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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. This Overlooked Housing Investigation Has Huge Investing Implications (7/29/2016)

 

 

In this excerpt from The Macro Show, Hedgeye Housing analyst Josh Steiner explains the findings of a recent Treasury Department investigation that has significant implications for housing investors. 

 

2. REPLAY | About Everything with Neil Howe: Earnings Smaller Than They Appear (7/28/2016)

 

 

In this complimentary edition of About Everything, Hedgeye Demography Sector Head Neil Howe discusses the growing use of "pro forma" accounting and explains the broader implications for investors.


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

 

Click here to access the associated About Everything slides.

 

3. Under 60 Seconds: 3 Takeaways From Hilton's Earnings Report (7/27/2016)

 

 

Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan shares three key conclusions from Hilton's earnings report and why it remains on the Best Ideas list as a short.

 

4. Why We’re Positive On Las Vegas Sands And Its Fat Dividend (7/27/2016)

 

 

In this brief excerpt from The Macro Show this morning, Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan explains why he likes Las Vegas Sands (LVS).

 

5. Under 60 Seconds: 3 Takeaways From Twitter's Earnings Report (7/27/16) 

 

 

Hedgeye Internet & Media analyst Hesham Shaaban shares three key conclusions from Twitter's worse-than-expected earnings report.

 

6. The Long-Term Twitter Story Isn’t Good (7/26/2016)

 

 

In this excerpt from The Macro Show, Hedgeye analyst Hesham Shaaban goes granular on the major headwinds facing Twitter. “Over the last two plus years, management has inflicted so much damage on its model that we really can’t see a way to fix it,” says Shaaban. “If Twitter can figure this out, there’s a ton of upside, given how badly the stock has been dinged throughout its public history. We just can’t see it—not yet at least.”

 

7. Lazard: Cheap On The Wrong Numbers (7/25/2016)

 

 

In this excerpt from The Macro Show earlier today, Hedgeye Financials analyst Jonathan Casteleyn reiterates his short call on Lazard ahead of its earnings report on Thursday.


Investing Ideas - Levels

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

Have a great weekend.

 

Investing Ideas - Levels - levels 7 29

 

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. Bob is on a much-deserved summer vacation. While he kicks back and relaxes, we're going into the Hedgeye Vault and highlighting some of his best work. (Click here to receive our daily cartoon for free.)

 

Enjoy!

 

1. GDP Stink Bomb (7/29/2016)

This Week In Hedgeye Cartoons - GDP cartoon 05.29.2015

 

 

Considering Friday's dismal 1.2% second quarter GDP reading, we bring you another audience favorite

 

2. Fallen... (7/28/2016)

This Week In Hedgeye Cartoons - Oil cartoon 12.09.2014

 

Oil has tumbled -25% off the recent high.

 

3. Volcker To Yellen (7/27/2016)

This Week In Hedgeye Cartoons - Fed Chairmen cartoon 02.03.2016

 

In light of this week's Fed decision to hold rates steady today...

 

4. In Case You Didn't Know (7/26/2016)

This Week In Hedgeye Cartoons - Fed lady cartoon 06.25.2016  1

 

A relevent cartoon ahead of the Fed's policy announcement.

 

5. Iceberg(s) (7/25/2016)

This Week In Hedgeye Cartoons - Greek iceberg cartoon 06.30.2015

 

Given the resurgence of Europe’s ongoing, multifaceted issues, we bring you this cartoon, originally published in June 2015. It's just as fitting today as investors fret over Italian bank solvency and a host of other issues in Europe.


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Investing Ideas Newsletter

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

Investing Ideas Newsletter - GDP cartoon 05.29.2015

 

Below are our analysts’ new updates on our fifteen 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. 

 

Please note that we added PowerShares DB US Dollar Index Bullish Fund (UUP) to the long side of Investing Ideas. 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 | UUP | JNK

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

 

Friday’s GDP report was ugly any way you slice it. GDP grew +1.2% on a Q/Q Seasonally-Adjusted Annual Rate basis (SAAR). Of equal importance to the number is that GDP for Q1 was negatively revised to +0.8% vs. +1.1% previously. So GDP by the preferred consensus methodology is tracking +1.0% in the first half of 2016. On a Y/Y basis, our preferred methodology, GDP came in at a meager +1.2%. #GrowthSlowing?...

 

In last week’s report we wrote that the Q/Q SAAR number could beat consensus expectations by a wide margin, which could be taken by the market as incremental hawkish information. Well, the GDP print was a bomb. As mentioned last week:

 

“With growth continuing to track a decelerating trend in our model in Q3 and Q4, with 1) difficult PCE comps (consumer expenditures) and 2) easy inflation comps, we want to stick with our allocations to growth slowing.”  

 

To summarize our active ideas, long Gold (GLD) and long U.S. Dollar position (via PowerShares DB US Dollar Index Bullish Fund (UUP), which we added this week) netted out Friday, with gold catching a bid against a USD that got crushed on the report. (Part of the reason we added UUP to Investing Ideas was the expectation of a GDP print that may have sent a hawkish message to the market.) Think of Gold and the USD as a position against a basket of other currencies.

 

The good news for #GrowthSlowing bulls is that the Treasury rate curve will likely get pushed lower over the coming days as investors take stock of this week’s ugly data. That's good for Treasury Inflation-Protected Securities (TIP) and Long Bonds (TLT).

 

It could also be good for our short Junk Bonds (JNK) call to the extent that JNK can continue to shake the decline in commodity prices over the last month (it has exposure to multiple sectors). So far high yield energy credit (materials and industrials included) has been immune to sharply lower commodity prices over the last month, partly because the Treasury curve has also moved lower.

 

Below is a deep dive into Friday’s GDP report:

 

  • Consumption was strong, as expected, but slightly below expectations
  • Investment tanked, driven by a big -1.2% drag from inventories and a modestly soft Resi investment number
  • Government Expenditures also contributed negatively for first time since 4Q14
  • GDP deflator was revised higher from last quarter which put a lid on the print. The deflator ticked up to 2.2% in 2Q (vs. 0.5% prior) with the Core PCE price index coming in at 1.7%

 

To recap, here's what we missed: The government telling the truth finally on the deflator and the subtraction in inventories. But we did not miss the multi-quarter TREND in growth slowing. See the table to the extent you want to dig deeper to contextualize Friday’s report:

 

Click images to enlarge

Investing Ideas Newsletter - 07.29.16 GDP Summary Table

 

And finally to add in another summary of domestic #GrowthSlowing economic data released this past week, durable and capital goods orders released for June continued to look downright recessionary:

 

  • Durable Goods: -4.6% sequentially in June and declined to -6.4% YoY
  • Capital Goods: +0.2% M/M but the recession in core capex remains ongoing at -3.7% Y/Y, extending its epic run of negative growth to 17 of the last 18 months

 

Investing Ideas Newsletter - 07.29.16 Durable Goods

 

Investing Ideas Newsletter - 07.29.16 Capital Goods

DNKN

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

 

No update on Dunkin Brands (DNKN) but Hedgeye Restaurants analyst Howard Penney reiterates his short call. 

HBI

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

 

An outlier threat to organic growth for Hanesbrands (HBI) has been the pressure applied at the low end by Gildan. Gildan launched its own branded underwear in 2013 and has been a thorn in HBI’s side ever since. The original belief was that GIL would likely consume private label market share, but as of this week's 2Q16 earnings release, Gildan's unit share hit 9% in the Men's underwear market. That's up 60bps sequentially from 1Q, and 180bps Y/Y. 

 

The men’s underwear market in the US is $5bn. That’s broken down into 28% market share for HBI, 24% market share for Fruit of the Loom, and 5% private label on a dollar basis. The newcomer GIL has taken 9 points of share of units (5-6% in $) in its first 3 years of existence. That’s 5-6% of share in HBI’s largest single category that:

 

  1. Represents about 17% of the business; and,
  2. Has come directly from the HBI’s key wholesale partners, which any way you slice it = lost market opportunity for HBI, with more pressure to come.

 

On the flip side, the appetite for additional inventory in basics appears to have dried up – GIL management cited negative unit volume growth in Specialty/National chains and flat to slightly positive in the mass channel. 

 

Demand down + Competition up = continued pressure on HBI organic growth.

 

Investing Ideas Newsletter - 7 27 2016 hbi chart1B

MDRX

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

 

We attended the Becker’s Hospital Review 2nd Annual CIO/HIT + Revenue Cycle Conference in Chicago earlier this week. Over the course of two days, 175 total speakers representing 95 Hospital and Health Systems, presented on topics ranging from data analysis for population health to best practices in revenue cycle management. This was not a widely attended event by the investment community and unlike HIMSS, not vendor centric and therefore provided uncompromised insight into the challenges and opportunities facing CIOs and users of Healthcare IT.

 

One of the main themes of the conference was a focus on the people and process to help drive efficiencies in the revenue cycle, and the need for culture change to successfully implement a population health strategy. There was very little discussion regarding demand for new technology, with most CIOs satisfied with their current technology setup and vendor relationships.

 

More importantly, there was no discussion or topics related to EHR implementations and adoption, a topic that would have dominated the discussion only a few years ago. When a room full of 200 C-Suite level Hospital personnel, industry consultants and doctors were asked to raise their hand if they have been through an EHR implementation in the last three years, it was no surprise that everyone raised their hand. This confirms our view, and others, that the EHR market is saturated and the replacement market anemic.

 

There were two sessions dedicated solely to “Getting the Most of Your…” Epic and Cerner EHR, with the Epic session having 2x the attendees as Cerner, but little-to-mention of Allscripts (MDRX). We were surprised by how often athenahealth was brought up in the same breath as Epic, Cerner and MEDITECH, with many CIOs watching their inpatient progress closely and noting how well their #LetDoctorsBeDoctors marketing campaign resonates.

 

Allscripts is scheduled to report earnings next week after the close on 8/4. We continue to believe that expectations related to an Allscripts bookings beat is unfounded, and that if management had a beat up their sleeve, they would have pre-announced positive like they did in same quarter last year.

 

Meanwhile, Allscripts' competitor in the ambulatory market, Quality Systems (QSII) reported weak earnings this week and took down guidance for the year on weak order volume in the quarter. While not all of the weakness at QSII is attributable to market conditions, we include Allscripts ambulatory EHR and Practice Management solutions in the market share loser category along with QSII, and therefore we view this as a negative read into Allscripts ambulatory bookings.

ZBH

To view our analyst's original report on Zimmer Biomet click here. Below is an update from Hedgeye Healthcare analyst Tom Tobin.

 

I have been answering emails and tweets about our short call on Zimmer Biomet (ZBH). It has not been successful by any measure. While we are tempted to cover and move on, the data keeps piling up that we are on the right track, at least over the intermediate term.

 

ZBH put up a solid quarter in 2Q, the stock is up appropriately, but we do believe the #ACATaper is emerging on schedule into 3Q16. 

 

Depending on your time frame, we do not see a catalyst specific to ZBH until later next week with the employment and subsequent JOLTS report. We are working on getting access to specific hospital claims data that will show us orthopedic procedures, but that may be beyond your tolerance or timeframe. One could cover and re-short later, although we have never been good at timing. In healthcare, trends are stable until they’re not, and it is very often tough to stay with a thesis when the price is telling you everyone thinks your’re wrong.  

 

Investing Ideas Newsletter - 20160729 US Knee 1YR

HOLX

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

 

In our view, Hologic's (HOLX) 3Q16 was as expected, where it mattered. Breast Health was disappointing in terms of product sales, showing a massive deceleration in year-on-year sales growth from the prior quarter. The #ACATaper continues to unfold away from HOLX as Hospital providers and other companies lowered guidance and missed expectations. 

 

The #ACATaper will likely hit HOLX in their Diagnostics segment which had another good quarter, particularly for Cytology. We believe the US medical Economy will be showing material weakness next quarter beyond what we saw this quarter. We’ll update you next week on the Tomo-Tracker results for July. We think growth peaked in June, and sequential and year-over-year declines will be evident in the coming months.

TIF

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

  

Tiffany (TIF) comps correlate pretty tightly with moves in the luxury PCE category. 

 

TIF Comps have already led the category to the downside to date, but we think the important point to focus on is the fact that most of that underperformance has been due to poor demand for TIF in particular and less about the category (maybe the lack of Tourism traffic explains away a part of it). From here, we think the potential for meaningful downside is clear as the category, which has held up considerably well, weakens to the downside. That adds another leg down for the comp numbers at TIF. As a reminder, real luxury spending turned negative in the May PCE release.

 

Investing Ideas Newsletter - 7 29 2016 tif II

LAZ

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

 

Lazard (LAZ) was unable to navigate the macro environment in its 2Q16 earnings print this week with a -26% year-over-year slowing in its main M&A advisory business. Our regression model flagged this outcome at the beginning of the year with corporate credit costs on the rise, cresting over a +100 basis point increase to start 2016. Based on 14 years of data, this outcome has resulted in a -20% decline on average in hyper-cyclical advisory revenues. Thus, the result was in-line with our expectations but well below Street estimates.

 

Investing Ideas Newsletter - laz2

 

Lazard is still swimming upstream, with 1/3 of its M&A practice in Europe and it battling the new uncertainty caused by the U.K. referendum to exit the European Union. We think this will stifle deal volume in an already uncertain geography.

 

Furthermore, the Street estimates are still wildly high with 2017 at $3.30 per share, over +25% higher than our number. Thus, we don’t see the stock breaking substantially higher outside of bouncing around broadly with U.S. equities. Annualizing this quarter’s earnings results puts the EPS opportunity at $2.40 or $2.20 per share for 1H16. Either way, we don’t see a stock with lots of upside considering estimates need a substantial haircut. 

 

Investing Ideas Newsletter - laz1

WAB

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

 

Our Wabtec (WAB) thesis continues to play out. We would caution longs that this is only the third quarter of down freight revenue, and both railcar and locomotive deliveries in the quarter remained well above likely ‘normalized’ demand. 

FL 

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

 

The emphasis NKE is placing internally to grow it’s DTC business (mainly e-comm) is bad for the traditional wholesale athletic space. We've done the math to see what this risk means for Foot Locker (FL).

 

What are the options for the retailer? It can either...

 

  1. Take a larger share of NKE’s incremental wholesale business, or
  2. Spend to grow the less relevant footwear brands like UA and AdiBok.

 

The first ain’t going to happen as FL has hit its limit with Nike. The 2nd requires both additional investment and something we haven’t seen in a long time which is NKE losing market share.

 

Based on our math for FY17 (that’s 2Q-1Q for FL), using the Street’s estimates, FL needs to add an incremental $330+mm to its US business to hit numbers. We think about $130mm comes from NKE, meaning we need to see an incremental $200mm from other brands. Hint – it’s not a slam dunk.

 

We continue to see FL as a short with multiyear growth headwinds as the Nike paradigm shifts.

LMT

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

 

No update on Lockheed Martin (LMT) but we reiterate our long call.


The Week Ahead

The Economic Data calendar for the week of the 1st of August through the 5th of August 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 - 07.29.16 Week Ahead


HEDGEYE Exchange Tracker | Summer Slump + Summer Loving

Takeaway: All exchange categories are now exhibiting negative Y/Y growth in 3Q however futures are showing the smallest contraction at just -2%.

Weekly Activity Wrap Up

For the second week in a row, the 3Q16TD average daily volume (ADV) fell for all exchange categories. Futures put up 16.9 million contracts per day this week, bringing the 3Q16TD ADV to 18.3 million contracts, a -2% Y/Y contraction. Options activity slumped to 14.5 million contracts per day in the past 5 days, lowering the 3Q16TD ADV to 15.4 million, -15% lower Y/Y. Cash equities came in at 6.5 billion shares per day, bringing the quarter's ADV to 6.6 billion, -10% lower than 3Q15. What is showing less seasonality is the trajectory of CME Group volumes. The exchange reported earnings this week and that year-over-year volume growth expanded +13% exchange wide with all categories growing except for FX. Metals, energy, and equity activity lead the way for CME up +41%, +33%, and +25% in 2Q and the exchange set a new high water mark for open interest at 106 million contracts. The stock remains on our Best Ideas list as a long position.

 

HEDGEYE Exchange Tracker | Summer Slump + Summer Loving - CME chart

 

The trading volume setup thus far in 3Q16:

 

HEDGEYE Exchange Tracker | Summer Slump + Summer Loving - XMon16

  

U.S. Cash Equity Detail

U.S. cash equities trading came in at 6.5 billion shares per day this week, bringing the 3Q16TD ADV to 6.6 billion, -10% lower than the year-ago quarter. In the market share battle for volume, exchanges are losing share. The New York Stock Exchange/ICE is taking a 24% share of third-quarter volume, which -31 bps lower than the year-ago quarter. NASDAQ is taking a 17% share, -223 bps lower than one year ago. Finally, BATS' 20% share is -120 bps lower Y/Y.

 

HEDGEYE Exchange Tracker | Summer Slump + Summer Loving - XMon2

 

HEDGEYE Exchange Tracker | Summer Slump + Summer Loving - XMon3

 

U.S. Options Detail

U.S. options activity came in at a 14.5 million ADV this week, bringing the 3Q16TD ADV to 15.4 million, -15% lower than the year-ago quarter. In the market share battle amongst venues, NYSE/ICE's 15% share of 3Q16 volume is -280 bps lower than one year ago. Additionally, while BATS' share grew in the first half of 2016, growth has stalled somewhat in recent weeks, and the exchange's 11% share is -23 bps lower than the year-ago quarter. Meanwhile, NASDAQ's 22% share is +164 bps higher than in 3Q15, and CBOE's 29% market share of 3Q16 is up +162 bps Y/Y. Finally, ISE/Deutsche's 13% share is -155 bps lower than 3Q15.

 

HEDGEYE Exchange Tracker | Summer Slump + Summer Loving - XMon4

 

HEDGEYE Exchange Tracker | Summer Slump + Summer Loving - XMon5

 

U.S. Futures Detail

12.5 million futures contracts per day traded through CME Group this week. That puts the 3Q16TD ADV at 14.1 million, -2% lower Y/Y. Additionally, CME open interest, the most important beacon of forward activity, currently sits at 103.7 million CME contracts pending, good for +14% growth over the 91.3 million pending at the end of 4Q15, although a contraction from the previous week's +17%.

 

Contracts traded through ICE came in at 4.2 million per day this week, lowering the 3Q16TD ADV to 4.3 million, which is flat Y/Y. ICE open interest this week tallied 64.2 million contracts, +1% higher than the 63.7 million contracts open at the end of 4Q15, although a contraction from the previous week's +2%.

 

HEDGEYE Exchange Tracker | Summer Slump + Summer Loving - XMon6

 

HEDGEYE Exchange Tracker | Summer Slump + Summer Loving - XMon8

 

HEDGEYE Exchange Tracker | Summer Slump + Summer Loving - XMon7

 

HEDGEYE Exchange Tracker | Summer Slump + Summer Loving - 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 | Summer Slump + Summer Loving - XMon10

 

HEDGEYE Exchange Tracker | Summer Slump + Summer Loving - XMon11

 

HEDGEYE Exchange Tracker | Summer Slump + Summer Loving - XMon12

 

HEDGEYE Exchange Tracker | Summer Slump + Summer Loving - XMon13

 

HEDGEYE Exchange Tracker | Summer Slump + Summer Loving - XMon14

HEDGEYE Exchange Tracker | Summer Slump + Summer Loving - XMon15

 

 

Please let us know of any questions,

 

Jonathan Casteleyn, CFA, CMT 

  

  

 

 Joshua Steiner, CFA

 

 

 

Patrick Staudt, CFA


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