Below are our analysts’ new updates on our fifteen current high conviction long and short ideas. 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 HCA Holdings (HCA) to the short side of Investing Ideas and Municipal Bonds (MUB) to the long side this week. Included below are Hedgeye CEO Keith McCullough's refreshed levels for each idea.
levels
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
EXPE
We sent a new stock report on Expedia earlier this week. Click here to read it.
LVS
We also sent a report this week on Las Vegas Sands. Click here to read it.
TLT | GLD | UUP
To view our analyst's original report on PowerShares DB US Dollar Index Bullish Fund click here and here for Gold.
For the high-frequency flopping fans... it looks like we’re going to get our sixth rhetorical Fed policy pivot of 2016 following a week of downbeat domestic macro data:
To review the "ping-pong" match in policy communication: In the last seven months, the Federal Reserve has pivoted from Hawkish (DEC hike) to Dovish (on market down), to Hawkish (April), to Dovish (May Jobs Report bomb), back to Hawkish (July), and now probably back to Dovish again!
To review the week’s fundamental data:
Pending Home Sales & HPI
Pending Home sales rose just 1% year-over-year in July and have been negative in 2 of the last 3 months. Sales in the existing market represent ~90% of total housing transaction volume and the trend remains one of deceleration. Case-Shiller HPI data for June released this week showed price growth in the 20-City series slowed -10bps sequentially to +5.1% YoY, marking a 10-month rate-of-change low. As it stands, all the primary price series (Case-Shiller, FHFA, CoreLogic) are telling a consistent story of modest HPI deceleration.
ISM
The August ISM reading printed 49.4, down -3.2 pts sequentially and down for a 2nd month off the latest underwhelming “top” as current production, new orders, employment and backlogs all slide into contraction.
Auto Sales
Auto Sales fell -4.8% MoM in August to 16.91mm Units. Auto sales represent ~20% of Headline Retail Sales so a -5% decline will sit as a -1% drag to reported growth in the Retal Sales data reported on 9/15
NFP
Employment growth slowed on both an absolute and rate-of-change basis in August. Notably, the deceleration was complemented by a decline in average hours worked and a significant deceleration in hourly earnings growth. Average hourly earnings in the private sector slowed from a cycle high of +2.7% YoY to +2.4% while earnings growth for Nonsupervisory workers (~80% of the labor force) decelerated +2.1% YoY vs +2.7% prior. Expect to see a more significant deceleration in payroll growth in 4Q as we traverse meaningfully harder comps.
Income & Consumption
Slowing employment growth + a decline hours worked + deceleration in earnings growth will = a deceleration in aggregate income growth when the official data are reported at the end of the month. Absent a significant decline in the savings rate and/or significant re-acceleration in credit growth, consumption growth can be expected to track income growth lower.
Industrial Activity
The -14K decline in manufacturing employment in August accords with the retreat in the employment subcomponent in the ISM manufacturing report. Lower manufacturing employment and a slowdown in manufacturing hours worked also points to a sequential decline in Industrial Production when that data is reported later in the month.
In short (and in the short-term), bad economic data is good as falling rate hike expectations support asset price inflation.
Over the intermediate-term, "slower-and-lower-for-longer" continues to characterize the growth, inflation and interest rate outlook and support #GrowthSlowing allocations in bonds, gold, and dollars. While incremental dovishness from the Fed may serve as a short-term headwind to the dollar, the structural case for the $USD amidst ongoing policy divergence between the U.S. and the balance of global DM markets remains intact.
HBI
To view our analyst's original report on Hanesbrands click here.
Hanesbrands (HBI) has not yet announced participation in this year’s Goldman conference, which takes place next week. Though it’s possible that HBI attends without an announcement, it’s worth noting that in advance of last year’s conference the company positively preannounced earnings.
That does not appear to be the case – at least yet – for this year. HBI remains out top short in Retail.
LAZ
To view our analyst's original report on Lazard click here.
Lazard had a series of troubling ancillary news this week. First, the European Union (EU) served a tax bill in arrears to tech giant Apple claiming that the company had received an unlawful 13 billion euro subsidy when Ireland gave it preferential tax deals. The development while not directly related to Lazard, serves as a future impediment to international M&A transactions, as a common acquisition strategy is to acquire and redomicile into a lower tax jurisdiction. We hosted a call mid-year with an attorney close to the new U.S. Treasury rulesets on U.S. tax inversion deals and we estimate that 5% of global M&A is tax related which will now add the EU as a region frowning upon tax related benefits.
Secondly, Lazard caught some bad press for a debt calculation mistake during the end of the week on the pending Tesla/Solar City transaction. The firm was singled out as having double counted Solar City’s debt balance which would have raised the consideration value for Tesla’s acquisition. While two separate and unrelated issues for the firm and outside of our fundamental call on M&A having peaked last year, these items on the margin are far from bullish and continue to outline a short case on LAZ in our view.
TIF
To view our analyst's original report on Tiffany click here.
In its latest quarter, Tiffany (TIF) comps missed for the 4th straight print coming in about 100bps below the street.
As expected, soft demand and macro headwinds continue to pressure the US as the Americas C$ comp slowed on a 2 year basis, now running at a negative MSD rate. We expect comps to continue to be soft as the issues of lower tourist traffic and slowing luxury demand show no signs of abating.
Our negative macro view was further strengthened by the August jobs miss on Friday.
LMT
To view our analyst's original report on Lockheed Martin click here.
Hedgeye Senior Defense Advisor LtGen Emerson "Emo" Gardner USMC Ret. has no new update on Lockheed Martin this week.
FL
To view our analyst's original report on Foot Locker click here.
Foot Locker (FL) has among the lowest SG&A ratios in all of retail. Why? Because 3/4 of sales come from the mother of all brands (Nike) that serves as its own traffic driver.
FL is shifting incrementally to Adidas and UA, both of which are lower ticket and less profitable. And importantly, with such a huge Nike presence, FL needs to spend close to nothing on advertising relative to the financial impact of having such great product. That is changing. A 19% SG&A ratio is targeted to 18%, but it could (and should) just as easily go to 22-23%, which cuts margins by more than a third — not including the e-commerce investment. FL needs to hire a world-class e-commerce organization to prevent itself from being disintermediated. That is very very expensive. Same goes for fulfillment ops, and having the content to back up such an investment.
All in, the next leg of growth will be more expensive, and street earnings numbers do not have the proper margin assumptions baked in to maintain top line growth.
WAB
To view our analyst's original report on Wabtec click here.
Our Industrials analyst reiterates his short thesis on Wabtec (WAB).
HOLX
To view our analyst's original report on Hologic click here.
Something bad is going to happen here. We see 30% downside for Hologic (HOLX) and credibility risk.
The Mammography Quality Standards Act and Program (MQSA) reported National Statistics for mammography facilities yesterday afternoon. Beginning in June 2016, MQSA began reporting Digital Breast Tomosynthesis (3D) facility and unit counts. The sequential increase in facility and unit counts were 98 and 125 for the month and 244 and 341 for the trailing 1 month and 3 months, respectively.
Interestingly, the 3D placements reported by Hologic as of June 2016 was 3,895, which is higher than MQSA's 3,469 for the comparable period. We're assuming Hologic's count includes placements outside of the US. We believe there is greater than -30% downside for HOLX as the significant revenue and gross margin contribution from 3D turns negative. F4Q16 and F2017 guidance appear to be a strong near term catalyst. Also at stake is management's credibility (and multiple) given the vigorous there-is-no-Tomo-cliff communication with the street.
AHS
Click here to read our stock report on AMN Healthcare Services (AHS).
We’re seeing our #ACATaper theme play out in our SHORT call on AHS this week with hospital employment continuing to slow.
The new healthcare employment data for August 2016 was 3.4% compared to a peak 3.9% in April 2016. Our next major catalyst for AHS is the JOLTS data being released next Wednesday which we will highlight in next weeks investing ideas. We continue to expect shares of AHS to trade back to the low-$20s as organic growth slows and then potentially goes negative over the next 6-9 months.
