INVITE | How I Learned To Stop Worrying & Love The MTW Break-up (Best Ideas Long Call)


Mostly Not Cranes

We see few names in the Industrials sector that are as undervalued and underappreciated as Manitowoc.  MTW offers a clear revaluation catalyst with the 1Q 2016 split of the Foodservice Equipment unit from the Cranes business.  We see significant upside potential from the market’s reappraisal of these solid but stunningly mismanaged franchises.  In our experience, investors often get bogged down in Crane segment cyclicality and miss the broader operating improvement and value-unlock opportunity.  While it is common for companies to trade poorly ahead of transformational break-ups, the recent decline in MTW shares provides a straightforward value opportunity in an otherwise challenged sector.   




  • Foodservice Equipment Drives Value:  An independent, better performing Foodservice Equipment segment is alone likely to receive a higher valuation than the current combined companies.
  • Implied Negative Value For Cranes:  Buyers are being paid to take the Crane unit, by our estimates, despite the potential for better performance or a sale of this ‘Cadillac’ of cranes producer.
  • Sabotaging, Weak Management Out:  As we see it, prior management made efforts to undermine the separation, and recent c-suite changes are a significant positive.
  • Long-term View of Metrics, Operating Potential:  We will review crane market cyclicality, currency exposure, and foodservice equipment market drivers.
  • Opportunities For Better Management:  Improved management could execute botched facilities rationalizations, price innovative products more effectively (VPC), or just deliver products & services on time.
  • Valuation Upside:  We value MTW’s two separate companies $20/share or higher.  A sale of either unit is also possible, and we note the current interim CEO is from Bucyrus.


INVITE | How I Learned To Stop Worrying & Love The MTW Break-up (Best Ideas Long Call) - MTW 12 14 15



We will conclude the call with a live Q&A session.  Industrials subscribers will receive the dial-in and materials link in a reminder email prior to the call.


Cartoon of the Day: A Crude Reality

Cartoon of the Day: A Crude Reality  - oil cartoon 12.14.2015


"After crashing another -11.6% to -41.1% year-to-date last week, Oil starts the week up 1.97%," Hedgeye CEO Keith McCullough wrote in a note to subscribers earlier today. 


Make no mistake. #Deflation Risk is still present.


Is Old Wall Warming Up To Our Late-Cycle Call?

Takeaway: We reiterate our call on deflation and growth slowing.

The Wall Street Journal published an interesting story written by Jon Hilsenrath this morning. Apparently, 58% of WSJ surveyed economists now think it is "likely" that within five years, short-term interest rates will be right back at zero. 


Is Old Wall Warming Up To Our Late-Cycle Call? - WSJ article


Here's the gist of it from Hilsenrath:


"Any number of factors could force the Fed to reverse course and cut rates all over again: a shock to the U.S. economy from abroad, persistently low inflation, some new financial bubble bursting and slamming the economy, or lost momentum in a business cycle which, at 78 months, is already longer than 29 of the 33 expansions the U.S. economy has experienced since 1854..."


Is Old Wall Warming Up To Our Late-Cycle Call? - wsj survey


Nothing new to us here.


In our 73-page Q4 Macro Themes presentation (published in October), we called out the simple fact that the current economic expansion was getting long in the tooth:


Click image to enlarge.

Is Old Wall Warming Up To Our Late-Cycle Call? - macro themes dek cycles  


Hilsenrath continues:


"Among the worries of private economists is that no other central bank in the advanced world that has raised rates since the 2007-09 crisis has been able to sustain them at a higher level."


Economists should be concerned. The latest round of U.S. economic data is "unequivocally bearish." Below is a video of our outspoken CEO Keith McCullough on Fox Business just before Thanksgiving discussing whether the U.S. is headed for recession in 2016.


Indeed, Old Wall economists have been slow on the uptake all year. Evidence? Our #Deflation call (now 18 months old) is a commonplace argument now, following the precipitous crash in commodities.


We continue to think that economists under-appreciate our #GrowthSlowing call (from Q3 2014). Then again, maybe some of them are finally wising up... 


Interestingly, one of the economists surveyed by the Wall Street Journal made the astute observation, as summarized by Hilsenrath, that the "U.S. expansion is now at an advanced stage and consumers have satisfied pent-up demand for cars and other durable goods."


"I call it late-cycle," the economist said. Sound familar? Thanks for coming out. We called out the "Late-Cycle" nature of the U.S. economy back in July. 


Still, what the WSJ surveyed economists seem to miss, even with this seemingly shocking revelation about U.S. growth, is that by raising interest rates the Fed might actually perpetuate an economic slowdown.


Is Old Wall Warming Up To Our Late-Cycle Call? - darius bingo


Our good friend and best-selling author Jim Rickards points out the Fed's nonsensical rationale for raising rates now:


Is Old Wall Warming Up To Our Late-Cycle Call? - rickards

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.

Why Raising Rates (Even One Basis Point) Right Now Is a Really Bad Idea


During this brief excerpt from The Macro Show this morning, Hedgeye CEO Keith McCullough explains why even a miniscule interest rate hike by the Fed would be a big mistake.


Subscribe to The Macro Show today for access to this and all other episodes. 


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McCullough: The (Ugly) Outlook For Junk Bonds Gets Uglier | $JNK

On Fox Business' Mornings with Maria, Hedgeye CEO Keith McCullough discussed the recent reverberations rocking junk bonds and why the Fed is "culpable" for investors chasing high yield. The outlook, according to McCullough, doesn't look much better from here. 

Investors Search For Santa Claus In Vain

On The Macro Show this morning, Hedgeye CEO Keith McCullough observed that during last week's market rout — the S&P was down -3.8% — volume spiked as equity markets continued to make lower highs. That's a tenuous setup, at best, for equity market perma-bulls as we head into 2016:


"There was a very obvious breakout in volatility on Friday as deflation risk continues to manifest itself in the face of growth slowing.


Investors Search For Santa Claus In Vain - vol


Interestingly, but not surprisingly, volume spiked on Friday. I’ve been waiting for a big flush, down move because we’ve only had three big up moves in the past 26 days of trading. In fact, there have been just eight up days in the last 26. Those up days came after terrorist events and with relatively low volume.


What this visual tells you [see chart below] is that volatility was up 19% versus the 1-month average. So here was the huge spike in volume on the down move.


Investors Search For Santa Claus In Vain - volume


In other news, small caps continue to be an absolutely atrocious thing to hold long. The Russell was down 5.1% last week and is down 7% year-to-date. That’s not a good year. So don’t believe anybody that is looking for a Santa Claus rally because the S&P 500, for December, is not saying ‘Ho Ho Ho.’ It's down 3.5% for the month to date.


Investors Search For Santa Claus In Vain - sector


Now, talking about sectors, Consumer Staples is the only one that looks good from a trade and trend perspective. Meanwhile, just one of the many, many, many signals that confirms growth is slowing, consumer discretionary broke down pretty hard last week, alongside the financials. For any of your friends who were long financials in advance of a Fed rate hike, Merry Christmas. The sector is down 5.2% for the year to date.


And yet there are still people out there looking for Santa Claus and PMIs to bottom. This will be fun to watch. For anyone on top of economic reality, you know you don’t have to just sit back and buy stocks into year end. There are plenty of better ways to spend your holiday."


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