Client Talking Points
2.05% yield into this rate of change slowing U.S. jobs report, so the bond market continues to front-run both Janet Yellen and Wall Street’s overly bullish (pro-cyclical) forecasts. On a bad headline NFP print, expect no support to 1.98%; on a “good” one, we could see upside to 2.19% - that’s our risk range.
Is the 3rd time a charm? This is the 3rd time (in 3 months) to buy Gold on a down move (before making a higher-low and ramping for a weekly gain) ahead of the jobs print, and we would. There is immediate-term upside to $1155.
Rate of change data/charts don’t lie; political economic pundits do. When the rate of change in the jobs market bottomed at the end of 2012, Hedgeye went bullish on U.S. #GrowthAccelerating (particularly consumption) and, as it slows here from the FEB 2015 top, we’re bearish – cycles take time to play out.
**Tune into The Macro Show with Hedgeye CEO Keith McCullough at 9:00AM ET - CLICK HERE.
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Top Long Ideas
McDonald’s clearly continues to be well-liked by our Restaurants research team and is a near perfect fit into our macro team’s current "style factor" preferences. This stock is high cap with a low-beta, coupled with a company turnaround story that is currently well underway. We believe this stock will do well through this tumultuous time in the market.
As previously mentioned, the company has all day breakfast starting on October 6. We anticipate this development as not only driving increased visits from existing customers, but also new customers that maybe don’t wake up early enough to get breakfast by 10:30am (or simply just people that enjoy eating breakfast items outside of the morning!)
As Sector Head Todd Jordan notes, "PENN should benefit from the release of state gaming figures over the next few weeks. Recall that August was weaker than many thought. While we predicted this particular slowdown, our model is showing a sharp September rebound.
September revenues should rebound and serve as a catalyst for the stock going into Q3 earnings. On the research side we have not altered our views of PENN’s long term growth story. We continue to see more upside from current price levels.
Is the U.S. economy still showing signs of a cyclical slowdown? Yes. If you, like us, remain skeptical on the said policy path from our omnipotent central planners, and you believe growth continues to slow, then we respectfully submit that you sit on your GLD and TLT allocations.
3 GDP comps are difficult. And, once the data comes out, we think expectations will be downwardly revised again. In other words, wait for yet another Fed punt on a 2015 hike.
Three for the Road
TWEET OF THE DAY
Newsflash, Captain Stock Picker: Mr. Macro Is In Charge https://app.hedgeye.com/insights/46646-mr-macro-market-is-in-charge-right-now… via @KeithMcCullough #markets #stocks
QUOTE OF THE DAY
Never confuse a single defeat with a final defeat.
F. Scott Fitzgerald
STAT OF THE DAY
The highest paid player in the National Women's Hockey League (NWHL) is Kelli Stack of the Connecticut Whale earning $25,000 this season.
Below is an excerpt from today's Early Look by Hedgeye CEO Keith McCullough:
...“So,” the Old Wall will say. “Worst quarter for stocks in 4 years… and now everyone is bearish, so you need to buy” (provided that the stock market went up in the day prior #MustChaseGreen).
While I can’t, for the life of me, find an epic stock market bubble that peaked (2000 or 2007), then priced it all in within 3 months of the all-time peak, this constant wrangling of my teddy bear ears should be expected.
After all, “it’s different this time.”
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ConAgra Foods (CAG) is on our Hedgeye Consumer Staples Best Ideas list as a LONG.
In the note we wrote (CLICK HERE to view) adding CAG to the Best Ideas list, we highlighted some of the key phrases CEO Sean Connelly used at the shareholder meeting last week. At the time, it occurred to us those phrases were important indications that the changes CAG was embarking on were going to be significant. Today’s press release was a significant step forward for CAG and Sean did not disappoint on delivering on bold new changes.
SEAN M. CONNOLLY – “Embrace bold change”
HEDGEYE - Moving the HQ to Chicago is a BOLD change!
SEAN M. CONNOLLY – “More focused company”
HEDGEYE – Consolidating the consumer food businesses is a big step forward in the right direction and will allow for greater innovation leading to accelerating growth.
SEAN M. CONNOLLY – “The Company also announced the relocation of its headquarters to Chicago, Ill. beginning in the summer of 2016, approximately 700 employees will be located in the new offices in the city’s Merchandise Mart, including the company’s senior leadership team and certain functions of the Consumer Foods business, which are currently located in Omaha, Neb. and Naperville, Ill.
HEDGEYE – CAG needed a wakeup call, moving the HQ to Chicago is a bold move to send a message to the workforce that change is underway and the employee’s need to “embrace” the move. Omaha and Naperville aren’t exactly a hotbed for top tier talent. Being in Chicago will allow them to compete for employees with other top tier companies. Also, consolidating the consumer food business in Chicago is a clear indication of where the company is headed. The next logical step is to cut SKU’s and shrink the branded portfolio in order to focus on the core brands.
SEAN M. CONNOLLY – “Bold action”
HEDGEYE – Eliminating 30% of the workforce is a big number and a massive undertaking.
SEAN M. CONNOLLY – “The restructuring is expected to result in the elimination of approximately 1,500 positions or approximately 30% of the company’s global office-based workforce.”
HEDGEYE – The overarching theme from today’s press release is that CAG will look significantly different in 12-18 months. We believe that this will also mean significantly improved profitability and increased shareholder returns.
SEAN M. CONNOLLY – “Disciplined and focused”
HEDGEYE – As expected, cost cutting takes center stage.
SEAN M. CONNOLLY – “Cost savings of approximately $200 million are expected to be derived from a combination of lower headcount and non-headcount costs which will be achieved by aggressively embracing zero-based budgeting, simplifying organizational structure by increasing spans of control and reducing layers, and outsourcing technology and back office functions to improve scalability. Additionally, the company expects to realize approximately $100 million of efficiency benefits from enhancements to trade spend processes and tools.”
HEDGEYE – There are some classic buzzwords like zero-based budgeting (ZBB) in this part of the release. Strangely, we would have been disappointed if they left this part out. The cost cutting will benefit the numbers in FY2017, which now makes FY16 a rebuilding year. With one month of 2QFY16 in the record books, we are close to the six month window of opportunity. We have a tendency to be early with our HIGH CONVICTION TAIL calls in the Consumer Staples space and the six month window is a key metric.
SEAN M. CONNOLLY – “To stay competitive we must change”
HEDGEYE – Changes are good and today was not an easy day.
SEAN M. CONNOLLY – “We are making difficult, but necessary, decisions to enhance productivity, drive standardization and enhance flexibility to deliver improved profitability. And through our organization redesign, we will better harness the power of our front line by deploying our talent against our largest opportunities for future growth and value creation.”
HEDGEYE – Getting behind a company that has been through many restructurings can be challenging. The world and the environment for food manufacturers is shifting to a new paradigm. The old guard at CAG embarked on a multi-year process to shift the company to be a dominant private label manufacturer back in 2011 when it failed to acquire Ralcorp. The company successfully bought Ralcorp in January 2013. Needless to say that was the beginning of the end to CAG as we once knew it.
SEAN M. CONNOLLY – “Pledged to be transparent”
HEDGEYE – The proof is still in the pudding.
Please call or e-mail with any questions.
On today's edition of The Macro Show, Hedgeye CEO Keith McCullough answers a subscriber’s question on what institutional investors are most bearish on following meetings in New York City this week.
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Editor's Note: This is a chart and brief excerpt from this morning's Early Look written by Hedgeye CEO Keith McCullough. Subscribe today and get ahead of consensus. Or don't. It's your money.
...[I]f neither economic growth nor revenue/earnings growth is your catalyst to “buy stocks” here in Q4 and you’re just buying them on “sentiment”, I wish you nothing but the best of luck.
Remember, I’m just your Teddy Bear now. I’m not going with the position bulls are in. And I’m not going away.
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