Character Is King

“Be more concerned with your character than your reputation, because your character is what you really are, while your reputation is merely what others think you are.”

-John Wooden

 

I picked up a copy of New York Times columnist David Brooks’ new book, “The Road to Character,” while on vacation last week. In it, Brooks discusses the obvious human bias towards being self-centered.  In today's digital day and age, this is probably best personified by the #Selfie.  The idea of taking your own picture has become so prevalent that U.S. Senator Cory Booker is apparently on a quest to take #selfies with every other member of the Senate.

 

Brooks himself admits that he is “paid to be a narcissistic blow hard.”  He makes his point in the context of society over the last couple decades, which by some quantifiable measures has become 30% more narcissistic.  Even more interesting (alarming?) is the growing desire among many to be famous.

 

According to Brooks:

 

“In a survey in 1976, people ranked being famous 15th out of 16 possible life goals. By 2007, 51% of young people said it was one of their principal ambitions. On a recent multiple-choice quiz, nearly twice as many middle-school girls said they would rather be a celebrity’s personal assistant than the president of Harvard University.”

 

Those are some pretty eye-opening trends. 

 

Clearly, we are all guilty at times of too much self-focus and not enough selflessness.   Hedgeye as a group is no exception.  Yesterday, though, we suspended the self-focus and took a half day off to raise money in our second annual Hedgeye Cares Charity Golf Challenge and had a very selfless partner in The Lincoln Motor Company.

 

In recognition of The Lincoln Motor Company’s very generous support as title sponsor of the tournament for a second straight year, I found myself watching some of Lincoln’s commercials on YouTube and latched on to McConaughey’s quote below. (Watch the video here

 

“It’s not about hugging trees, it’s not about being wasteful either, you just got to find that balance.  Where taking care of yourself, takes care of more than just yourself – that’s the sweet spot.”  

 

The quote just about nails the balance that we all strive for, but sometimes do not achieve in the age of the ubiquitous #Selfie.

 

I’d also like to call out the top corporate sponsorships we received from both Salesforce.com and Bloomberg. They came in big for a second straight year. In addition, many individuals like you were kind enough to lend a helping hand by either buying a foursome, donating outright, or providing items for our silent auction.

 

A deep thank you from all of us for your support!

 

Character Is King - Lincoln Blum

 

We invite our Early Look readers to experience www.lincoln.com today and contact the Lincoln Concierge to find out about the new Lincoln Black Label line of vehicles and schedule a test drive.  Additionally you can follow Lincoln on Facebook, Twitter and Instagram @LincolnMotorCo.

 

Back to the Global Macro Grind...

 

Inasmuch as I'm critiquing blowhards this morning, in part, it is our job at Hedgeye to broadcast and communicate our investment ideas.  Accordingly, I wanted to highlight some notable commentary from a few of our Sector Heads over the last few weeks:

 

On 7/21, our restaurant and consumer staples guru Howard Penney added Starbucks $SBUX to his short idea bench. He wrote the following:

 

“SBUX obviously has significant growth potential, and has had industry leading innovation as of late. But we are growing increasingly concerned by the valuation of the stock, which trades at nearly 2 standard deviations above the five year average EV/NTM EBITDA of 12.9x.  The current valuation more than adequately reflects the company’s long-term growth potential.  That being said, we do have some reservations about the current growth strategy.”

 

Earlier this month, our healthcare team led by Tom Tobin presented a new best idea short of Computer Programs and Systems $CPSI.  According to Tobin:

 

“CPSI’s market is saturated with 94% of all hospital having an EMR. It holds 35% market share in its core markets of <100 bed hospitals and is 56% penetrated into independent hospitals of the same bed size cohort. CPSI is selling into a shrinking market and to a financially strapped customer. Virtually all of the remaining upside is already baked into the stock. With severe underinvestment in growth (essentially zero R&D vs. peers at ~10% of sales), we’re modeling sales and cash flow contraction going forward suggesting an unsustainably high dividend (~4.6%). We see -35%-50% downside from here.” 

 

Finally, ahead of the Las Vegas Sands (LVS) quarter tonight, our Gaming Sector Head Todd Jordan had this to say yesterday:

 

“For the first time in many quarters, for any Macau operator, we’re actually in line with Street EBITDA estimates for a quarter.  That’s the good news.  Lucky play on the Macau VIP tables could be a $30m contributor to EBITDA (3%) and is probably the reason we’re in line.  Not exactly bullish but it may be good enough.  We’re actually not sure how the stock will react to Wednesday’s Q2 earnings release.  However, we believe estimates are ultimately headed materially lower owing to declining [high margin] base mass, falling market share (already happening in July), too optimistic non-gaming expectations and a full valuation.”

 

In conclusion, while it may seem like I’m now being a bit of a blowhard in emphasizing these recent calls by our research team, the key point I want to make is that the three highlights above are not just highlights, they are indicative of a trend.

 

Our Sector Heads by and large currently have negative fundamental biases towards the sectors and companies they cover. This, when combined with our macro view, continues to make us cautious (at best) about equity market returns in the near future.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 2.22-2.45%

Nikkei 20

VIX 11.71-19.01
USD 97.06-98.69 
Oil (WTI) 49.09-51.86

Gold 1082-1139

 

Keep your head up and stick on the ice,

 

Daryl G. Jones

Director of Research

 

Character Is King - Z COD 07.22.15 chart


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