Below are analyst updates on our fourteen current high-conviction long and short ideas. We will send Hedgeye CEO Keith McCullough's refreshed levels for our high-conviction Investing Ideas in a seperate email.
Please note that we removed Sabre (SABR) from the short side and Whole Foods (WFM) from the long side this week. We also added Walmart (WMT) to the long side. Hedgeye Retail analyst Brian McGough will be sending a stock report on the company in the coming week.
TLT | GLD | MUB | VYM | JJC
Click here to view our analyst's original report on Gold.
Three weeks ago we highlighted the ongoing industrial recession in our 09/17 investing ideas update (CLICK HERE). That theme came full frontal this past week with the introduction of our Q4 2016 macro themes. The 114-page slide deck was split into three parts with the #DoubleDipRecession in cyclicals and manufacturing being the first theme:
Industrial production, capital goods orders, and factory orders continue to look recessionary. Specifically, all three series have experienced negative growth for the longest period ever without a recession. Here’s a look at factory orders and customer inventories (customer inventories rising is not a good sign for end-market demand):
Looking at earnings estimates and analyzing the client messages in our inbox, consensus either expects or is looking for a reason to expect a rebound (let’s face it many people are paid to be bullish 100% of the time). Here is a look at another slide in the deck that shows Wall Street's consensus sales and earnings growth expectations through Q3 2017 (it’s a sea of green):
Where we differ from consensus is the estimate on a rebound in demand, which is one of the most important points to take away from our double dip recession theme. And this set-up was created by a debt-fueled surge in the supply of commodities and industrial goods sowed by QE, a weaker USD, and commodity price inflation. The following quote is from Friday's Early Look written by Hedgye U.S Macro analyst Christian Drake which sums up this point:
"With...
- Producers outspending replacement costs for a long period of time, leveraging themselves to do it; and with
- The current level of fixed capital where it is relative to raw materials and equipment, etc. being produced, demand doesn’t suddenly return after a year or more of deflation.
The producer who bought a piece of equipment (made by raw materials) to take copper out of the ground doesn’t need a new one, nor can they afford it with commodity prices plunging. Mining equipment shipments related to copper mining were +100% in 2011 when copper hit an all-time high. Those assets were capitalized on the balance sheet at the highs and will be depreciated over a long period of time (or impaired, which is what we’ve seen.)”
In short, the producer that bought a piece of equipment to participate in the splurge and mine some copper doesn’t need a new piece of equipment (see the chart we put in our update two weeks ago on shipments of copper mining equipment which is -60% Y/Y). Our themes deck was basically an amalgamation of our #GrowthSlowing theme.
You know what to do – stick with the process.
LVS
Click here to read our analyst's original report.
The Macau government reported that GGR climbed 7.4% YoY in September. VIP was likely well into the black and had its best month since April 2014. We were surprised by the GGR figure and suspect many of the Macau operators are as well. While VIP hold % was probably above normal, VIP volumes were also likely positive.
Following our trip to Macau last week, we had expected mass revenues to be flattish YoY but with overall GGR growth of 7.4%, in all likelihood mass grew as well. We will have a better read on how mass performed next week when we publish the results of our Mass Tracker.
Additionally, Golden Week visitation appeared to be off to a slow start but bounced back the rest of the week. It appears as though it will finish the week strong, which bodes well for potential casino play. For now, we reiterate our bullish bias towards shares of Las Vegas Sands (LVS).
HCA | AHS
Click here to read our analyst's original report on HCA Holdings and here for our analyst's report on AMN Healthcare Services.
HEALTHCARE EMPLOYMENT SEPT 2016
Takeaway: Hospital Employment growth of +3.1% YoY is the slowest in the last year, which supports our #ACATaper thesis and JOLTS model.
HEALTHCARE EMPLOYMENT sepT 2016 +2.9% YOY
Healthcare Employment growth for September 2016 was +2.9% YoY and down from March 2016 peak of +3.4% YoY. This slowdown is in-line with our #ACATaper thesis and the approximate six-month lag with Healthcare Job Openings. Hospital Employment growth was the slowest in the last 12-months at 3.1% YoY, after hitting a peak of 3.9% YoY in April 2016. We believe Hospital employment will continue to slow in response to deteriorating Hospital admission trends. This provides further support to our AHS short thesis, as demand for temporary staffing falls at the first sign of marginal weakness.
Biotech and Pharma employment continue to remain strong, which is consistent with the rebound in fundraising activity from the beginning of the year. We continue to watch these series closely to inform the timing of our short thesis on the CROs and MDSO.
Healthcare Job Openings (JOLTS) for August 2016 will be the next major data update related to our #ACATaper theme, and is scheduled to be released October 12th.
HBI
Click here to read our analyst's original report.
As of this week, Rich Noll is no longer the CEO of Hanesbrands (HBI). He held the position for the entirety of this company's public history (10 years), and though he is not old on the scale of S&P CEOs, he is now walking away. Noll is considered one of the smarter CEOs in retail, with a good understanding of macro and industry cycles, and a solid track record.
Generally, it is a bad sign when a solid CEO leaves a company at peak performance, by choice, especially after selling $116mm worth of stock with HBI's price around its all time highs and shortly after starting an acquisition binge.
WAB
Click here to read our analyst's original report.
UberPOOL Could Be HUGE: Pre-tax dollars can now be used for UberPOOL in New York City through TransitChek, with broader expansion coming to many key cities. Even if this and related services sap just a few percentage points of transit demand, it can have a significant impact on total transit capital spending. Importantly, bureaucrats hesitant to spend hundreds of millions of taxpayer dollars on public transit equipment may wait to see if ridesharing services could fill the gap instead. If it works here, it can reasonably be expected to go global. We believe that Wabtec (WAB) is buying LEY at a premium price ahead of a government supported technological shift that may significantly reduce spending on mass transit capital equipment.
CERN
Click here to read our analyst's original report.
No update on Cerner (CERN) this week but Hedgeye Healthcare analyst Tom Tobin reiterates his short call.
BX
Click here to read our analyst's original report.
At a recent investor conference, Blackstone's (BX) head of global private equity discussed a “treacherous” investing environment. With free cash flow multiples on buyouts, recaps, and M&A back to near record levels, these premiums simply make internal rates of return (IRR) harder to come by.
Blackstone’s main driver is performance fees, which are struck on IRR’s above 8% and then triggers a “carry” of 20% of the profits over that hurdle. With IRRs compressing, especially in this late stage of the economic cycle, we think Street numbers are unachievable and that BX shares are heading much lower. On our scorecard, IRRs across alternative category peaked in 2013 and 2014 and are all rolling lower into ’16 and the New Year.
Simply put, BX will flourish in a recession with the ability to use its $80 billion in dry powder to buy distressed assets, however in the current environment with excessive premiums across asset class, the company will miss its lofty performance expectations. We have fair value on BX shares between $15-20 which translates into 25-40% downside from current levels.
AXP
Click here to read the American Express (AXP) stock report that Hedgeye Financials analyst Josh Steiner sent to Investing Ideas subscribers earlier this week.
