Investing Ideas Newsletter

Takeaway: Current Investing Ideas: W, WAB, ZBH, GLD, MCD, RH, LNKD, ZOES, FNGN, PENN, GIS, EDV & TLT

Below are our analysts’ updates on our thirteen current high conviction long and short investing ideas. Please note that we added Wayfair (W) to the short side yesterday and removed Foot Locker (FL), also from the short side. As usual, if nothing material has changed in the past week which would afffect a particular idea, our analyst has made a note of this. Hedgeye CEO Keith McCullough’s updated levels for each ticker are below. 


***In case you missed it, Keith sent a brand new Macro Overlay Friday afternoon. Click here to watch.

Investing Ideas Newsletter - z HETV investing ideas 10.2 PLAY


Investing Ideas Newsletter - II Levels Sheet1

Trade :: Trend :: Tail Process - These are three durations over which we analyze investment ideas and themes. Hedgeye has created a process as a way of characterizing our investment ideas and their risk profiles, to fit the investing strategies and preferences of our subscribers.

  • "Trade" is a duration of 3 weeks or less
  • "Trend" is a duration of 3 months or more
  • "Tail" is a duration of 3 years or les



It was an important couple of weeks for those who were still wrestling with our lower-for-longer views. 50% of the questions we were fielding into lower highs in the 10-year treasury yield pre-September Fed meeting centered around our timeframe for capitulating on our U.S. treasury position. We didn’t field any such inquisitions after Friday’s jobs report.

Investing Ideas Newsletter - jobs report cartoon 10.02.2015

The brevity of the macro moves post-report Friday proves just how non-consensus that call remains in a year where the S&P 500 is down -8%. None of our trusting clients would refute the fact that we told them to get out of the way of the central planning train-wreck in equities. The scary thing with regard to Janet’s credibility is that bad news is now being priced in as bad news.


Moreover, we believe this late-cycle weakness is likely to remain ongoing.  


Keith commercializes the top three things in his macro notebook early every morning by distributing an email to a list of institutional subscribers. On Friday morning, that note hit the inbox at 6:32 a.m. and read as follows with the accompanying chart:


“The Atlanta Fed cut their GDP forecast for Q3 closer to ours yesterday – most of the sell side should too:

  1. UST 10YR – 2.05% yield into this rate of change slowing US jobs report (see chart attached), so the bond market continues to front-run both Yellen and Wall Street’s overly bullish (pro-cyclical) forecasts; on a bad headline NFP print, no support to 1.98%; on a “good” one, upside to 2.19% - that’s my risk range
  2. GOLD – 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 I would – immediate-term upside to $1155
  3. JOBS – rate of change data/charts don’t lie; political economic pundits do – when rate of change in the jobs market bottomed at the end of 2012, Hedgeye went bullish on US #GrowthAccelerating (particularly consumption) and, as it slows here from the FEB 2015 top, we’re bearish – cycles take time to play out.”

 Investing Ideas Newsletter - z chart 4


You know the story. The non-Farm payrolls print was a bomb, printing +142K additions vs. +201K additions expected. Immediately following the release:

  • Treasuries rallied (TLT +1.7%)
  • Gold ripped (GLD +2.3%)
  • Equities got crushed (S&P 500 -1.1%)

We’re not going to pat ourselves on the back just because we were one of the only ones with a consistent, coincise view of the domestic economic cycle. Nor do we have a crystal ball that spits out the job number. Rather, we dig into the weeds and study developing trends that give credance to our position in the business cycle.


As we’ve mentioned, the month-to-month non-farm payroll number is unpredictable. The “guess the number segment” on CNBC is a carnival at best. However, studying the cyclical trend provides a longer-term-picture on the general direction of this data series.


While we don’t know what the print is going to be in any given month, we know the direction of the trend. Here’s why:


From a rate of change perspective NFP peaked in February at +2.343% YoY and  Re-tracing that growth rate to the upside would require a M/M chg in NFP of +602K. That’s not going to happen.

The last time that happened was September of 1983 as we were coming out of an early 80s recession (hint: employment picks up early cycle).    

You can slice the NFP or ADP employment numbers any way you want, but the trend has been one of deterioration:  3M avg. < 6M avg. < 2015 avg. < 2014 avg.

As you can see in the chart, peak rate-of-change in NFP occurs approximately 2-years ahead of the peak in the cycle. Cycles take time to play out, but one thing is for sure: The cycle always cycles. 


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To view our analyst Tom Tobin's original report on Zimmer Biomet CLICK HERE


We have been across the country and back again meeting with institutional investors this week and last.  We fielded a lot of questions and some skepticism on our Zimmer Biomet short thesis. Generally, our sense is most investors are negative on ZBH and getting more negative as we head into 3Q15 earnings.  


It seems likely to us that growth is slowing across the US Medical Economy as the US digests the massive stimulus 24 million new healthcare consumers produced by the ACA in 2015. We’re very sure there has been accelerated consumption across ER visits, physician offices, and pretty certain there was a tailwind for ZBH knee revenues as well.   


Sentiment is a key risk factor heading into earnings.  Are investors too bearish?  Where are expectations?  What is the sellside saying?  What we know today is that Healthcare employment and Hospital employment remained strong in September, suggesting the #ACATaper has yet to make landfall. 


The next update critical to our ZBH short thesis will be the updated job openings for healthcare (JOLTS) employees which will be reported October 16th.  If demand is weakening, openings will slow again as they did last month, and we’ll make the assumption that growth in knee replacement surgery, ER visits, imaging studies, and host of other medical procedures is grinding toward negative growth for 4Q15 and beyond.


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Our Consumer Staples team remains positive on General Mills coming out of the 2Q15 earnings call. We have been LONG GIS for the last six months and continue to have a favorable view of the company due to the following reasons:

  • Sequential improvement in cereal
  • Growth in Natural & Organic categories
  • Snacking
  • Cost cutting initiatives
  • M&A activity



To view our analyst's original report on Restoration Hardware: CLICK HERE

RH Modern launched on the company’s website on Wednesday, October 1st and now has its first retail presence as of Friday when the company opened its new 40k+ sq. ft. store in Chicago. That will be quickly followed by a 540 page Source Book launch, a stand-alone Modern store in Los Angeles, and additional square footage in the new galleries in Denver, Tampa, and Austin, TX.


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This is a lot more than a new category or concept for Restoration Hardware. We think it’s more like a classification.


Think about it … everything that RH currently sells – whether it be Sofas, Chairs, Tables, Lighting, Flooring, Kitchen – that all falls under the traditional RH aesthetic. RH Modern, however, allows the company the opportunity to take every single category it sells, layer them over a new classification, and sell to a completely different customer. 


There will likely be additional classification expansions for RH in the future.  Modern, along with other yet to be named category/product line launches, will play an important role in the company getting to its target of $4bn-$5bn in sales.



Zoës Kitchen has named Sunil Doshi their new CFO. He was previously the CFO for Fossil Americas. This is not a positive or a negative but it is good to see they filled the position with a person that has a strong background.


Our restaurants team remains very positive on the company long-term.



To view our analyst's original note on Wabtec: CLICK HERE

Since we added Wabtec on the short side in September, shares have fallen -6.3% versus the S&P 500 which has fallen -1%. 


Signs continue to mount that the rails themselves will have lower than expected capital spending in 2016 and 2017.  Consensus estimates for the large public Class 1 rails have tumbled – starting right around when we did our Rail Capex/WAB black book. 


We expect capital spending guidance accompanying Class 1 4Q 15 earnings reports to be an important catalyst for Wabtec shares.


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Hedgeye Internet & Media analyst Hesham Shaaban has no material update this week. To view his original report on LinkedIn: CLICK HERE




Many of the regional gaming states will release September revenues next week and as we’ve written about, they should look a lot better than August. Overall same store revenue declined 5% in August (we had predicted –2%) but most of the decline was due to the calendar and a difficult comparison. For September we are projecting an increase of 2% YoY


Our Missouri tracker is forecasting September gaming revenues to be up 3.6% YoY. This is a 6% sequential improvement from August's YoY change of -2.5%. Meanwhile, Pennsylvania slot revenues were up 4% in September


Our thesis for a sequential rebound in September remains intact. We like PENN on the long side from these levels. 


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To view our original note on McDonald's: CLICK HERE

McDonald’s continues to be well liked by our research team, and is a perfect fit into our macro team’s style factor preferences. This stock is high cap with a low-beta, coupled with a turnaround story that is well underway. We believe this stock will do well through this tumultuous time in the market.


MCD has all day breakfast starting next week on October 6th, we anticipate this 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 just people that enjoy eating breakfast items outside of the morning day-part.


New CEO, Steve Easterbrook has taken an internal activist approach to reorganizing this company and we believe we will see the strong signs of it all working during the 3Q15 call on October 22nd



Shares of Financial Engines continue to get pushed down in a negative broader equity tape despite improving fundamentals. While over the longer term, the rationale for self-directed 401K investors to subscribe to the company’s services improves as DIY investors lose more money than professionally managed, optimized portfolios, investors continue to push the broader asset management sector stocks down.


FNGN hit records levels of assets-under-management and also assets-under-contract in its most recently reported quarter, a vast divergence from the active management industry which has been bleeding assets all year.


With this fundamental improvement in the firm’s fundamentals year-to-date, the stock does not deserve to trade at a new low market cap-to-AUM percentage of 1.3%. The average level since the firm’s IPO in 2010 has been 2.3% providing lots of upside when the company’s valuation improves.


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Retail Sector Head Brian McGough added Wayfair to the short side on Friday. We will send out a full stock report detailing his bearish thesis in the upcoming week.

Call Invite | Q4 2015 Macro Themes Conference Call (10/8/15 at 1:00PM ET)

Call Invite | Q4 2015 Macro Themes Conference Call (10/8/15 at 1:00PM ET) - HE MT 4Q15 cartoon


We will be hosting our highly-anticipated Quarterly Macro Themes conference call on Thursday, October 8th at 1:00PM ET. Led by CEO Keith McCullough, the presentation will detail the THREE MOST IMPORTANT MACRO TRENDS we have identified for the quarter and the associated investment implications.



  • #SuperLateCycle (USA): Slowing growth typifies the twilight of an economic expansion and negative 2nd derivative trends are creeping in across much of the domestic fundamental data. From labor and manufacturing markets to consumer and business confidence, leading indicators are beginning to roll as the late-cycle moves past peak. We'll detail why Slower-And-Lower-For-Longer remains the call. 
  • #GlobalSlowing: With the Street, IMF, World Bank and OECD all still forecasting global growth of around 3% for 2015, we find it appropriate to reiterate our call for global growth to come in at or below half that rate. Moreover, while China's August CNY devaluation effectively made our #EmergingOutflows theme a consensus bearish cog in the global economic outlook, we do not think investors are appropriately positioned for a likely trend of negative revisions to the respective growth outlooks in the U.S., Eurozone and Japan throughout the balance of the year.
  • #Crashing: Definitive crashes have occurred across many global macro markets in recent months. Those market participants on the wrong side of growth slowing and deflation are feeling the most pain. Crashing inflation expectations are perpetuating the pain across all asset classes and sectors levered to unrealistic growth expectations (energy, industrials, materials), as well as across the high-yield bond market, commodity markets, commodity currencies. Is the U.S. equity market next in line?



  • Toll Free:
  • Toll:
  • Confirmation Number: 13621323
  • Materials: CLICK HERE


As always, our prepared remarks will be followed by a live, anonymous Q&A session. Please submit your questions to . Also, for those of you who cannot join us live, we will be distributing a replay video of the call shortly after it concludes.


Kind regards,

The Hedgeye Macro Team


HEDGEYE Exchange Tracker | Storm Stocks - Volume Keeping Pace Into Quarter End

Takeaway: While Hurricane Joaquin appears to be safely avoiding making East Coast landfall, named storms have spurred volumes historically.

While Hurricane Joaquin is thankfully forecasted to miss making landfall on the Eastern seaboard, with one month left in Hurricane season, we outline the historical impact on the exchange sector. Overall, the energy complexes of CME and ICE can experience substantial hedging and speculative volume as activity gravitates to both the crude oil and natural gas products of both venues. While Katrina and the storm systems of 2005 were most impactful, historically trading volume and open interest swell in the aftermath of serious systems. This has made the exchange stocks relative winners against the S&P 500 over a 1, 3, and 6 month duration.  


HEDGEYE Exchange Tracker | Storm Stocks - Volume Keeping Pace Into Quarter End - opening chart

HEDGEYE Exchange Tracker | Storm Stocks - Volume Keeping Pace Into Quarter End - opening table final


Weekly Activity Wrap Up

All three exchange categories finished out the third quarter showing good growth. U.S. cash equity volume averaged 7.9 billion shares this week, bringing the third quarter to a 7.3 billion ADV, an expansion of +29% year over year and +15% quarter over quarter. U.S. equity options activity averaged 17.1 million contracts this week, bringing the third quarter average to 18.1 million, a +15% year-over-year and +20% quarter-over-quarter expansion. Futures activity averaged 18.6 million contracts per day this week. That brings the third quarter to an 18.6 million ADV, a +6% year-over-year and +6% quarter-over-quarter expansion.


HEDGEYE Exchange Tracker | Storm Stocks - Volume Keeping Pace Into Quarter End - XMon1


U.S. Cash Equity Detail

U.S. cash equity trading finished the week at 7.9 billion shares traded which brought the 3rd quarter of 2015 to a 7.3 billion daily average. This is +29% year-over-year growth for U.S. stock activity. The market share battle for volume is mixed. The New York Stock Exchange/ICE took a 24% share of third-quarter volume. NASDAQ finished the quarter with a 19% share, 100 bps lower than last year, a -4% decline.


HEDGEYE Exchange Tracker | Storm Stocks - Volume Keeping Pace Into Quarter End - XMon2


HEDGEYE Exchange Tracker | Storm Stocks - Volume Keeping Pace Into Quarter End - XMon3


U.S. Options Detail

U.S. options activity came in at a 17.1 million ADV this week which brought 3Q15 activity to 18.1 million contracts per day, up +20% quarter-over-quarter and +15% year-over-year. The market share battle amongst venues continues to be one of losses at both the NYSE/ICE and NASDAQ. NYSE has lost 400 basis points of share year-over-year settling at just 18% of options trading currently. NASDAQ has shed 300 basis points of share, good for a -14% loss from last year as ISE/Deutsche Boerse and BATS mop up volume and share.


HEDGEYE Exchange Tracker | Storm Stocks - Volume Keeping Pace Into Quarter End - XMon4


HEDGEYE Exchange Tracker | Storm Stocks - Volume Keeping Pace Into Quarter End - XMon5


U.S. Futures Detail

CME Group volume came in this week at 13.9 million contracts. That blends 3Q15 volume to a 14.4 million average level, a +7% year-over-year expansion. CME open interest, the most important beacon of forward activity, currently tallies 97.1 million CME contracts pending, good for +15% growth over the 84.1 million pending at the beginning of 2014, consistent with the prior week's +15%.


Activity levels on the futures side at ICE hit 4.6 million contracts this week, with 3Q15 blending to a 4.3 million daily average, a +5% year-over-year expansion. ICE open interest this week tallied 63.5 million contracts, a -8% contraction versus the 69.2 million contracts open at the beginning of 2014, consistent with the prior week's -8%.


HEDGEYE Exchange Tracker | Storm Stocks - Volume Keeping Pace Into Quarter End - XMon6


HEDGEYE Exchange Tracker | Storm Stocks - Volume Keeping Pace Into Quarter End - XMon8


HEDGEYE Exchange Tracker | Storm Stocks - Volume Keeping Pace Into Quarter End - XMon7


HEDGEYE Exchange Tracker | Storm Stocks - Volume Keeping Pace Into Quarter End - XMon9


Monthly Historical View

Monthly activity levels give a broader perspective of exchange based trends. As volatility levels, measured by the VIX, MOVE, and FX Vol should rise to normal levels after the drastic compression this cycle, we expect all marketplaces to experience higher activity levels.


HEDGEYE Exchange Tracker | Storm Stocks - Volume Keeping Pace Into Quarter End - XMon10


HEDGEYE Exchange Tracker | Storm Stocks - Volume Keeping Pace Into Quarter End - XMon11


HEDGEYE Exchange Tracker | Storm Stocks - Volume Keeping Pace Into Quarter End - XMon12


HEDGEYE Exchange Tracker | Storm Stocks - Volume Keeping Pace Into Quarter End - XMon13


HEDGEYE Exchange Tracker | Storm Stocks - Volume Keeping Pace Into Quarter End - XMon14

 HEDGEYE Exchange Tracker | Storm Stocks - Volume Keeping Pace Into Quarter End - XMon15


Sector Revenue Exposure

The exchange sector has broadly diversified its revenue exposure over 10 years as public entities with varying top line sensitivity to the enclosed trading volume data. The table below highlights how trading volumes will flow through the various operating models at NASDAQ, CME Group, ICE, and Virtu:


HEDGEYE Exchange Tracker | Storm Stocks - Volume Keeping Pace Into Quarter End - XMon19 3




 We recently presented our investment thesis on the Exchanges. To summarize,

  • Long CME:  Financially oriented CME Group (CME) is enjoying a long awaited boom in activity, as trader counts and open interest in Treasuries, Eurodollars, and FX products are swelling. The decade long concentration on trading energy and commodities is over and with steeply shaped forward curves and more profitable opportunities, financial products are seeing rapid adoption. 
  • Short ICE: We see collateral damage from the ongoing rapid price decline in energy and commodity markets. As a result, these important products at ICE will be less active than the Street expects, as commercial hedging and speculative energy trading dries up.

We think CME has $5 per share in earnings power in the out year and the stock will revisit near $140. As outlined in our presentation deck and replay below, a CME long position can also be paired with a short ICE position, with favorable fundamental exposures on each side of the trade.


Separately, recent IPO Virtu (VIRT) is being valued incorrectly by the market. Our main qualm is that the company takes intraday prop risk, but has no tangible equity capital to cover any potential trading losses. Shares of VIRT are currently on our Best Ideas list as a short with a fair value in the mid-teens (30-40% downside).


Hedgeye Exchange Black Book Replay HERE

Hedgeye Exchanges Black Book Materials HERE


HEDGEYE Exchange Tracker | Storm Stocks - Volume Keeping Pace Into Quarter End - XMon20


 Please let us know of any questions,


Jonathan Casteleyn, CFA, CMT 




 Joshua Steiner, CFA





investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

W: Adding Wayfair to Investing Ideas (Short Side)

Takeaway: We are adding Wayfair to the short side.

Please note that we are adding Wayfair (W) to the SHORT SIDE today.


Our Retail team led by veteran Sector Head Brian McGough will send subscribers a full research note next week explaining our bearish thesis on the stock.


W: Adding Wayfair to Investing Ideas (Short Side) - zz ww

Investing Ideas Macro Overlay: Positioning Your Portfolio After Today's Jobs Report


On today's Macro Overlay, Keith ranks all of the names currently on the Investing Ideas list in the face of Friday's (expectedly) disappointing jobs report.

FL: We Are Removing Foot Locker From Investing Ideas

Takeaway: We are removing Foot Locker from Investing Ideas today.

Please note that we are removing Foot Locker (FL) from Investing Ideas today.


As Keith McCullough (our CEO and Risk-Manager-In-Chief) notes, the stock is oversold and at the low end of the range. Our Retail team's long-term bearish thesis on the company remains intact.


FL: We Are Removing Foot Locker From Investing Ideas - z 4444

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