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McCullough: Apple Is the Most Over-Owned Stock In Human History

Editor’s Note: Below is an exchange between Hedgeye CEO Keith McCullough and a reporter from London’s City A.M. who asked McCullough his thoughts on Apple, tech stocks, and whether we’re in another bubble. To read the original City A.M. article click here.

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McCullough: Apple Is the Most Over-Owned Stock In Human History - z app

 

1. Do you think Apple and tech stocks in general are overvalued?

 

A) Apple isn’t a value stock – it’s the most over-owned stock in human history where “valuation” comes into the debate on down days. It’s actually a product-cycle stock, and all cycle stocks should look relatively “cheap” at the peak of a cycle

 

B) What Morgan Stanley calls “New Tech” trades at an average P/E of 149.5x forward earnings. Overvalued is an understatement. It’s obviously a bubble.

 

2. Is there potential for tech firms across the world to lose a lot of value?

 

Yes.

 

If/when product cycles slow, multiples compress. Most people don’t realize that advertising is a #LateCycle revenue gainer. As the economic cycle slows, advertising slows – and so will some “social tech” ad revenues.

 

3. In Europe there was a big drop across equity markets today, driven largely by tech performances - do you see this potentially continuing? Is there a risk to European and Asian tech stemming from Apple and other US stocks' performances?

 

Yes.

 

#EuropeSlowing is a Top 3 Global Macro Theme @Hedgeye right now. Consensus is confusing the political panic in Europe with the causal factor that is economic growth slowing. “Old” (or Industrial) Tech is slowing as the global cycle does.

 

4. Is this another tech bubble? Does this look like the dotcom bubble?

 

Yes (see above).

 

Across market histories, from tulips to dot.bombs, every bubble is unique. Instead of the internet, I think we’ll call this one the cloud of expectations.

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McCullough discussing Apple with Maria Bartiromo on Fox Business. 


INITIAL JOBLESS CLAIMS | PARTY LIKE IT'S 1973?

Takeaway: SA claims just hit their lowest level since 11/24/73. The labor market faces extreme resistance against improving much further from here.

Multi-Decade Lows & Energy Re-Coupling

The chart below shows that seasonally adjusted initial claims just hit 255k, the lowest level in forty two years. The last time claims were lower was November 24, 1973, when the reading came in at 233k. While this exemplifies extreme strength in the labor market, it also represents a point of extreme resistance against claims going any lower. We continue to point out that this party has an expiration date, which we estimate to be about five quarters from now. In the last three cycles, once claims dipped below 330k they remained there for 24 months, 45 months, and 31 months, in the late 1980s, late 1990s/early 2000s, and 2006-2008 period, respectively before the economy went into recession. In the current cycle, claims have been below 330k for a little more than 16 months and counting. The average of these last three cycles is 33 months, which would translate to another ~5 quarters of track.

 

INITIAL JOBLESS CLAIMS | PARTY LIKE IT'S 1973? - Claims20

 

While we were hesitant last week, given holiday distortion, to make a definitive statement on improving energy state claims, the improvement has sustained itself through the week ending July 11. The chart below shows that since the week ending June 27, the spread between indexed energy state claims and the country as a whole has tightened from 15 to 3. 

 

INITIAL JOBLESS CLAIMS | PARTY LIKE IT'S 1973? - Claims18

 

The Data

Initial jobless claims fell 26k to 255k from 281k WoW. The prior week's number was not revised. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -4k WoW to 278.5k.

 

The 4-week rolling average of NSA claims, another way of evaluating the data, was -7.8% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -9.1%

 

INITIAL JOBLESS CLAIMS | PARTY LIKE IT'S 1973? - Claims2

 

INITIAL JOBLESS CLAIMS | PARTY LIKE IT'S 1973? - Claims3

 

INITIAL JOBLESS CLAIMS | PARTY LIKE IT'S 1973? - Claims4

 

INITIAL JOBLESS CLAIMS | PARTY LIKE IT'S 1973? - Claims5

 

INITIAL JOBLESS CLAIMS | PARTY LIKE IT'S 1973? - Claims6

 

INITIAL JOBLESS CLAIMS | PARTY LIKE IT'S 1973? - Claims7

 

INITIAL JOBLESS CLAIMS | PARTY LIKE IT'S 1973? - Claims8

 

INITIAL JOBLESS CLAIMS | PARTY LIKE IT'S 1973? - Claims9

 

INITIAL JOBLESS CLAIMS | PARTY LIKE IT'S 1973? - Claims10

 

INITIAL JOBLESS CLAIMS | PARTY LIKE IT'S 1973? - Claims11

 

INITIAL JOBLESS CLAIMS | PARTY LIKE IT'S 1973? - Claims19

 

Yield Spreads

The 2-10 spread fell -11 basis points WoW to 161 bps. 3Q15TD, the 2-10 spread is averaging 170 bps, which is higher by 12 bps relative to 2Q15.

 

INITIAL JOBLESS CLAIMS | PARTY LIKE IT'S 1973? - Claims15

 

INITIAL JOBLESS CLAIMS | PARTY LIKE IT'S 1973? - Claims16

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


TODAY @ 1PM ET: Internet INVESTMENT IDEAS Quarterly Call

Takeaway: Please join us for our call today at 1:00pm EDT. Dialing instructions below, and posted within the calendar invite link directly below

link: OUTLOOK CALENDAR INVITE W/ CALL DETAILS

 

We will be hosting our quarterly INTERNET INVESTMENT IDEAS Update Call today.  We will be reviewing the major themes and incremental developments to our Best Idea Short theses (YELP, P), our Short thesis on TWTR, and our Bearish thesis on BABA (covered).  The emphasis of this call will be to highlight our view over various durations as well as the upcoming catalyst calendar; identifying the major risks and catalysts to each position over the near-to-intermediate term.  In addition, we will preview our new Best Idea Long thesis on LNKD ahead of our upcoming Blackbook.

 

Please join us for our call today at 1:00pm EDT.  Dialing instruction below.

 

KEY TOPICS WILL INCLUDE

  • Review of major themes and incremental developments to our thesis on YELP, P, TWTR, and BABA.
  • Highlighting our view over various durations as well as the upcoming catalyst calendar: Risks & Catalysts to each position over the NTM.
  • We will also provide an overview of our new Best Idea Long thesis on LNKD

 

Participating Dialing Instructions

  • Toll Free:
  • Toll:
  • Confirmation Number: 13615250
  • Materials: CLICK HERE

 

 

Hesham Shaaban, CFA

@HedgeyeInternet 


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BEARISH TRENDS

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LEISURE LETTER (07/23/2015) - RCL, CCL

TICKERS: RCL, CCL

headline news

Macau June Visitation - The Statistics and Census Service (DSEC) reported the following visitation statistics for June:

  • Visitor arrivals totaled 2,248,281 in June 2015, down by 7.6% YoY and 11.8% month-to-month. 
  • The average length of stay of visitors increased by 0.2 day YoY to 1.2 days; overnight and same-day visitors had an average stay of 2.2 days and 0.2 day respectively.
  • Visitors from Mainland China decreased by (10.1%) YoY to 1,435,189; those travelling under the Individual Visit Scheme dropped by (4.2%) YoYto 644,207. 
  • Mainland visitors came primarily from Guangdong Province (632,449), Fujian Province (66,804) and Hunan Province (59,448). 
  • Visitors from Taiwan (80,272), the Republic of Korea (31,406) and India (21,428) decreased by (5.9%), (24.8%) and (3.3%) YoY respectively, while those from Hong Kong (523,789) and the Philippines (22,222) increased by 2.0% and 6.5%. 

LEISURE LETTER (07/23/2015) - RCL, CCL - 3

 

ARTICLE HERE 

Takeaway: Soft visitation numbers across the board for June - continues to be a major hole in the Base Mass growth thesis promoted by the Macau bulls. 

EVENTS   

July 23 9am:  PENN 2Q CC

July 23 5pm: BYD 2Q CC ; PW: 1397357

July 24 11am-2pm:  PENN Plainridge tour and investor day

July 28 8:30am: WYN 2Q CC ; PW: WYNDHAM

July 29 10:00am: HLT 2Q CC ; PW: 74328196

July 30 9:00am: HST 2Q CC

July 30 10:00am: MAR 2Q CC ; PW: 66506287

July 30 1:00pm: HOT 2Q CC ; PW: 69941686

August 1

  • Wild Rose Jefferson opens
  • St Regis Macau opens

August 4: 11:00am: MGM 2Q CC ; PW: 0575269

August 4: 5:00pm: AWAY 2Q CC

August 6: 8:30-1pm: RCL INVESTOR DAY (NYSE)

COMPANY NEWS      

CCL - announces 6 ships will be based in China for 2016, increasing its capacity there by 58%.

  • 2 Princess ships: 1) Golden Princess ship to northern China, sailing out of Tianjin on a seasonal basis, with itineraries visiting a variety of desirable destinations in northern Asia; 2) Sapphire Princess, which has been homeported in Shanghai since 2014 and will start sailing year-round in China in 2016.
  • 4 Costa ships: Costa Fortuna, Costa Serena, Costa Atlantica, Costa Victoria

Takeaway: Before this announcement, Asia/Australia accounted for 13% of CCL's total capacity in 2016 - this number included 4 Costa ships and 1 Princess ship sailing out of China. 

 

CCL - Carnival Corporation signed an agreement with Port Authority of Barcelona to build and operate a new cruise terminal in Europe's largest port. 

  • The agreement with the Port Authority of Barcelona constitutes a more than 30 million euros investment to build and operate its second private cruise terminal at the Port of Barcelona, which is used by seven of the company's 10 cruise line brands as both a destination and home port. 
  • As part of the agreement, the Port Authority granted Carnival Corporation administrative concessions to operate the cruise terminal and all-new parking facility at Europe's largest port and the fourth busiest port in the world.
  • With the agreement, Carnival Corporation has been granted approval to begin the final design process and start construction of the new terminal in 2016. Scheduled to open as early as 2018 in the Port's Adossat wharf, the new terminal will be one of Europe's largest at 11,500 square meters.

RCL- A fire had been reported aboard a Freedom of the Seas but officials said it was quickly extinguished.  There were no reports of injuries. 

ARTICLE HERE 

INDUSTRY NEWS 

CIA/FBI Suspected Involvement in Macau - China suspected that US intelligence agencies were working with American owned casinos in Macau to trap and blackmail Chinese officials, an investigative report by The Guardian revealed today. 

  • The report marked with a warning that it was not to be introduced to mainland China, was uncovered by the Investigative Reporting Program at the University of California, Berkeley. It was among a trove of Sands documents filed with a Las Vegas court which is hearing a civil action by the former head of its Macau casinos who is suing for wrongful dismissal, the Guardian reports.
  • The report said that Sands Macao “is the primary subject” of claims by Chinese officials of collusion with US intelligence services.
  • “A reliable source has reported that central Chinese government officials firmly believe that Sands has permitted CIA/FBI agents to operate from within its facilities. These agents apparently ‘monitor mainland government officials’ who gamble in the casinos,” the report said.

ARTICLE HERE

Takeaway: We've heard the Macau (Beijing) government is not happy with disclosures taking place in US courts regarding Macau operations. LVS was reluctant to give any opinions on last night's call regarding potential Macau gov't actions with the smoking ban and transit visa. Is it related? 

 

Florida GGR June - Total: 3.12% YoY, SSS: 5.61% YoY 

 

MACRO 

 

Hedgeye Macro Team is incrementally bearish on U.S. consumption growth, based on the consumer's continued efforts to deleverage their household balance sheet combined with the peaking of consumer confidence and stagnating labor productivity.   

Takeaway:  For now, US regional gaming slowed in June but North American cruise pricing still doing well.


CPB | Analyst Day Notes

We are taking CPB off of the Hedgeye Consumer Staples SHORT Bench.

 

Campbell’s (CPB) held their Annual Investor Day yesterday afternoon, in which they went through their plan to reshape the company in search for growth.  If you didn’t get a chance to listen, I would say you did not miss anything that you could have just gotten from the press release. Nevertheless we will give you a quick summary and our take on the future for this company.

 

The biggest change the company is making is switching from a geography first mindset to a consumer category first mindset, and consolidating down to only three operating units:

 

  1. Their biggest, ‘Americas Simple Meals and Beverages’ will account for ~$4.6bn of net sales and will be the economic engine for the company. Management is projecting a long-term growth rate for this segment in the 1-2% range, in-line with category averages in which they play. This business has operating margins of 22% and will contribute 71% of operating earnings.
  2. ‘Global Biscuits and Snacks’ is a ~$2.7bn segment which globally unifies the Pepperidge Farm, Arnott’s and Kelsen businesses into a fully integrated biscuit and snack portfolio. This business has operating margins of 12% and will contribute 24% of operating earnings.
  3. ‘Campbell Fresh’ is a ~$1bn portfolio that includes their recently acquired Garden Fresh Gourmet business, Bolthouse Farms and Campbell’s retail refrigerated soups. This business has operating margins of 7% and will contribute 5% of operating earnings.

 

Cost reduction initiatives are also a big part of management’s plan, by 2018 they expect to have annual savings of $250 million by 2018, of which ~2/3 will be non-headcount expenses. Non-headcount savings are in large part a result of zero-based budgeting adoption and changing company spending policies. The other ~1/3 is headcount savings as a result of the organization redesign, in which the company eliminated layers and expanded control.

 

Innovation and product improvement is top of mind for management, but in low impact areas. CPB has set up a new website, www.whatsinmyfood.com to be more transparent with consumers. Soup has a lot of negative ingredients such as MSG that prior to looking at this website I didn’t realize were in the soup. We think it may have been a better idea to take the MSG out before making the website, but that’s just our opinion. That being said, CPB is committed to taking the MSG out and making the recipes simpler.  In August, Campbell’s will be launching the first updated range of kids soups, this happens to be the same time that Annie’s (GIS) will be launching their line of kids soups. Although soup is not our favorite category, this will be an interesting battle to watch unfold, depending on price points we think Annie’s will have the upper hand. CPB has a slew of other product improvements that every other company is doing, such as taking out artificial colors and flavors and high-fructose corn syrup but nothing to truly differentiate the brands from the competition, just doing enough to stay in the game.  

 

Outlook for FY2015 is largely a cost cutting/margin expansion story. Sales are expected to be down -1%, while versus previous estimates for EPS to be down -5% to -3% the updated numbers are projecting -1% to 0%.

 

Overall we believe this reorganization for the company was a great move and will help them expand their brands globally. But this ship is anchored to the floor by soup. Their on-trend growth engine, ‘Campbell Fresh’ where they are doing a majority of the innovation is too small to matter in the grand scheme. Yes, we believe it is a great business and segment to operate in, but as part of this company it won’t be enough.

 

It’s tough to go short on this name (only 6.6% of the float is short) given the constant threat of possibly being acquired especially with KHC probably in the market for another synergistic acquisition in the next year (the can manufacturing synergies alone would probably be enough to make the deal work.) We remain bearish on the name fundamentally, and can’t get ourselves to go long just hoping for an acquisition.

 

This was a brief summary and we would be happy to talk with you more about what we thought over the phone, please send us an email if interested.

 

 

 

 


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%
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