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DXJ: Adding Japanese Stocks to Investing Ideas (Long Side)

Please note we are adding DXJ to Investing Ideas today. CEO Keith McCullough explains why below.

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DXJ: Adding Japanese Stocks to Investing Ideas (Long Side) - z tok

Long Japan remains the back-door way to be long lower-volatility-lower-valuation-liquid-equities. Unlike in Europe, USA, and China, Japanese growth data is actually accelerating too (PMI accelerated in July to 51.4 from 50.1 in June). 

 

Pardon? Buy Japan as both the absolute (rate of change) and relative momentum of its growth factor is beating China and Europe? Yep. That’s the really cool kids’ portfolio – long AMZN, SBUX, and Nikkei!

 

Oh, did I mention that Japan’s rate of change in growth will be accelerating in the 2nd half of 2015 as the beloved navel gazer market (USA) slows? What the un-cool kids own are basically US cyclicals (I think they’re now called “value” stocks):

 

  1. Industrials (XLI) down another -0.9% yesterday (down -4.4% in the last month)
  2. Dow Transports down another -2.1% yesterday (down -4.1% in the last month)
  3. Russell 2000 down another -1.1% yesterday (down -3.0% in the last month)

 

So much for the “global growth is back, buy reflation” idea…

 

KM


NHS | #THUD

Takeaway: New Home Sales for June were a disappointment and usher in the seasonally-soft third quarter performance period for Housing equities.

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.

 

NHS | #THUD - Compendium 072415 

 

Today's Focus: June New Home Sales 

It’s generally difficult to characterize +18% YoY growth as disappointing but with sales retreating -6.6% sequentially (vs +0.3% estimates) along with negative revisions to both April and May, New Home Sales in June could be aptly characterized as a dud. 

 

On the supply side, the inventory of new homes rose +5.4% month-over-month to 215K on a unit basis while accelerating +230 bps sequentially to +9.1% YoY.  Geographically, sales declined sequentially across all regions except the Northeast while year-over-year sales growth was positive across all geographies with growth of +23% and +24% in the Northeast and South, respectively, leading the gains. As a percentage of the total market, New Home share dropped to just 8.1% in June (LT average =  ~11.4%) as existing sales made another post-crisis high in the latest month. 

 

As it relates to New Construction activity, we highlighted the distortion in the May/June Starts data last week but it’s worth a quick re-iteration.  The +295% YoY growth in MF permits in the Northeast ahead of the impending NYC tax exemption expiry helped augment the Total Starts figures for a second month in June and drove MF share of total up to a 42-year high.  A reversal of that pull forward sets the stage for a potential retreat/disappointment in the reported July data.      

 

IS GOOD, GOOD ENOUGH? | CONCEPTUAL REDUX:  We titled our 3Q15 Housing Themes Presentation IS GOOD, GOOD ENOUGH?.  The deck is over 120 slides of data intensive analysis but the overarching theme can be sufficiently captured conceptually:  The Housing data in 3Q will be “good” but the large-scale positive reversal we’ve seen over the last ~9-months is now rearview, the comps get tougher after the reported June data and we don’t have any discrete catalysts in the nearer-term.   Further, performance seasonality in the stocks is recurrent and pervasive and 3Q represents the soft-patch period.   

 

From a longer-term perspective, the mean reversion upside to average & peak levels of activity (recall: housing cycles are long and autocorrelated) remains both conspicuous and compelling, but the asymmetry in the setup and the leverage to our expectation for a positive inflection in both fundamentals and investor attitudes when we reversed to bullish back in November of last-year has, in large part, played out.  

 

Again, we think the data will remain “good”  -  with Purchase Application demand flat sequentially in 3Q (but holding near 2Y highs) and NHS declining in the latest month (but still above the TTM ave) “good” is proving an apt adjective -  but, tactically, the prospect for aggregate builder outperformance in the near-term carries a diminished probability.  Here, the Title Insurers and Mortgage Insurers offer some tactical cover while moving upstream towards larger cap/lower beta/liquidity/quality style factors make sense in terms of direct builder exposure.  

 

 

NHS | #THUD - NHS   SF Starts

 

NHS | #THUD - NHS YoY

 

NHS | #THUD - NHS Comps

 

NHS | #THUD - EHS to NHS Ratio

 

NHS | #THUD - NHS Inventory

 

NHS | #THUD - NHS LT

 

NHS | #THUD - NHS LT2

 

NHS | #THUD - NHS Mean   Median Price

 

 

 

About New Home Sales:

Each month the Census Department releases the New Home Sales report, which measures the number of newly constructed homes that have been sold in the month. The difference between the New Home Sales report and the Starts and Permits report is that New Home Sales only includes single family spec homes built and sold by builders, and does not include condos, apartments, or owner-built units. This is why New Home Sales typically run at roughly half the rate of Starts.

  

 

Joshua Steiner, CFA

 

Christian B. Drake

  



Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

RTA Live: July 24, 2015

Below is the replay from today's edition of RTA Live.

 

 


DE: Removing Deere In Exchange for Foot Locker (FL) - Bear Side

Please note that we are removing Deere from Investing Ideas today (bear side) and replacing it with Foot Locker (also bear side). Please see brief explanation below from Hedgeye CEO Keith McCullough.

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DE: Removing Deere In Exchange for Foot Locker (FL) - Bear Side - z8fl

Like we did with Shake Shack (SHAK), we’re trying to give you a look-inside our Institutional Research #process where NOT buying the all-time highs in names is an important risk management decision for long-term investors.

 

We’ll keep the SELL ideas list fresh for you so that there’s a flow of new research information. Especially at #LateCycle market tops (they are processes, not points), timing matters.

 

Now that DE has backed off its highs, we’ll exchange it with FL (at its highs).

KM


P: Good Print, Odd Pivot (2Q15)

Takeaway: P's new plan to ramp 2H15 marketing expense is an odd pivot this late in the year. Mgmt may be getting more nervous about Web IV.

KEY POINTS

  1. GOOD PRINT: P produced upside to 2Q estimates on a reacceleration in ad revenue growth, and also guided high 3Q15 revenues (we expected soft 3Q guidance).  The biggest surprise from 2Q15 was a sharp acceleration in Advertising RPMs growth (up 25% vs. 15% in 1Q15), which on a stand-alone basis would be very encouraging, but was largely fueled by a sharp deceleration in listener hour growth from fewer skipped tracks (enhanced user customization).  The one blemish was the consensus miss on Active Listeners, which we continue to expect will decline y/y by 4Q15.  Regardless, a better print than we expected.
  2. ODD PIVOT: P softened its tone a bit regarding Web IV, suggesting that it’s planning for a range of potential outcomes, which is naturally the prudent move, and not a concern.  But what caught us by surprise was P's new plan to ramp 2H15 marketing expenses.  P left 2015 EBITDA guidance in tact despite net 1H15 upside ~$12M, which is supposedly going toward incremental 2H15 marketing.  For context, marketing spend was $17.6M in 1H15, and $16.4M for all of 2014.  We suspect this marketing ramp is either a sign that P is increasingly concerned with its attrition OR that P is trying to make a late push into its higher-ARPU subscription product ahead of a potentially crippling Web IV decision for ad-focused model.  Either way, it’s an odd pivot this late in year, especially following closing arguments for Web IV this past Tuesday.  
  3. WEB IV IS ALL THAT MATTERS:  We have been writing about this ad nauseam, so we'll keep this brief, and refer you to the links below.  We expect P is going to lose the one debate that it can't (bifurcated royalty), and our take from Web IV final arguments is that P will be the odd man out from the tacit horse trading between SX and NAB/IHRT.  For more detail, see links below.  

 

Let us know if you have any questions, or would like to discuss in more detail.  

 

Hesham Shaaban, CFA

@HedgeyeInternet 

 

 

WEBCASTER IV NOTES 

 

P: Notes from WebIV Closing Arguments

07/22/15 01:26 PM EDT

[click here]

 

P: Losing the Critical Debate?

04/08/15 08:53 AM EDT

[click here]

 

P: Worst-Case Scenario? (Web IV)

03/23/15 09:30 AM EDT

[click here]

 

P: Webcaster IV = Powder Keg

01/13/15 02:49 PM EST

[click here]

 


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