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FINANCIALS SENTIMENT SCOREBOARD - TOLL BROTHERS (TOL)

Takeaway: Today we're flagging Toll Brothers (TOL) on the short side due its extremely bullish sentiment (Score: 90).

Our top-down view on the US Housing market changed from bullish to bearish at the start of the year and we think the high end is likely to soften materially in 1H16. At the other end of the housing spectrum is KB Home (KBH) at a bombed out sentiment score of 10. Though left for dead, we think the news will continue to get worse over the intermediate term so we'd hold off for now. That said, given the score, it's not a name where we'd be pressing the short right here. 

 

We are publishing our updated Hedgeye Financials Sentiment Scoreboard in conjunction with the release of the latest short interest data last night. Our Scoreboard now evaluates over 300 companies across the Financials complex.

 

The Scoreboard combines buyside and sell-side sentiment measures. It standardizes those measures to an index of 0-100, where 100 is the best possible sentiment ranking and 0 is the worst. Our analysis shows that a contrarian strategy can be employed successfully by taking the other side of stocks with extreme readings in sentiment, either bullish or bearish. Once sentiment reaches these extreme levels, it becomes a very asymmetric setup wherein expectations become too high or too low.  

 

We’ve quantified the tipping points for high and low sentiment. Specifically, we've found that scores of 20 or lower have a positive, average expected return while scores of 90 or greater are more likely to underperform.

 

Specifically, our backtest of 10,400 observations over a 10-year period found that stocks with scores of 0-10 went on to produce an average absolute return of +23.9% over the following 12-month period. Scores of 10-20 produced an average absolute return of +11.9%. At the other end of the spectrum, stocks with sentiment scores of 90-100 produced average negative absolute returns of -10.3% over the following 12-months.

 

The first table below breaks the 300 companies into a few major categories and ranks all the components on a relative basis. The second table breaks the group into smaller subsectors and again gives them relative rankings within those subsectors. 

 

FINANCIALS SENTIMENT SCOREBOARD - TOLL BROTHERS (TOL) - SI1

 

FINANCIALS SENTIMENT SCOREBOARD - TOLL BROTHERS (TOL) - SI2

 

FINANCIALS SENTIMENT SCOREBOARD - TOLL BROTHERS (TOL) - SI3

 

The following is an excerpt from our 90 page black book entitled “Betting Against the Herd: Generating Alpha From Sentiment Extremes Across Financials.”

 

Let us know if you would like to receive a copy of our black book, which explains this system and its applications.

 

BUYS / LONGS: Financials with extremely low sentiment readings of 20 and below on our index (0-100) show strong average outperformance in absolute and relative terms across 3, 6 and 12 month subsequent durations.  Stocks with sentiment ratings of 20 or lower rise an average of +15.1% over the next 12 months in absolute terms.   

 

SELLS / SHORTS: Financials with extremely high sentiment readings of 90 and above on our proprietary sentiment index (0-100) demonstrate a marked tendency to underperform in absolute and relative terms across 3, 6 and 12 month subsequent durations.  Stocks with sentiment ratings of 90 or greater fall in value an average of -10.3% over the next 12 months in absolute terms. 

 

 

FINANCIALS SENTIMENT SCOREBOARD - TOLL BROTHERS (TOL) - Absolute 12 mo

 

 

Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT


VIDEO FLASHBACK (11/6/15) | McCullough: Fed Rate Hikes & Why Recession Is A 'Live Possibility'

Takeaway: In this video from last November, Hedgeye CEO Keith McCullough explains why a U.S. recession is a "live possibility."

Last November, Fed head Janet Yellen called a December rate hike a "live possibilty." In the video below, Hedgeye CEO Keith McCullough countered that a U.S. economic recession was a "live possibility" too, especially if the Fed raised rates.

 

Well, they did. We called the ensuing stock market turmoil.

 

The likelihood of a U.S. #Recession is still firmly intact no matter what Janet Yellen said in her Congressional testimony today. Here's the video that explains why.

 

 


BREAKING: Yellen Says Deflation Is "Transitory" & Growth Isn't Slowing. We Disagree

Takeaway: The key takeaways from Fed head Janet Yellen's testimony.

BREAKING: Yellen Says Deflation Is "Transitory" & Growth Isn't Slowing. We Disagree - Fed grasping cartoon 01.14.2015

 

Today, in testimony before Congress, Fed head Janet Yellen was asked about the possibility of a U.S. economic recession. She admitted that financial markets are increasingly worried about a recession but, “we’ve not yet seen a sharp drop-off in growth either globally or in the United States,” she says.

 

Still, global financial developments “bear close watching,” she continued, and “may have implications for the outlook.”

 

Yellen said that she doesn’t expect the Fed to “soon” be in the situation where it must cut rates. She added, there's “always some risk of a recession.” 

 

Here is a key excerpt from yellen's prepared remarks:

 

BREAKING: Yellen Says Deflation Is "Transitory" & Growth Isn't Slowing. We Disagree - yellen testimony

 

Yellen also doubled down on her #Deflation is "transitory" message.

 

Nice.

 

Below is a chart of the CRB Commodity Index in the past year. What's so transitory about this?

 

BREAKING: Yellen Says Deflation Is "Transitory" & Growth Isn't Slowing. We Disagree - crb commod index

 

 

Did Yellen forget about 0.7% Q4 GDP growth?

 

On the economic cycle, our US GDP forecast (predictive tracking algo that has nailed GDP for 5 quarters, in a row) is at 0.2% GDP growth for Q1 (the Atlanta Fed is still 10x higher than that and our friends are still at “it feels like 3% GDP”).

 

And yet the stock market is up on Yellen's remarks. As Hedgeye CEO Keith McCullough continues to reiterate, "The biggest risk in financial markets today is believing the Fed's economic forecast."

 

Watch out...


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What Is The Probability Of ’87-Style Stock Market Crash?

In this brief excerpt of The Macro Show this morning, Hedgeye Financials analyst Jonathan Casteleyn discusses three likely scenarios for the stock market this year.  

 

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

 

Subscribe to Hedgeye on YouTube for all of our free video content.


A Quick Update On (Ugly) S&P Earnings & (Nasty) YTD Sector Performance

Takeaway: Financials are getting shellacked this year. Utilities are up. Meanwhile, all but 3 of 10 S&P sectors reported negative earnings growth.

A Quick Update On (Ugly) S&P Earnings & (Nasty) YTD Sector Performance - Earnings cartoon 11.03.2015

 

Below are charts and analysis from Hedgeye CEO Keith McCullough on sector performance and quarterly earnings. It's not pretty.

 

Year-to-date sector performance...

 A Quick Update On (Ugly) S&P Earnings & (Nasty) YTD Sector Performance - sector performance 1

 

"Get the macro call on growth right, you get rates and sector styles right – Financials (XLF) down to -14.4% YTD vs. Utes (XLU) up (again) on the day yesterday to +7.6% YTD – overbought, yes – but we’re staying w/ this TREND long/short call."

 

S&P 500 Quarterly Earnings... 

 A Quick Update On (Ugly) S&P Earnings & (Nasty) YTD Sector Performance - S P Rev   Earnings Comps

 

"Get corporate profits (slowing to negative y/y) and credit spreads right, you’ve gotten a lot of other things right - with 335/500 companies reporting SP500 Revs -4.4% y/y and EPS -6.2% y/y (only 3 of 10 sectors have + EPS growth y/y)"

 

Keep your head up and stick with us. Macro markets are getting ugly.


HedgeyeRetail (2/10) | KATE - No Pre-Announcement, NKE

Takeaway: KATE announced earnings date of 3/1, meaning no pre-announcement, like set-up here. NKE adds to DTC roster, names head of Digital.

KATE - Announced Earnings Date (3/1). No Preannouncement.

 

Conclusion: Sentiment in ‘space’ finally improved, and KATE should earn more $ this quarter than it has cumulatively in seven years. Then people should start to look at $0.70-$1.00 in EPS power for the year. Then it’s finally got valuation support – especially with the stock at $15.

 

KATE put out a press release last night announcing its 4Q release and earnings call. That ends the speculation on a pre-announcement. If we look back at the reasons for the pre-announcement last year in late January it was centered around two things.

1) The discontinuation of Kate Spade Saturday and the closing of Jack Spade retail stores.

2) Concerns over the space. KATE was down 17% vs. the XRT -1% over the first 9 trading sessions in 2014 as KORS and COH continued to weaken on the margin. Then KATE came out and kicked down the door with a 28% comp.

 

We're not expecting that level of blowout in this year's 4Q print. But, here's what we do know…

a) Same store sale expectations look to be in check at 11% as the company laps its Flash sale reduction in 4Q14 and gets the couple hundred basis point lift from the addition of the Juicy remodel outlet locations.

b) Gross margin guidance is beatable. The street is looking for just a 90bps improvement on last years -390bps decrease. The liquidation of Jack/Saturday inventory cost the company 215bps, and current expectations only assume the company gets a fraction of that back.

c) The top line is primed for 2016 as the company laps the noise around its JV/Distro agreements in Asia and South America, laps the quality of sales initiatives in both company owned and wholesale channels in North America, and starts to see the benefit of a two-handfuls of new licensing agreements. Macro is a concern, but for a company like KATE with ~4% market share and relatively low international presence/share of wallet, we think there are asymmetric drivers for the top line.

 

NKE - Nike adds to DTC roster. Names head of Digital

(http://news.nike.com/news/names-adam-sussman-as-chief-digital-officer)

 

Nike is bringing in Adam Sussman to lead the new digital platform that on the company's numbers will account for 30% of the incremental $20bn in dollar growth from FY15-FY20. We think the number is closer to 50% of incremental growth.

HedgeyeRetail (2/10)  |  KATE - No Pre-Announcement, NKE - 2 10 2016 chart1

   (Nike Investor Day 2015)

 

AMZN - ChannelAdvisor comps show acceleration in January sales for Amazon

HedgeyeRetail (2/10)  |  KATE - No Pre-Announcement, NKE - 2 10 2016 chart2

 

AMZN - Amazon Project Dragon Boat looking to build global delivery business

(http://www.bloomberg.com/news/articles/2016-02-09/amazon-is-building-global-delivery-business-to-take-on-alibaba-ikfhpyes)

 

Saks announces that Gilt will open first ever in-store shop in new Saks off 5th NYC location

(http://www.retailingtoday.com/article/saks-th-adds-little-gilt-its-first-nyc-store)

HedgeyeRetail (2/10)  |  KATE - No Pre-Announcement, NKE - 2 10 2016 chart3

 

SHLD - Sears Holdings to accelerate store closures after weak preannounce

(http://www.retailingtoday.com/article/sears-holdings-accelerate-closure-unprofitable-stores)

 

SPLS - Staples receives approval from EU for ODP acquisition

(http://www.businesswire.com/news/home/20160210005652/en/)

 

CAB - Cabela's former Executive VP Scott K. Williams named President

(http://www.businesswire.com/news/home/20160209006816/en/)

 

CONN - Conn's sees January furniture comps increase 12.3% in the furniture and mattress category

(http://www.retailingtoday.com/article/conns-takes-comfort-furniture-business)

 

TLF - Tandy Leather Factory CEO Jon Thompson resigns

(http://ir.tandyleather.com/profiles/investor/ResLibraryView.asp?ResLibraryID=80422&GoTopage=1&Category=1161&BzID=1625&G=835)

 

ARO - Sycamore Partners' Aeropostale board designee Kent Kleeberger resigns

(https://www.sec.gov/Archives/edgar/data/1168213/000110465916095058/a16-3885_1sc13da.htm)

 

Hermès lowers 2016 sales expectations due to economic, geopolitical and monetary uncertainties -- says luxury is not immune to economic cycle

(http://www.wsj.com/articles/hermes-boosted-by-weak-euro-and-strong-asian-demand-1455091285)

 

Alec Richards

 


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