9 Reasons Investors Should Sell Chipotle | $CMG

9 Reasons Investors Should Sell Chipotle | $CMG - cmg Screen Shot 2016 10 17 at 3.13.34 PM

Cue the barf bags. Chipotle (CMG) is down -2.5% today after a Wall Street analyst cut his outlook. It's down -45% since Hedgeye Restaurants analyst Howard Penney turned bearish in October 2015. He says Wall Street consensus remains “far too optimistic.” Here's why.

The U.S. Industrial Economy's Worst Streak Ever

Takeaway: Disappointment continues for investors searching for a bottom in the industrial economy.

The U.S. Industrial Economy's Worst Streak Ever - industrial production 10 17


An industrial production update today confirmed yet another month of contraction in the industrial economy. Growth was negative for the 13th consecutive month at -1.03% year-over-year. That makes it the longest non-recessionary losing streak ever. Att the same time, earnings from manufacturers in the industrial complex are reporting dismal financial results.


In other words, investors searching for a bottom in the industrial economy have been disappointed for over a year now.


Our quarterly Macro Themes for the Q4 highlighted the #DoubleDipRecession risk embedded in the recent runup of the Industrials (XLI) sector. XLI is up +8% versus just 4% for the S&P 500. Here's what our Macro team wrote:


"The cyclical-industrial complex peaks ahead of the peak in the economic cycle and the current cycle has not proved different. Globally, growth and inflation expectations continue to be marked lower while PMI's and Industrial activity remain in Trend retreat. Domestically, manufacturing ISM's remain peri-contractionary while industrial production and corporate capex remain mired in their worst non-recession streaks of negative growth ever."


More bad news today for the industrial sector came from J.B. Hunt Transport Services' (JBHT). The freight trucking company cut its sales guidance for the year today to 7% growth from a prior range of 9% to 12% growth. The trucking industry has struggled with excess capacity, pricing pressures, and weak customer demand.


Related struggles have been reported by execs at Honeywell (HON), Dover Corp (DOV), and Fastenal (FAST). 


Double dip Recession? Yes.


Takeaway: We will provide a comprehensive overview of our #ACATaper and Healthcare Deflation themes with new datasets and analysis.

TODAY @ 1:00 PM ET | HEALTHCARE THEMES CALL - 111111111InsuredPopSlowing

4Q16 healthcare themes conference call

We hope you can join us for our 4Q16 Healthcare Themes Call Today at 1:00 PM ET.  We will provide a comprehensive update of our #ACATaper and Healthcare #Deflation themes with new datasets and analysis, including a detailed look at the population of insured medical consumers by month, state, and payor type (chart above).  


The U.S. Medical Economy remains extended after the largest expansion in insured medical consumers in a generation.  Slowing growth in medical consumers, continued deterioration in affordability, aggressive payment reforms, company leverage at 15-year highs, and multiples at 10-year highs is a recipe for downside.  We don't believe that the U.S. Medical Economy growth recovery of 2014 -2015 is durable, but rather a temporary boost in consumption driven by massive government stimulus.


We are also extremely pleased to announce that Emily Evans, Director of Health Policy at Hedgeye, will be joining the presentation and sharing her views on major policy initiatives including Alternative Payment Models, MACRA, and post-acute reform, among other topics that significantly impact our fundamental views.


Please contact  for further information.  An invite with dial-in instructions will be sent to subscribers ahead of the conference call.

key topics WILL include

#ACATaper Update and Review


Data updates since our JULY 2016 presentation

(continue to progress in line with our expectations for slowing demand)

  • JOLTS and Medicaid Pent-Up Demand
  • Exchange Enrollment
  • Premium/Deductible Affordability 

#Demographic Headwinds (YES HEADWINDS!)

Incremental medical spending for the US Medical Economy

(the most profitable in the world, will be sourced almost exclusively from Medicare, one of the least profitable payors with mounting deflationary pressures.)

  • Impact of Aging Population
  • Per Capita Spend by Age Cohort
  • Utilization History

#Recession Risk


Hedgeye Macro Has Been Highlighting Risk to U.S. Growth

(which is negative for the U.S. Medical Economy)

  • Employment vs. Privately Insured
  • Hospital Bad Debt Expense
  • Real Private Fixed Investment
  • Biotech Fundraising Cycle

#Cleansweep Policy Post Election

(Emily Evans will provide her outlook for post-election policy pressures which are likely to deteriorate further if Democrats make a clean sweep in November)

  • Major healthcare issues that have crystalized during campaign including affordability of health insurance, drug prices and public option
  • Implications to those issues if:
    • Democrats win White House and gain majorities in House and Senate
    • Republicans win White House and retain majorities in House and Senate
    • Government remains divided
  • Major healthcare issues that have not moved to the fore but have bi-partisan support include addressing mental health and substance abuse, elimination of certain ACA-related taxes and payment and delivery reform

#Defensive Long Healthcare Positioning Looks Like Consensus...

(and likely a bad idea here)


Healthcare As A Safe Haven Looks Like Consensus...

(likely to unwind if we are right on emerging fundamental and policy headwinds)

  • Style Factor and Surprise Analysis
  • Estimate Revisions
  • Relative and Absolute Valuation

Please call or e-mail with any questions.


Thomas Tobin
Managing Director



Andrew Freedman, CFA



Alexander Ross


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.47%
  • SHORT SIGNALS 78.68%

Trump vs Clinton: Who Wins (And What It Means For Markets)

Trump vs Clinton: Who Wins (And What It Means For Markets) - z jones


Hedgeye Director of Research Daryl Jones discusses the U.S. election, possible outcomes and implications for investors with BNN's Andrew McCreath.




Some key observations from Jones:


  • "This is Hillary Clinton's race to lose. It's very unlikely Trump can come back from his deficit."
  • "Setting the election aside, the fundamental macro economic backdrop is really negative."
  • "Stock valuations are sky high." 
  • "This isn't like any other cycle. What happens in the short term with resolution of this election soap opera will be positive. But then we have to deal with the Fed again."
  • "We actually have U.S. GDP slowing into Q1. That will be bad for the stock market." 
  • "The one area that's going to benefit under almost any scenario is infrastructure spending. Both candidates want to invest here."


CHART OF THE DAY: A Tough 2016 For Equity Investors

CHART OF THE DAY: A Tough 2016 For Equity Investors - 10.17.16 EL Chart


It's been a rough year and half for equity investors.


After selloffs in July and December of 2015, a lot of people are playing performance catchup and chasing the returns of indices like the S&P 500 and Russell 2000. That's been a losing bet for some time now.


As you can see in the Chart of the Day, from today's Early Look, high beta, stocks that are the most likely to move with swings in the stock market, got killed last week. High beta stocks were down -2.5% versus low beta stocks which were essentially flat (circled in red). Low beta has been winning the battle in the year-to-date as well, +7.9% versus +6.7% for high beta. (See below for more on how this table is constructed.*)


To be clear, we've been advising that investors buy low beta stocks that are in the top 25% of market cap for well over a year now. We've been right on high vs. low beta. Here's how that's worked for market cap year-to-date:


  • Bottom 25%: +3.2%; versus
  • Top 25%: +4.2%


Based on our contrarian outlook for the U.S. economy and earnings season (here and here), we're sticking with our call to buy low beta, big market cap stocks.

That's been a winning mix all year. 



*  *  *  *


(*The chart above shows equity market "style factors" for companies in the S&P 500. Basically, we rank S&P 500 companies by their style factors comparing those in the top 25% versus the bottom 25% based on performance. For instance, we take the performance of S&P 500 stocks that have the "highest beta," the top 25% of the index, and compare that to the bottom 25% with the lowest beta.)

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.)




1. 5 Reasons To Sell Starbucks Now | $SBUX (10/16/2016)



During a recent HedgeyeTV presentation to institutional subscribers, Hedgeye Restaurants analyst Howard Penney laid out his sell call on Starbucks. In the excerpt above, Penney gives the five reasons the company isn’t, as one of his competitors recently claimed, “the greatest growth company in all of retail.”


2. ‘Macro Mentoring’ Session 6: How We Analyze Economic Cycles (10/15/2016)



In this week’s edition of ‘Macro Mentoring’, Hedgeye CEO Keith McCullough shows viewers how he uses the sine curve when analyzing the Non-Farm Payrolls and why he is predicting a slowdown in the broader economy. He also explains what’s driving global bond yields. 


3. Howe: Why U.S. Election ‘Venom’ = Indictments & Gridlock (10/14/2016)



In this excerpt from The Macro Show earlier today, Hedgeye Demography Sector Head Neil Howe discusses his post-election outlook. It’s pretty grim.


4. What The Media Missed: ‘It’s Literally A Lie’ To Say US Growth Isn’t Slowing (10/12/2016)



In this brief excerpt from The Macro Show, Hedgeye CEO Keith McCullough explains what mainstream media networks missed about U.S. economic growth and the broader implications for investors.


5. President Trump Catalyst? Bad Jobs Report (10/10/2016)



In this brief excerpt from The Macro Show, Hedgeye CEO Keith McCullough explains why the upcoming non-farm payroll reports could tip the presidential election in Donald Trump’s favor.

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