Below are analyst updates on our nine current high-conviction long and short ideas. We will send Hedgeye CEO Keith McCullough's refreshed levels for each in a separate email.
Please note that we added Macquarie Infrastructure Corporation (MIC) and iShares MSCI Turkey (TUR) to the short side of Investing Ideas this week.
IDEAS UPDATES
FXB | UUP | TUR
In this weekend’s update we’ll take a longer-term look at the structural bull case for the U.S. and the U.K. from a demographic standpoint. The divergence from other developed nations is irrefutable when thinking about the consumption power from the age demographic in peak spending years (35-54 year-olds).
Poor consumer trends in mature, developed economies are hard to overcome. Stronger relative growth = Stronger Currency (UUP, FXB).
Before we touch on important demographic trends, here is just a quick update on Friday’s growth accelerating job report:
- It was the largest acceleration in 23 months
- Non-farm Payroll growth came in at +1.64% Y/Y vs. +1.52% Y/Y in December
The long-term, structural bull case on the U.S. dollar and Pound, relative to other developed nations, is the divergence in the peak spending demographic (35-54 year olds) between the U.S. and other developed nations. The charts below take a more granular look at country specifics with a longer time-frame (through 2030). The individual country visuals are below along with the heat-map.
In short, the demographic headwinds in Southern Europe and Japan are estimated to get much worse through the next decade with a +3% divergence in the delta of this peak spending cohort in the U.S. population vs. Southern Europe and Japan. The demographic situation in Southern Europe is increasingly worse by 2030, whereas the growth rate in the U.K. is estimated to turn positive and accelerate in 2020 and beyond.
On Turkey, Hedgeye CEO Keith McCullough wrote this earlier in the week:
"While Dollar Down on a US #JobsAccelerating report is surprising to a degree, remember that Old Wall Media is painting this jobs report as bad on "slowing wage growth", and that is what it is. #partisan
In the 80% of non-supervisory US workers, private wage growth has accelerated to almost +3.0%.
That's the base of the population that anti-Trump Democrats should be happy for inasmuch they should be elated (for the country) to see NFP jobs growth accelerate by more than it has in 26 months!
But I digress...
And I will not complain because short-term market moves like this are to be capitalized on, not whined about.
Think about all the great buying opportunities we’ve had on higher-beta US stocks for the last 3 months…
On that score, I’m looking forward to shorting more of our favorite EM (Emerging Market) SELL ideas, like Turkey and Mexico (EWW), on any USD correction within our bullish long-term USD view."
TWX
Click here to read our analysis on why we think the AT&T/Time Warner (TWX) deal will be approved.
CRI
Click here to read our analyst's original report.
Hanesbrands (HBI) release its quarterly results this week, and the results were not good. The miss was driven by weak traffic and demand at its partner retailers. Several of Hanes's core wholesale partners are the same as Carter's (CRI) .
Let's review the holiday results posted so far in the mass retail space. The comp results:
- Target (TGT): -1.3%
- Kohl's (KSS): -2.1%
- JCPenney (JCP): -0.8%
- Macy's (M): -2.7%
- Wal-Mart (WMT): TBD
In 4Q last year when CRI wholesale revenue tanked, only one of those comped negative which was Macy's at -4.8%. In all, not a good read-through to 4Q topline for CRI.
WFM
Click here to read our analyst's original report.
No update on Whole Foods Market (WFM) this week ahead of the company's earnings on February 8th. We'll have more to report then.
In case you missed it, Hedgeye's Consumer Staples analysts Howard Penney and Shayne Laidlaw hosted a call earlier this week to discuss the most important themes developing in the Consumer Staples space. Companies discussed included Whole Foods Market (WFM) along with U.S. Foods (USFD), Costco (COST) and more...
Click here to watch the entire video presentation.
LMT
Lockheed Martin (LMT) started the Trump presidency back on its heels as a result of a POTUS tweet aimed directly at its #1 program, the F35. The company has regained its footing and is now well postured to benefit from a coming surge in defense spending.
SecDef Jim Mattis’ tasking last Friday to DepSecDef Work on how to carry out President Trump’s guidance is very narrowly worded, focusing on cutting costs for the F-35A and F-35B and separately on the potential of BA’s F/A-18E/F to be a competitor to the F-35C.
In at least two meetings with POTUS, CEO Marilyn Hewson has emphasized that cost reductions can only come by locking in suppliers through block buys and increased production rates. Anyone with a security clearance knows that it isn’t possible to bolt stealth onto a fourth gen fighter like the F/A-18 and compete with a fifth gen F35 in that arena so the question of developing a true competitor has a known answer. (Nonetheless we believe the Navy will seek to buy over 100 more F/A-18E/Fs but not at the expense of the F-35C)
POTUS took credit on Monday for “$600M in savings" for a previously made handshake deal on the planned Lot X (FY16) buy of 90 F-35s. The actual figures came out today on the $8.2B deal and there were savings of $455M for the US and $728M for the total US + International buy compared to the government-directed (Unilateral Contract Action) Lot IX deal announced last November.
Just as important was the recognition today by Presidential spokesman Phil Lebeau that the secret to the cost savings was increased quantities, implying that we should look for accelerated rates and block buys of the aircraft in the near future.
Also in LMT’s wheelhouse was the guidance by POTUS to SecDef Mattis to prepare immediate changes to the FY17 and FY18 budget requests that would achieve desired improvements to readiness by FY 2019. Expect a huge order for spare parts and a push to a more robust spare acquisition philosophy as a part of a ~$40B supplemental request that will hit the Hill in March. Expect immediate increased missile orders for LMT and RTN as weapons stocks are primary drivers of readiness metrics.
Finally SecDef Jim Mattis was in Korea this week promising immediate deployment of an LMT THAAD battery and his guidance for budget changes specifically calls out missile defense as an area of emphasis.
MIC
"On 1/27 our all-star Energy analyst, Kevin Kaiser, added short Macquarie Infrastructure Corporation (MIC) to our Best Ideas (Institutional Research) list. We value MIC between $35 - $50 per share," writes Hedgeye CEO Keith McCullough.
"The Old Wall universally loves this stock. We do not."
We are hosting a call today at 11am EST to discuss our thesis and research. Click here to read Bloomberg's recent write-up, "Hedgeye Short Seller Knocks $660 Million Off Macquarie Infrastructure.
MU
No update on Micron Technology (MU) this week but Technology Sector Head Ami Joseph reiterates his long call on the company.
