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REPLAY: Healthcare Earnings Review with Tom Tobin | $HOLX $ATHN $VRX & MORE

Our Healthcare Team hosted a live presentation reviewing earnings season for their top names in their Position Monitor including AHS, ZBH, HOLX, CSLT, ATHN, and CPSI. 

 

Healthcare Sector Head Tom Tobin and analyst Andrew Freedman also discussed data updates related to their #ACATaper theme and noteworthy takeaways from the October jobs report.  

 

Tom's slides are available HERE.

 

 


INVITE | GOLD FLUSH? Materials Sector Launch Call (NEM, ABX, GOLD Miners)

INVITE | GOLD FLUSH? Materials Sector Launch Call (NEM, ABX, GOLD Miners) - L.T. Gold Price Chart

 

We are hosting a kick-off call for Hedgeye Materials coverage on Thursday, November 12th at 1:00 P.M., and will illustrate our investment process in the Gold Mining industry.

                    

Gold Bugs Bitten:  Gold prices in dollars have declined since 2011, despite two incremental rounds of quantitative easing and perpetual zero interest rates.  US long bonds have performed well in a similar environment.  What are the gold bugs missing?  We’ll put forth our data-driven take in our Materials launch deck.

 

Differentiated Sector Approach: The Materials coverage team of Jay VanSciver and Ben Ryan applies our experience in cyclicals, macroeconomics, and commodities to produce Best-Idea focused, process-driven Materials sector research. 

 

Our research process has three key components:

  • Structural Weakness/Strength: Identify structural vulnerability or resiliency in commodity related business (e.g. over/under capacity, demand susceptibility, deteriorating/improving structural position) that should have a dominant impact on market prices.
  • Unidentified Supply/Demand Changes:  We then look within those industries to see if consensus estimates for production or consumption are likely to prove incorrect based on our data-driven proprietary forecasts ranges.
  • Identify Companies Valued Inappropriately Relative To Forecast:  Deep-dive company specific valuation work oriented toward finding effective exposure our broader commodity thesis.  We align with our firm's top-down macro view when applicable.

 

Coverage To Broaden: While we believe the Gold Mining Industry provides a clear platform to demonstrate our process, our coverage will expand in coming quarters to areas where we see the best alpha opportunities.  We plan to host at least one Best Ideas call per quarter and to publish daily/weekly sector highlights, in addition to key research notes.

 

Call Details:

 

Toll Free:

Toll:

Confirmation Number: 13623545

Presentation Link: Materials Launch

 

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.


November 10, 2015

We've made some updates and enhancements to Daily Trading Ranges. You'll now receive risk ranges for 20 tickers each day -  the last five of which will be determined by what's flashing on Keith's screen and by what names you're asking about. Contact support@hedgeye.com if you have any questions or feedback.

 

  • Bullish Trend
  • Bearish Trend
  • Neutral

INDEX BUY TRADE SELL TRADE PREV. CLOSE
UST10Y
10-Year U.S. Treasury Yield
2.38 2.06 2.36
SPX
S&P 500
2,050 2,095 2,078
RUT
Russell 2000
1,149 1,205 1,184
COMPQ
NASDAQ Composite
5,038 5,177 5,095
NIKK
Nikkei 225 Index
18,996 19,735 19,642
DAX
German DAX Composite
10,527 10,990 10,815
VIX
Volatility Index
14.80 18.94 16.52
DXY
U.S. Dollar Index
97.68 99.55 99.08
EURUSD
Euro
1.07 1.09 1.07
USDJPY
Japanese Yen
121.29 123.74 123.18
WTIC
Light Crude Oil Spot Price
43.08 45.99 44.11
NATGAS
Natural Gas Spot Price
2.20 2.40 2.31
GOLD
Gold Spot Price
1,073 1,120 1,091
COPPER
Copper Spot Price
2.19 2.30 2.23
AAPL
Apple Inc.
116 123 120
PCLN
Priceline.com Inc.
1,290 1,379 1,311
VRX
Valeant Pharmaceuticals International, Inc.
71.01 96.39 85.41
NSC
Norfolk Southern Corp.
82.21 89.41 88.62
RAX
Rackspace Hosting Inc.
26.81 30.02 27.09
GPS
Gap, Inc.
25.49 29.13 27.69

 

 


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.

The Macro Show Replay | November 10, 2015

 


What's Driving Our Bearish Forecasts for Domestic and Global Growth?

Takeaway: In the note below, we respond to two very important questions in the context of our dour outlook for global growth.

 

Q: PMI’s in both Europe and China don’t seem to be trending as bad as in the U.S. In fact Europe seems to be growing and China stabilized. As such, why is the call for them to get worse from here if some leading indicators are better and they’ve been cutting [rates] already?

 

Due to a variety of fiscal and monetary policy support measures, economic growth in China has indeed stabilized – for now at least. We discuss these dynamics in great detail on slides 38-57 of our 9/15 presentation titled, “Our Latest Thoughts On C-H-I-N-A”.

 

What's Driving Our Bearish Forecasts for Domestic and Global Growth? - China Central Govt Expenditures

 

What's Driving Our Bearish Forecasts for Domestic and Global Growth? - China Central Govt Budget Balance

 

What's Driving Our Bearish Forecasts for Domestic and Global Growth? - China 7 day Repo Rate Monthly Avg

 

What's Driving Our Bearish Forecasts for Domestic and Global Growth? - China Composite PMI

 

We do not, however, think it would be wise for investors to bet on a material acceleration from here – especially considering that Chinese growth continues to slow on a trending basis across a variety of key metrics, specifically: industrial production, exports, composite PMI, consumer confidence, business confidence and PPI.

 

What's Driving Our Bearish Forecasts for Domestic and Global Growth? - China Economic Summary

 

We think the structural headwinds to Chinese fixed asset investment growth and household consumption are incredibly dour and wildly misunderstood by consensus. Refer to slides 7-19 of the aforementioned presentation for more details.

 

What's Driving Our Bearish Forecasts for Domestic and Global Growth? - China Fixed Assets Investment Growth

 

What's Driving Our Bearish Forecasts for Domestic and Global Growth? - China Fixed Assets Investment Percentile

 

Looking to Europe, we continue to cite steepening base effects as the primary driver of our dour outlook for European economic growth. All else being equal, difficult GDP compares in 1H16 represent a meaningful headwind to the trend in various European high-frequency growth data. The Eurozone and U.K. are not unlike the U.S. in this regard.

 

What's Driving Our Bearish Forecasts for Domestic and Global Growth? - DM Comparative Base Effects 1H16

 

In terms of cratering a narrative around the aforementioned mathematical reality of steepening base effects in the Eurozone, industrial production, exports, consumer confidence, business confidence and PPI are all slowing on both a sequential and trending basis throughout the region. Its composite PMI is still slowing on a trending basis and household consumption growth is trending at an unsustainably elevated rate in the context of our outlook for ECB monetary policy and it’s likely [negative] impact on the EUR.

 

What's Driving Our Bearish Forecasts for Domestic and Global Growth? - Eurozone Econ Summary

 

In terms of cratering a narrative around the aforementioned mathematical reality of steepening base effects in the U.K., global headwinds have caused U.K. export growth to slow on both a sequential and trending basis, which is negatively impacting business confidence (also slowing on both a sequential and trending basis) and perpetuating a negative inflection in industrial production growth per the most recent data. Additionally, consumer confidence is slowing on both a sequential and trending basis, which may cause the unsustainably elevated trend in household consumption growth to subsequently inflect. The trend of deceleration in the U.K. composite PMI would seem to imply as much.

 

What's Driving Our Bearish Forecasts for Domestic and Global Growth? - U.K. Economic Summary

 

Q: Why do you not seem to heavily weight PMI’s [in your growth forecasts]? These seem to have a pretty good record as predictive indicators [of growth], at least for industrial stocks.

 

We tend to weight any given high-frequency indicator on a country-by-country basis relative to that sector’s contribution to the economy. For example, our expectations for U.S. economic growth will never deviate too far from the trend and/or our outlook for household consumption or the services sector, which account for 68.7% and 77.7% of U.S. GDP, respectively. That compares 13.4% and 20.7%, respectively, for exports and the manufacturing sector.

 

We run a predictive tracking algorithm that pulls a number of core indicators into our growth and inflation forecasts and analyzing them from a rate-of-change perspective allows to make forward-looking inferences that many investors tend to rely on mere conjecture for.

 

What's Driving Our Bearish Forecasts for Domestic and Global Growth? - U.S. Economic Summary Table

 

With respect to PMIs specifically, we do place a decent amount of weight on them as a directional indicator of domestic economic growth. For reasons alluded to above, the ISM GDP-Weighted Composite PMI series has a tighter correlation to YoY U.S. real GDP growth than the ISM Manufacturing PMI series. Both indicators carry the same weight in terms of being a directional indicator for QoQ SAAR real GDP growth.

 

What's Driving Our Bearish Forecasts for Domestic and Global Growth? - PMI vs. YoY GDP

 

What's Driving Our Bearish Forecasts for Domestic and Global Growth? - PMI vs. QoQ SAAR GDP

 

That PMI readings continue to slow on a trending basis across both the domestic manufacturing and services sectors should lend a significant degree of pause to any bullish narrative surrounding domestic economic growth. We continue be among the most accurate firms (if not the most accurate) on the Street with respect to forecasting both trends and inflections in U.S. and global GDP growth and our forecasts for both remain well below consensus with respect to the intermediate-term.

 

What's Driving Our Bearish Forecasts for Domestic and Global Growth? - ISM MANUFACTURING PMI

 

What's Driving Our Bearish Forecasts for Domestic and Global Growth? - ISM NON MANUFACTURING PMI

 

What's Driving Our Bearish Forecasts for Domestic and Global Growth? - ISM COMPOSITE PMI

 

All told, we continue to view the “global growth has bottomed” claim as reckless at best and we detail precisely why that is the case in our 11/5 note titled, “Global Growth Has Not Bottomed”.

 

Best of luck out there,

 

DD

 

Darius Dale

Director


CAT | Used Down

 

 

Takeaway:  Increasing awareness of the overhang of used equipment is a big deal for Caterpillar Financial.  We are very excited to hear how Caterpillar explains away falling collateral values in key equipment categories at its November 17th Caterpillar Financial investor meeting.

 

 

Feeling Used? CAT Black Book (latest of many)

 

 

Officially Denied:  We are excited to see what CAT comes up with on Caterpillar Financial in the November 17th investor meeting.  We think that segment is a bigger risk than investors appreciate, and our Black Book above illustrates why.

 

CAT | Used Down - CAT Used 11 9 15

 

 

Press Coverage:  While we have been tracking building used equipment pressure in resources-related capital equipment for quite some time, we saw news coverage for the first time today from an auction in Australia.  

 

CAT | Used Down - CAT Used 2 11 9 15

 

 

Here is the link: http://mobile.abc.net.au/news/2015-10-28/heavy-machinery-prices-slashed-at-auction-mining-downturn-bites/6892966?pfm=sm&section=nsw

 

 

Why This Matters:  Caterpillar Financial relies on used equipment as collateral for its lending activities. While the article focuses on mobile mining equipment, we expect the issues to impact a broader array of categories.  Gensets look likely to become problematic, for instance.  We do not expect this to go away, and it should eventually result in a painful 2016 at Caterpillar Financial.  Investors typically hate problems at captive finance subsidiaries.

 

 

Feel free to ping us back for additional background.

 


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