Below are our analysts’ new updates on our thirteen 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 AMN Healthcare Services (AHS) to the short side and added Expedia (EXPE) and Las Vegas Sands (LVS) 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
TLT | GLD | UUP
To view our analyst's original report on PowerShares DB US Dollar Index Bullish Fund click here and here for Gold.
Janet Yellen put her hawk suit back on in Jackson Hole Friday. After taking a nice televised, and centrally-planned, leisurely stroll with Vice Chair Stanley and New York Fed president Bill Dudley she said:
“In light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months."
The reflationary market reaction to the “event” took all asset classes higher. However, the belief that a group of academics, on some high-class vacation in the Rocky Mountains, could permanently suspend asset price devaluation just by opening their mouths quickly faded. The realization throughtout the rest of the day was undoubtedly to the dismay of the most chartists.
Both the DOW (-0.29%) and S&P (-0.16%) finished in negative territory with the NASDAQ (+0.13%) slightly higher. KM described the disappointing beta chase in a note to Real-Time Alerts subs Friday into the close:
“Now we have ourselves a bit of a dog fight out there in the land of those who like to chase US equity beta charts! Love that.
VIX signaling immediate-term TRADE overbought (SPY oversold), so you have plenty of buy/cover moves to make if that tickles your fancy”
Meanwhile, strength in the U.S. dollar, with renewed rate hike expectations back in the mix over the last few weeks, gave a good boost to U.S. Dollar (UUP) which finished +1.1% on the week. The bid-yield of December Federal funds futures has ticked 10 bps higher in August to 0.55% to close out the week:
On the other side of the USD expectation, Gold (GLD) lost -1.5% w/w. Again we still like UUP and GLD as a basket against other centrally-planned currency regimes elsewhere.
Long Bonds (TLT), which has been on Investing Ideas since August 4th, 2014, finished the week -0.25%. We continue to believe that growth is the main catalyst for the curve amidst all the central planning noise. Slower growth gets discounted in a flatter curve so even if rates are hiked into a late cycle slow-down, the yield curve pancakes (the long-end of the yield curve fall and the short-end goes up). Proof? Just take a look at the chart below of the post-December 2015 rate hike.
An acceleration in growth is what would make us take the Treasury position off Investing Ideas. But with a negative revision to Q2 GDP on Friday (+1.1% from +1.2% - our estimate is +1.1% for Q3) and an awful existing home sales print (-1.6% Y/Y), we still think our #GrowthSlowing call has legs.
For more, click the image below to watch Hedgeye CEO Keith McCullough on The Macro Show discuss what we think will happen if the Fed raises interest rates.
HBI
To view our analyst's original report on Hanesbrands click here.
Hanesbrands (HBI) currently sits at peak utilization while at the same time we see organic growth slowing, and the sales to inventory spread around the worst levels in nearly 5 years.
Referring back to our Black Book, the cashflow & margin risk is significantly higher at peak utilization for a company that owns a majority of production like HBI. Negative moves in demand can have exponential flow through implications for profitability.
As HBI sold off unused manufacturing facilities and took up utilization, it saw around upwards of 400bps of gross margin expansion from the fixed manufacturing cost leverage. With negative organic growth putting the peak utilization rate at risk, that margin leverage can work just as severely to the downside as it did to the up.
LAZ
To view our analyst's original report on Lazard click here.
Lazard (LAZ) shares continue to underperform the broader averages despite a recent short term rebound with a running -14.9% year-to-date decline versus the S&P 500 up +6.2% thus far in 2016. Our cautious fundamental case continues to be reflected technically even with the sharp rebound since BREXIT as near term moving averages are still well below the longer term trend line of the 200 day moving average.
We have averted this -20% difference in LAZ and market returns as estimates for the company continue to be unrealistically high and M&A activity has only marginally picked up in 3Q. Consensus expectations need to decline by over -25% before the company has a reasonable benchmark it can meet. Thus we continue to maintain a Short recommendation on the stock.
TIF
To view our analyst's original report on Tiffany click here.
The quarter Tiffany (TIF) reported on Thursday had all the makings of a bad cocktail. The garnish was pretty – demonstrated by the 17% headline EPS beat, 12% sequential improvement in the EPS growth rate, and maintained guidance for the year. But the event itself lacked any substance that would shake us from our bear case. Heck, the comp itself was just shy of toxic, and at -9% in constant currency it was the second worst comp in all of retail behind only Stage Stores – consistent with what we saw in 1Q16 when TIF ranked 2nd on the list of worst performing retailers behind Lumber Liquidators. That’s not an enviable list.
We get that the stock is hated, but we still think there is a lot of hope embedded in this name at current levels. We’re at a -2% EPS CAGR over the next three years vs. the Street at 10%. Even if we’re wrong, and the Street’s numbers prove out, we think you’re looking at a best case 20x multiple on $4 bucks next year, good for 10% upside. If this call plays out the way that way think it will, however, we’re looking at 40% downside or a stock in the mid-40s (mid-teens multiple on $3.20 in EPS). We remain short.
LMT
To view our analyst's original report on Lockheed Martin click here.
No update on Lockheed Martin (LMT) this week but Hedgeye CEO Keith McCullough reiterates his long call. On Real-Time Alerts Live this week, McCullough explained to subscribers why he likes LMT on the long side in these volatile times:
"Now, I don't see a break out in the VIX to 18 or 20 because it doesn't appear to be in the math right now but that doesn't mean it can't happen. Math can be trumped by this thing called non-linearity and you should embrace this uncertainty every day. Still, in volatile trading environments like the one we have now, you want to be long low beta, liquidity and a big dividend that's safe. That's why you own Lockhed Martin."
FL
To view our analyst's original report on Foot Locker click here.
Earlier this week, we sent Investing Ideas subscribers a research note on Foot Locker (FL) from Hedgeye Retail analyst Brian McGough. Click here to read it.
WAB
To view our analyst's original report on Wabtec click here.
Below is a brief bit of Wabtec (WAB) trading advice from Hedgeye Industrials analyst Jay Van Sciver:
"Short Squeezes, Careful Pressing: is a high short interest name, and we would prefer to press a short that is ‘working’ on misplaced strength. While we expect WAB to continue to underperform into ludicrously high 2017 expectations, longs may yet get some opportunistic exit opportunities similar to March/April 2016. WAB shares currently sit at a 3.5 year relative low."
HOLX
To view our analyst's original report on Hologic click here.
Shares of Hologic (HOLX) appear to be getting caught up in the Zika hype as their Aptima Assay is approved for detection of the virus. The FDA recently expanded the recommended testing radius from Zika prone areas to the entire United State and Territories. While this is a marginal positive for their Diagnostics business and a headwind to our short thesis, we do not believe it is enough to offset declining 3D Tomo sales and Breast Health revenue, which historically has driven the stock price.
Additionally, our #ACATaper thesis remains firmly in-tact and expect slowing per capita utilization to drive lower multiples across the sector. We continue to believe that the Affordable Care Act was a marginal growth driver of HOLX’s HPV and Pap testing volumes in the 2014/2015 time period, and now should be turning into a headwind in 2016/2017.