second half of 2015, we should expect a continued recovery of the housing market.”

 

NAHB Chief Economist David Crowe added: 

“This month’s reading is in line with recent data showing stronger sales in both the new and existing home markets as well as continued job growth….However, builders still face a number of challenges, including shortages of lots and labor.”

 

 

Bottom-line:  The cycle high in builder confidence in June/July accords with the rash of positive industry data reported for 2Q-to-date and the ongoing improvement in domestic labor/income fundamentals  – a trend which should extend at least through the reported June housing data before volume comps begin to steepen progressively into the back-half of the year. 

 

 

Builder Confidence | Optimism Builds - HMI LT

 

Builder Confidence | Optimism Builds - HMI Indicators

 

Builder Confidence | Optimism Builds - HMI Regional

 

Builder Confidence | Optimism Builds - HMI vs NHS

 

Builder Confidence | Optimism Builds - Housing Confidence HMI vs Univ Mich

 

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Builder Confidence | Optimism Builds - HMI Optimism Spread 

 

 

About the NAHB HMI:

The Housing Market Index (HMI) is based on a monthly survey of NAHB members designed to take the pulse of the single-family housing market. The monthly survey has been conducted for 30 years. The survey asks respondents to rate market conditions for the sale of new homes at the present time and in the next 6 months as well as the traffic of prospective buyers of new homes. The HMI is a weighted average of separate diffusion indices for these three key single-family series. The HMI can range from 0 to 100, where a value over 50 implies conditions are, on average, improving, a value below 50 implies conditions are worsening, and an index value of 50 indicates that the housing market is neither improving nor worsening.

 

 

Joshua Steiner, CFA

 

Christian B. Drake

 


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.28%
  • SHORT SIGNALS 78.51%

Another Reminder That We're Late Cycle? Jobless Claims

Editor's Note: This is an abridged excerpt from a research note written earlier this morning by one of our analysts. For more information on how you can subscribe to Hedgeye click here.

*  *  *  *  *  *  *

Another Reminder That We're Late Cycle? Jobless Claims - Slow growth snails cartoon 07.14.2015

As we foreshadowed last week, the post-auto furlough labor environment proved more even-keeled as claims retraced their prior week bounce and have settled back into their now 16-month trend at sub-330k. 

 

Rate of change in Y/Y improvement is beginning to converge towards zero, a not unexpected dynamic as we approach the lapping of the frictional lower bound in claims. RoC in Y/Y claims slowed to -9.2% from -11% in the prior week and will likely be at or near zero within a few months. This, in and of itself, is not a sign of deterioration in the labor market, just as the worsening rate of change in going from 3 mice to 0 mice to 0 mice in the house is not a sign of things worsening.

 

That said, it is yet another reminder that we're late cycle.

 

Once things bottom out from a RoC standpoint it becomes a "how long" until the end proposition. 

 

Another Reminder That We're Late Cycle? Jobless Claims - zee recessions

The Data

Prior to revision, initial jobless claims fell 16,000 to 281,000 from 297,000 week-over-week, as the prior week's number was revised down by -1K to 296,000.

 

The headline (unrevised) number shows claims were lower by 15k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 3.25k WoW to 282.5k.

 

The 4-week rolling average of NSA claims, another way of evaluating the data, was -9.2% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -11.0%

 

Another Reminder That We're Late Cycle? Jobless Claims - zee 55

 

Another Reminder That We're Late Cycle? Jobless Claims - zee77

 

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Van Sciver: The Impact of Lower Fuel Prices On The Airline Industry

 

On this morning’s edition of The Macro Show, Industrials Sector Head Jay Van Sciver discusses some of the key implications of current lower energy prices on the airline industry.

 

Subscribe to The Macro Show today for access to this and all other episodes. 

 

Subscribe to Hedgeye on YouTube for all of our free video content.

 


ICI Fund Flow Survey | Fixed Income Flows Weakening

Takeaway: Fixed income flows remain weak in anticipation of the Fed increasing rates. Also, investors continue to flee active domestic equity.

Investment Company Institute Mutual Fund Data and ETF Money Flow:

Investors withdrew -$2.9 billion from taxable bond funds in the 5-day period ending July 8th. They also withdrew -$287 million from tax-free bond funds. Aside from a massive defensive move into fixed income in the week ending June 24th, bond fund flows have been consistently negative since early June. This is likely due to anticipation of the Federal Reserve raising rates within the next year.

 

Additionally, as we continue to point out the disaster in active domestic equity flows, investors withdrew -$2.4 billion from that asset class last week. Investors have now made domestic equity withdrawals for 19 consecutive weeks, leading to -$63.7 billion of cumulative year-do-date outflows. We maintain our Short/Avoid recommendations on the most impacted domestic equity managers, T. Rowe Price (TROW) and Janus Capital (JNS).


ICI Fund Flow Survey | Fixed Income Flows Weakening - ICI1

 

In the most recent 5-day period ending July 8th, total equity mutual funds put up net inflows of +$2.2 billion, outpacing the year-to-date weekly average inflow of +$448 million and the 2014 average inflow of +$620 million. The inflow was composed of international stock fund contributions of +$4.6 billion and domestic stock fund withdrawals of -$2.4 billion. International equity funds have had positive flows in 48 of the last 52 weeks while domestic equity funds have had only 10 weeks of positive flows over the same time period.

 

Fixed income mutual funds put up net outflows of -$3.2 billion, trailing the year-to-date weekly average inflow of +$2.0 billion and the 2014 average inflow of +$929 million. The outflow was composed of tax-free or municipal bond funds withdrawals of -$287 million and taxable bond funds withdrawals of -$2.9 billion.

 

Equity ETFs had net subscriptions of +$9.2 billion, outpacing the year-to-date weekly average inflow of +$2.3 billion and the 2014 average inflow of +$3.2 billion. Fixed income ETFs had net inflows of +$246 million, trailing the year-to-date weekly average inflow of +$844 million and the 2014 average inflow of +$1.0 billion.

 

Mutual fund flow data is collected weekly from the Investment Company Institute (ICI) and represents a survey of 95% of the investment management industry's mutual fund assets. Mutual fund data largely reflects the actions of retail investors. Exchange traded fund (ETF) information is extracted from Bloomberg and is matched to the same weekly reporting schedule as the ICI mutual fund data. According to industry leader Blackrock (BLK), U.S. ETF participation is 60% institutional investors and 40% retail investors.   

 

Most Recent 12 Week Flow in Millions by Mutual Fund Product: Chart data is the most recent 12 weeks from the ICI mutual fund survey and includes the weekly average for 2014 and the weekly year-to-date average for 2015:

 

ICI Fund Flow Survey | Fixed Income Flows Weakening - ICI2

 

ICI Fund Flow Survey | Fixed Income Flows Weakening - ICI3

 

ICI Fund Flow Survey | Fixed Income Flows Weakening - ICI4

 

ICI Fund Flow Survey | Fixed Income Flows Weakening - ICI5

 

ICI Fund Flow Survey | Fixed Income Flows Weakening - ICI6

 

 

Cumulative Annual Flow in Millions by Mutual Fund Product: Chart data is the cumulative fund flow from the ICI mutual fund survey for each year starting with 2008.

 

ICI Fund Flow Survey | Fixed Income Flows Weakening - ICI12

 

ICI Fund Flow Survey | Fixed Income Flows Weakening - ICI13

 

ICI Fund Flow Survey | Fixed Income Flows Weakening - ICI14

 

ICI Fund Flow Survey | Fixed Income Flows Weakening - ICI15

 

ICI Fund Flow Survey | Fixed Income Flows Weakening - ICI16

 

 

Most Recent 12 Week Flow within Equity and Fixed Income Exchange Traded Funds: Chart data is the most recent 12 weeks from Bloomberg's ETF database (matched to the Wednesday to Wednesday reporting format of the ICI), the weekly average for 2014, and the weekly year-to-date average for 2015. In the third table are the results of the weekly flows into and out of the major market and sector SPDRs:

 

ICI Fund Flow Survey | Fixed Income Flows Weakening - ICI7

 

ICI Fund Flow Survey | Fixed Income Flows Weakening - ICI8

 

 

Sector and Asset Class Weekly ETF and Year-to-Date Results: In sector SPDR callouts, the financials XLF ETF experienced strong inflows of +11% or +$2.1 billion last week. Flows to that fund are now flat for the year to date. On the other end of the spectrum, investors continued to flee the industrials XLI, withdrawing -5% or -$390 million. For the year to date, the XLI has experienced one of the worst outflows on a percentage basis of -24% or -$2.1 billion.

 

ICI Fund Flow Survey | Fixed Income Flows Weakening - ICI9

 

 

Cumulative Annual Flow in Millions within Equity and Fixed Income Exchange Traded Funds: Chart data is the cumulative fund flow from Bloomberg's ETF database for each year starting with 2013.

 

ICI Fund Flow Survey | Fixed Income Flows Weakening - ICI17

 

ICI Fund Flow Survey | Fixed Income Flows Weakening - ICI18

 

 

Net Results:

The net of total equity mutual fund and ETF flows against total bond mutual fund and ETF flows totaled a positive +$14.3 billion spread for the week (+$11.3 billion of total equity inflow net of the -$3.0 billion outflow from fixed income; positive numbers imply greater money flow to stocks; negative numbers imply greater money flow to bonds). The 52-week moving average is +$1.6 billion (more positive money flow to equities) with a 52-week high of +$27.9 billion (more positive money flow to equities) and a 52-week low of -$18.1 billion (negative numbers imply more positive money flow to bonds for the week.)

  

ICI Fund Flow Survey | Fixed Income Flows Weakening - ICI10

 

Exposures: The weekly data herein is important for the public asset managers with trends in mutual funds and ETFs impacting the companies with the following estimated revenue impact:

 

ICI Fund Flow Survey | Fixed Income Flows Weakening - ICI11 

 

 

Jonathan Casteleyn, CFA, CMT 

 

 

 

Joshua Steiner, CFA

 

 

 

 

 


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