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REPLAY! This Week On HedgeyeTV

Our deep bench of analysts take to HedgeyeTV every weekday to update subscribers on Hedgeye's high conviction stock ideas and evolving macro trends. Whether it's on The Macro ShowReal-Time Alerts Live or other exclusive live events, HedgeyeTV is always chock full of insight.

 

Below is a taste of the most recent week in HedgeyeTV. (Like what you see? Click here to subscribe for free to our YouTube channel.)

 

Enjoy!   

 

1. My Thoughts On a 'Heartbreaking' Healthcare 'Horror Story' (7/14/2016)

 

 

In this brief excerpt from The Macro Show this week, Hedgeye Healthcare Sector Head Tom Tobin answers a “heartbreaking” question from a subscriber on the collapse of ACA exchanges and the impact it’s having on American families.

 

2. Is Income Inequality Depressing Demand? (7/13/2016)

 

 

In this excerpt from The Macro Show this morning, Hedgeye Demography Sector Head Neil Howe answers a subscriber’s question on how whether income inequality in the U.S. is depressing aggregate demand.

 

3. About Everything | REPLAY: Driverless Cars: Unsafe at Any Speed? (7/12/16) 

 

 

In this complimentary edition of About Everything, Hedgeye Demography Sector Head Neil Howe discusses the future of driverless cars, assessing potential pitfalls that could ultimately delay the adoption of fully-autonomous vehicles.

 

"Yes, the 'low-hanging fruit' of semiautonomous driving has already been plucked," Howe writes. "But full autonomy requires infallible higher-order thinking, a golden apple which will prove difficult—if not impossible—to grasp anytime soon."

 

Click here to read Howe’s associated About Everything piece.

 

4. Penney: The 2 Most Important Things In The Restaurant Space (7/11/2016)

 

 

In this brief excerpt from The Macro Show earlier today, Hedgeye Restaurants analyst Howard Penney explains how slowing restaurant sales and traffic points to a slowing economy.

 

 

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.


Investing Ideas - Levels

Takeaway: Current Investing Ideas: DNKN, HOLX, HBI, LAZ, MDRX, FL, JNK, TIF, WAB, ZBH, TIP, LMT, GLD, TLT

Please see below Hedgeye CEO Keith McCullough's refreshed levels for our high-conviction Investing Ideas.

 

Enjoy the rest of the weekend.

LEVELS

Investing Ideas - Levels - levels 7 16

 

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 less

This Week In Hedgeye Cartoons

Our cartoonist Bob Rich captures the tenor on Wall Street every weekday in Hedgeye's widely-acclaimed Cartoon of the Day. Below are his five latest cartoons. We hope you enjoy his humor and wit as filtered through Hedgeye's market insights. (Click here to receive our daily cartoon for free.)

 

Enjoy!

 

1. Levitated (7/15/2016)

This Week In Hedgeye Cartoons - why so short 07.15.2016

 

Definition of levitate: "to rise or cause to rise and hover in the air, especially by means of supernatural or magical power."

  

2. Beta Bro (7/14/2016)

This Week In Hedgeye Cartoons - Beta Bro cartoon 07.14.2016

 

We present to you "Beta Bro." The defender of mediocrity in the active management community and all things S&P 500 beta.

 

3. Clueless (7/13/2016)

This Week In Hedgeye Cartoons - Fed  Haven t a clue  cartoon 07.13.2016

 

The Fed-induced bubble in financial markets has undoubtedly made the rich richer while its easy money policies have devalued the purchasing power of average Americans.

 

4. Central Banking 101 (7/12/2016)

This Week In Hedgeye Cartoons - negative interest rates cartoon 07.12.2016

 

According to the Fiscal Times:

 

"Japan's household sentiment soured and inflation expectations hit the lowest since the Bank of Japan adopted its massive stimulus program in 2013, a quarterly central bank survey showed... The ratio of households who said they trusted the Bank of Japan's policy management also hit a seven-year low, with more than half of the respondents doubting whether it was independent from government interference, the survey showed."

 

5. The Italian Job (7/11/2016)

This Week In Hedgeye Cartoons - Italian bank cartoon

 

Deutsche Bank’s chief economist said Europe's banks need a major recapitalization to the tune of €150 billion, as worries about Italian banks continue to make headlines. "And so Old Wall's begging for another bailout begins," Hedgeye CEO Keith McCullough wrote today.


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.43%
  • SHORT SIGNALS 78.37%

The Week Ahead

The Economic Data calendar for the week of the 18th of July through the 22nd of July is full of critical releases and events. Here is a snapshot of some of the headline numbers that we will be focused on.

 

CLICK IMAGE TO ENLARGE.

The Week Ahead - 07.15.16 Week Ahead


Investing Ideas Newsletter

Takeaway: Current Investing Ideas: DNKN, HOLX, DE, HBI, LAZ, MDRX, FL, JNK, TIF, WAB, ZBH, LMT, GLD, MCD, TLT

Investing Ideas Newsletter - negative interest rates cartoon 07.12.2016

 

Below are our analysts’ new updates on our fourteen current high conviction long and short ideas. As a reminder, if nothing material has changed in the past week which would affect a particular idea, our analyst has noted this. We will send Hedgeye CEO Keith McCullough's refreshed levels for our high-conviction Investing Ideas in a seperate email.

IDEAS UPDATES

TIP | TLT | GLD | JNK

To view our analyst's original report on Junk Bonds click here, here for TIPs and here for Gold.

 

The week saw a relative alpha retreat in our preferred exposures, but a low volume melt-up in beta isn’t something we’re buying right now. Total market and total exchange volume was well below 1 and 3 month averages in every trading day this week, showing the lack of market conviction and overall confusion behind the move to all-time S&P highs.

 

Again, we continue to be long of growth slowing and want some exposure to inflation picking up into the end of 2016 behind the CPI easier base effects. All things considered, here's what we recommend and why:

 

  • Long Bonds (TLT) = #GrowthSlowing, yield curve compression
  • Gold (GLD) = Protection from global currency devaluation and inflation/down USD – You can travel anywhere on earth and get a quote in local currency
  • Treasury Inflation-Protected Securities (TIP) = Combination of the above exposures
  • Junk Bonds (JNK) = #GrowthSlowing/#LateCycle. Spreads historically widen late cycle (corporate vs. treasury) and this relative exposure is one we want when the number of corporate defaults in the U.S. is already at 100 and on pace to take out Great Recession levels (LINK). JNK has rallied with Treasuries, but on a relative basis, TLT is crushing JNK YTD with less realized volatility: +14.7% vs. +6.6% YTD respectively

 

Dissecting a domestic data-filled Friday, industrial production printed down -0.7% for June, marking the 10th consecutive month of contraction while capacity utilization declined for the 16th straight month. The manufacturing recession is ongoing…

 

Investing Ideas Newsletter - 07.15.16 Industrial Production

 

Moving over to the consumer, our top-down call was front and center in our Q3 themes presentation. The data shows a rollover in consumption, consumer confidence and corporate profitability, which peaked in 2H14/1H15 (see last week’s write-up: LINK ). However, as the data comes in, we must look at it objectively and June's retail sales reported on Friday was a positive on the margin for growth. Still, as mentioned, the bigger picture view shows a consumption cycle that is past peak.

 

Retail Sales:

 

  • Headline retail sales printed +0.6% sequentially with a solid report for the balance of the report’s various components. A partial caveat is that the sequential positive came off a negative revision to May. Still, the report was a marginal positive
  • The retail sales control group, which is the GDP input from this data series, finished +7.2% Q/Q annualized off of a positive revision in May
  • Building materials, health & personal care, and e-commerce led on both a M/M and Y/Y basis

 

Part of the game investors must play today is to assess the Fed's policy response to marginally positive data. There’s no question the market was driven largely by the "Fed put" off the February lows. So the question to ask now is does a tick-up in the expectation for a hike support a strong-USD, deflationary pivot? As Keith McCullough wrote in Friday’s top 3 things:

 

“One way to keep US Equity Beta Up on the week = Dollar Down. But how does that continue from here with U.S. economic growth (Q2 GDP) not tracking to recession (our Q2 predictive tracking algo currently has 1.5-1.8% y/y)?”

 

Is marginally better news, bad for equity beta? We’re sticking to the aforementioned exposures which have continued to work throughout 2016 (TLT, TIP, GLD).

DNKN

To view our analyst's original report on Dunkin Brands click here.

 

With Dunkin Brands (DNKN) up roughly 5% this week, we remain bearish on the name heading into earnings next week (7/21 BMO). Industry metrics have continued to deteriorate as the year goes on.

 

Below is a Black Box Intelligence chart showing Restaurant-industry traffic trends getting progressively worse. Moreover, traffic is Dunkin’ Donuts’ biggest problem, and with their hefty price increase, they could be in for a rude awakening. We will update you more next week after they report.

WAB

To view our analyst's original report on Wabtec click here.

 

All quiet prior to Wabtech (WAB) earnings on July 25th, Hedgeye Industrial analyst Jay Van Sciver reports. With the stock down -25% since we added it to Investing Ideas, Van Sciver reiterates his short call. 

HBI

To view our analyst's original report on Hanesbrands click here

 

Hanesbrands (HBI) closed the acquisition of Pacific Brands this week. Australia now accounts for about 10% of sales at HBI. 

 

The real deal multiple is about 12.5x EBITDA, which is very expensive, especially when you consider the economic risk within this new market. Australia is currently at an economic cycle peak and facing a housing bubble worse than what we saw in the US during 2007/08. The country is quite possibly on the brink of a financial collapse. (Note: Our Hedgeye Financials team recently held a call on shorting Aussie Housing/Banks.)

 

When this bubble bursts, the impending recession will have a huge impact on consumption in the market. HBI is guiding that they can take Pacific’s operating margin up to 14% from 9% over 3 years. If the economic situation down under plays out as we expect, that 9% is more likely to be cut in half. The 12.5x EBITDA price in reality could become 20x plus.

 

This has the potential to be a catalyst for negative earnings surprises relative to expectations.

MDRX

To view our analyst's original report on Allscripts click here

 

Allscripts' (MDRX) stock has rallied in recent weeks on speculation that they signed a large new client agreement due to warrants they issued to ‘commercial partner’ for 3 million shares (1.5% the company) at various strikes on 6/30 (Click Here for the 8-k). We have been told that the issuance was related to a new client relationship. The last time Allscripts did a warrant issuance to a 'commercial partner' it coincided with the $400 million outsourcing agreement with their largest customer, Northwell Health (formerly Northshore LIJ).  

 

While details are limited, we are skeptical that this represents an outsized bookings event in the near-term. However, the relationship is clearly meaningful.  What we do know is that Allscripts has been looking for a development Partner for some time, and we would place a higher probability that the 8-k was related to a strategic development agreement with a Health System than a large new deal.

TIF

To view our analyst's original report on Tiffany click here

  

Sales trends have clearly been weak for Tiffany (TIF) in the US. But we should also recognize that less than half of TIF's revenue and operating profit come from the Americas. Trends outside of the US have been no better.

 

This week Chow Tai Fook, a large China and Hong Kong jewelry retailer, reported its quarter ending in June and the results were not good. Mainland China was down -13% and Hong Kong/Macau was down -22%.

 

Asia Pacific makes up about 1/4 of TIF's revenue, and comps in this region have slowed from around 0% in 1H15 to -15% in 1Q16. Chow Tai Fook's results do not a paint a positive picture for jewelry consumption in the Asian market. We continue to see global #GrowthSlowing and global demand for luxury jewelry weakening, meaning continued downside in TIF's earnings that is not currently baked into consensus expectations.

LAZ

To view our analyst's original report on Lazard click here

 

No update on Lazard (LAZ) this week but Hedgeye Financials analyst Jonathan Casteleyn reiterates his short call. Note: The stock is down -12% since we added it to Investing Ideas.

FL 

To view our analyst's original report on Foot Locker click here.

 

Foot Locker (FL) stock has run up 12% in the last 3 weeks, outperforming the S&P and the XRT. At this level, we think Foot Locker is a good short on any duration.

 

We've talked a lot about the Tail (3 years or less) risk as Nike changes the manufacturing and distribution paradigm for athletic footwear. However, now there is a clear disconnect in the intermediate term (Trend – 3 months or more) consensus expectations and what we think are hittable earnings numbers. After 3 years of nearly bulletproof earnings prints (FL has gone 11 straight quarters meeting or exceeding street numbers), FL will likely see a significant miss or guide down before the books are closed on 2016.

 

To beat numbers for the 2Q print coming in August, we would have to assume FL sees comparable sales growth of about 4%. FL grew comps 2.9% in 1Q against 7.8% last year, now it is going up against a 9.6% in 2Q with the street expecting a year-over-year acceleration. We think the number will be closer to 2%. At that comp rate, FL can't leverage occupancy and SG&A expenses, meaning margins will be lower.

 

We think FL EPS numbers need to come down, otherwise the company will struggle to meet expectations for the remainder of 2016.

ZBH

To view our analyst's original report on Zimmer Biomet click here.

 

Zimmer Biomet (ZBH): We presented a slide deck detailing our outlook for the US Medical Economy yesterday. One of the incremental analysis we conducted was to calculate the number of insured persons in the United States by month going back for several years.

 

In the absence of a reference data source, we created our own based on data reported by CMS for Medicaid and Medicare, Obama Administration data for Federal and State exchanges, Census data for Medicare population, and BLS and Kaiser Family to derive the number of employer based beneficiaries.

 

Investing Ideas Newsletter - Healthcare cartoon 07.14.2016

 

The #ACATaper theme appears intact with our forecast for the number of insured Americans is set to return to pre-ACA growth rates in 2016 and 2017. The chart shows, what we think is evidence that orthopedic surgical volumes benefited (Society of Actuaries agrees) from the massive expansion seen in 2014 and 2015. While 1Q ortho volume reaccelerated on a 2Y basis, and contradicted our thesis, the magnitude was small, and the bigger picture (years) remains consistent with the thesis, as compared to the short-term variation in quarterly reports, which can be high. 

 

Investing Ideas Newsletter - zbh ins pop

 

We also updated our JOLTS charts for the report issued this week and continue to see the highly relevant Healthcare job openings series coincident with a slowdown of medical demand, which is what we expect coincident with slowing growth in insured medical consumers.  

 

Investing Ideas Newsletter - zbh jolts

 

Click here to read the Early Look, "If You Don't Laugh, You'll Cry," written earlier this week by Hedgeye Healthcare analyst Tom Tobin. In it, Tobin explains why the changing healthcare landscape could be "a jarring experience" for investors "that are unprepared." And click here for a brief video of Tobin on The Macro Show.

Holx

To view our analyst's original report on Hologic click here.

 

The issues we discussed yesterday on our HC Themes call detail a US Medical economy about to slow materially. Our views on 3D Tomo have not changed, and should exacerbate the consensus optimism baked into estimates. The rise and fall of estimates drive valuation and stock prices, but the peer group a company sits in is also an issue to consider.

 

For Hologic (HOLX), the equipment and supply names appear to be the most extended into the slowdown from a relative and absolute multiple basis. We’ll update our 3D tracker this weekend and our estimates for the quarter. Estimates have come in, but not enough, in our view. 

 

Click images to enlarge

Investing Ideas Newsletter - holx sales

 

Investing Ideas Newsletter - holx map

LMT

To view our analyst's original report on Lockheed Martin click here.

 

Below is an excerpt from an excerpt from a recent institutional research note written by Hedgeye Potomac Lt. General Emerson "Emo" Gardner USMC Ret.:

 

"Motivated by a sense of the unravelling of the European Union in the face of the clear and present danger of Russia, NATO leaders at last week's NATO summit in Warsaw affirmed for the second time their committment to spending 2% of their GDP on defense by 2020. Other manifestations of a renewed NATO included the approval of permanent NATO troops in the Baltics and Poland and the symbolic gesture of the admission of the last Balkan country, Montenegro, to the Allliance.

 

According to NATO figures, the 28 countries of NATO collectively spend $US 900B annually on defense with US spending of $650B comprising 72% of that amount. 

 

Investing Ideas Newsletter - lmt

 

Translating GDP% to the dollars required to meet the goal shows the potential impact of additional spending on the defense industry.  In dollar terms the individual nations are underspending from the NATO guideline by a total of $109B annually.  Given the 20% equipment spending minimum, there is potential for at least $21B more spending annually on hardware when and if NATO countries meet their goal." 

 

Bottom Line: Even if NATO achieves only a fraction of the promised $109B increase in annual defense spending by 2020, US defense companies will see windfall. Lockheed Martin (LMT) stands to benefit from this significant industry development.


Cartoon of the Day: Levitated

Cartoon of the Day: Levitated - why so short 07.15.2016

 

Definition of levitate: "to rise or cause to rise and hover in the air, especially by means of supernatural or magical power."


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.

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