Below are analyst updates on our fourteen current high-conviction long and short ideas and Hedgeye CEO Keith McCullough's refreshed levels for each.
Please note that we added Blackstone (BX) to the short side this week. Hedgeye Financials analyst Jonathan Casteleyn will be sending a stock report on the company in the coming week.
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
TLT | GLD | MUB | VYM | JJC
Click here To view our analyst's original report on Gold.
We named the current monetary policy committee a group of “dovish hawks” in a research note after Wednesday’s FOMC statement where the Fed tried to convince the market that the case for a December rate hike had strengthened.
“The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.”
However, a look under the hood at the committee’s “summary economic projections” provides incremental dovish color (all of which are good for slow-growth allocations and why our macro long positions in Investing Ideas had positive performance w/w).
- The Fed’s dot plot was taken down at all durations into the future
- 2016: revised to +0.625% from 0.875%
- 2017: 1.125% from 1.625%
- 2018: 1.875% from 2.875%
- The median forecast for the Fed Funds Rate in the “long run” was revised down to 2.875% from 3% prior
- 2016 GDP forecast: revised to +1.7%-1.9% from 1.9%-2.0% prior
- 2016 PCE Price Index: revised to +1.2-1.4% from +1.3-1.7% prior
So growth continues to slow, and from our analysis, a significant amount of risk is on the table for investors who have chased reflationary asset prices in 2016. Copper (JJC) is our preferred vehicle to play this ongoing theme.
In our update last week, we highlighted continued deterioration in the manufacturing side of the economy. Despite the weakness, investors have gotten behind the reflation trade via commodity-driven stocks and credit. The longer the industrial recession continues, the harder it will be for this trade to have legs, especially without a further rip in commodities. And when looking at the GIP model for other regions throughout the developed world, both Europe and Japan are tracking in Quad 3 for several quarters into the future. The takeaway here is that there isn’t a relative policy catalyst for the U.S. to be devalued meaningfully from here.
And when looking at the GIP model for other regions throughout the developed world, both Europe and Japan are tracking in Quad 3 for several quarters into the future. The takeaway here is that there isn’t a relative policy catalyst for the U.S. to be devalued meaningfully from here.
LVS
Click here to read our analyst's original report.
Following a decent week in Macau (in Average Daily Revenue terms), our monthly forecast and investment thesis remains unchanged. We still expect flattish GGR growth for September but mid-to-high single digit growth for the more important mass segment. We should have a good estimate for Q3 mass revenue growth from the Hedgeye Mass Tracker in early October.
In terms of foot traffic at least, Parisian appears to be off to a better start than Wynn Palace although we would caution against reaching any conclusions this early. Nevertheless, Las Vegas Sands (LVS) remains our top stock pick in the group as it is the company best positioned to capitalize on the accelerating mass segment.
The Macau Government reported hotel and visitation statistics for the month of August. Increased hotel occupancy offset lower average daily room rates leading to better than expected RevPAR performance (see chart below). As for overall visitation, Macau visitation was down 5% YoY, but overnight visitation for both Mainland Chinese guests and total guests continued to accelerate (see chart below). Overall, from a rate of change perspective, things in Macau appear to getting better.
WFM
Hedgeye Consumer Staples analyst Howard Penney outlined his Whole Foods Market (WFM) long thesis in a stock report sent to Investing Ideas subscribers earlier this week. Click here to read the full report.
EXPE
Click here to read our analyst's original report.
Recent U.S. hotel data suggests that declaration in bookings seems unlikely in 3Q and the leisure segment will continue to outperform. Also note that Expedia (EXPE) still has plenty of wiggle room to meet and exceed EBITDA targets for the quarter and the year, thus, it is possible that EXPE could be a little more aggressive in reacquiring customer traffic that they lost in the prior quarter.
On the heels of their room night miss in 2Q, expectations remain low potentially giving way to a positive surprise on the 3Q print. Given recent sentiment around the stock and our confidence in EXPE’s ability to further execute on the AWAY and OWW integrations – we reiterate our bullish bias to shares of EXPE.
HCA
Hedgeye Healthcare analyst Tom Tobin outlined his HCA Holdings (HCA) short thesis in a stock report sent to Investing Ideas subscribers earlier this week. Click here to read the full report.
HBI
Click here to read our analyst's original report.
Ascena Retail Group’s stock crashed this week. We don’t care much for ASNA – and never really understood the "value" play. Retail stocks are a good "value" for a reason because it is not where you want to be invested in this environment. This is a great example of a company concealing true performance with acquisitions, then ultimately revealing its weakness in one very negative stock event. We think Hanesbrands (HBI) is next in line.
Here’s what we can all learn from ASNA:
- Great example of ‘the calendar rule’ – why you should mark your calendar for 12 months after we see a questionable acquisition.
- It’s been just 5 quarters since ASNA bought and integrated Ann Taylor. We can finally see the real earnings power, and it’s not good. 12 months of first-year integration obfuscated the real earnings power of this company (i.e. it made it look too large).
- The company missed the quarter by 50%, cut expectations by 24%, the super-bullish ‘buy rating’ ratio fell by 30%, and the stock is currently trading down 27%.
- All this brings to question 1) ASNA’s ability to consummate deals, but more so, 2) Why it chose to do this deal in the first place. Great example of why defensive deals don’t win.
Hanesbrands is the king of defensive deals. It has made some of the most egregiously priced deals or questionable assets that we have seen in this economic cycle. Will it implode this quarter? Probably not. But Rich Noll has 7 days left on the job. Mark your calendar for 3Q17 – or sooner.
WAB
Click here to read our analyst's original report.
No update on Wabtec (WAB) this week but Hedgeye Industrials analyst Jay Van Sciver reiterates his short call.
AHS
Click here to read our analyst's original report.
Anecdotes collected from our conversations with Hospital Executives has provided incremental support for our #ACATaper theme, which calls for a material deceleration in medical consumption in 2H16 through 2017. We have also noticed an increase in layoff and hiring freeze notices at certain Health Systems as reported by local news sources. We are currently working on developing additional tools to track healthcare employment in real-time and will provide updates accordingly.
As of now, there is no change to our short thesis and believe shares of AMN Healthcare Services (AHS) are headed back to the low-$20s. The next major data point will be the September employment report, which will be released on 10/7.
CERN
Hedgeye Healthcare analyst Tom Tobin outlined his Cerner (CERN) short thesis in a stock report sent to Investing Ideas subscribers earlier this week. Click here to read the full report.
