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3 Reasons to Buy Kansas City Southern | $KSU

 

Is Donald Trump going to ignite a U.S.-Mexican trade war?

 

Investors were questioning exactly that on Election Day, when shares of railroad operator Kansas City Southern (KSU) fell as much as -12% intraday. About 48% of the railroad operator’s revenue comes from Mexico.

 

Kansas City Southern shares have yet to recoup the Election Day losses, even after posting better-than-expected results on Inauguration Day. The company’s executives acknowledged the irony of posting results on the day of Trump’s inauguration following the share price drop:

 

"Obviously the political and economic uncertainty is probably first and foremost on most of our minds, and the irony of us reporting earnings on the inauguration day of the 45th President is not entirely lost on us," Chief Executive Patrick Ottensmeyer said.

 

In the video above, Hedgeye Industrials analyst Jay Van Sciver explains why he thinks Trump uncertainty is already priced-in, but skittish investors are missing the positives:

 

  • Kansas City Southern’s multiple is cheaper than usual.
  • Van Sciver sees robust growth ahead (cost savings and favorable profit outlook).
  • Van Sciver thinks M&A speculation will heat up again and close the gap between where it is trading now and its historically premium valuation.

Poll of the Day: Stock Market Crash During Trump's First Term?

Takeaway: What do you think? Cast your vote. Let us know.

Poll of the Day: Stock Market Crash During Trump's First Term? - Stocks crash test dummies cartoon 02.18.2016

 

 

 


3 Reasons Why the Stock Market Peak Might Finally Be In

3 Reasons Why the Stock Market Peak Might Finally Be In - rollercoaster 2 13 2017

 

There's mounting evidence that suggests the post-Election Day stock market rally is due for a pullback. Below are three reasons from data reported on Friday and cited by Hedgeye CEO Keith McCullough in today's Early Look.

1. Stock Market Volume 

As equity markets hit all-time highs, total market stock market volume (the sum total of investor buying and selling) didn’t accelerate. On Friday, stock market volume was down -2% versus the 1-month average. Volume accelerates when investor conviction is high. Lower volume on the up move equals less conviction.

 

3 Reasons Why the Stock Market Peak Might Finally Be In - volume 2 13 17

2. Volatility

Stock market volatility, as measured by the VIX, has crashed -27.5% since the election. Volatility rises as investors grow more fearful and falls as investor confidence grows. In fact, the last 60-days of trading have been the least volatile (rolling 60-day) time period in the Dow and Nasdaq since 2007.

 

That may be changing.

 

The VIX appears to be trending higher. "The VIX signaled its 1st higher-low (within my risk range) in 3 months," writes Hedgeye CEO Keith McCullough. 

 

3 Reasons Why the Stock Market Peak Might Finally Be In - vix 2 13 17 

3. Consumer CONFIDENCE

Consumer sentiment got a huge boost after Trump's Election Day win. But the honeymoon period may be waning. The University of Michigan U.S. consumer confidence slowed to 95.5 in February versus twelve year highs of 98.5 last month.

 

3 Reasons Why the Stock Market Peak Might Finally Be In - COD 021317


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ATH’s on Friday for the SP500, Nasdaq, and Russell 2000 – finally signaling overbought…

Client Talking Points

Japan

Post the friendly Abe visit to the USA and a #StrongDollar ramp vs. the Yen, the Nikkei’s +3% pop in the last 2 trading days registers an immediate-term TRADE overbought signal inasmuch as Yen (vs. USD) signals oversold – we still like Japanese stocks, but we'd book some gains here.

Copper

Youge +5.8% week-over-week move in an important proxy for our #InflationAccelerating call here in Q117 seeing follow through to $2.78/lb this morning but that signals immediate-term TRADE overbought within its bullish TREND too – you should continue to see y/y inflation ramps in the US CPI and PPI reports this week.

VIX

US Equities at the highs and Volatility has crashed (-27.5% since the election) despite consensus concerns about Trump – but that’s yesterday’s news; this morning we're registering my first higher-low (within my immediate-term range) for front-month VIX at 10.36; book gains in US equity beta is the call on that.

Asset Allocation

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
2/12/17 36% 18% 15% 12% 0% 19%
2/13/17 45% 15% 13% 10% 0% 17%

Asset Allocation as a % of Max Preferred Exposure

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
2/12/17 36% 55% 45% 36% 0% 58%
2/13/17 45% 45% 39% 30% 0% 52%
The maximum preferred exposure for cash is 100%. The maximum preferred exposure for each of the other assets classes is 33%.

Three for the Road

TWEET OF THE DAY

This week in Hedgeye cartoons. Get our daily cartoon emailed for free: hedgeye.com/cartoon/email

@Hedgeye

QUOTE OF THE DAY

“You are going to make mistakes in life.  It’s what you do after the mistakes that counts.”

-Brandi Chastain

STAT OF THE DAY

Charles Oakley spent 10 years with the Knicks, averaging 10.4 points per game.


Cartoon of the Day: Big Bear Beat Down

Cartoon of the Day: Big Bear Beat Down - Pummeling of the bears 02.10.2017

 

"As you can see in today’s Chart of the Day, 60-day realized volatility for the S&P 500 is at the cycle low. That’s pulverized the bears. Having been one plenty of times in my career, “believe me!," Hedgeye CEO Keith McCullough writes in today's Early Look.

 

 

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Will High-End U.S. Housing Boom Go Bust?

 

An interesting dichotomy has been developing in the U.S. housing market over the past year or so. The low-end, first time homebuyer market is booming, while high-end home buying languishes.

 

In the months following our first update on the nasty reality developing in high-end housing markets like uber-rich Greenwich, Connecticut, America elected Donald Trump. Optimism set in. The stock market popped following his Election Day victory. The real economy appears to have bottomed.

 

It’s time for a refresh to our high-end housing thesis.

 

“The strongest part of the market is still the entry level market,” says Hedgeye Housing analyst Josh Steiner. “That’s because rents have been rising above inflation for many years now.” Plus, the low-end housing market is extremely supply constrained.

 

“The high-end, however, is the exactly opposite,” Steiner says in the video above. Take the hedge fund capital of the world, Greenwich, CT for instance. It’s housing market is in deep trouble. When last we checked, there was a staggering amount of homes sitting on the market. Here’s the breakdown by home price category:

 

  • $3 million to $4 million: 17 months of supply which has risen 38% over the past year
  • $4 million to $5 million: 22 months of supply, +35% over the past year
  • $5 million to $10 million: 48 months of supply, +108% over the past year
  • Greater than $10 million: 128 months of supply, +63% over the past year

 

Let’s put that last bullet into perspective. At 128 months, that’s almost 13 years of supply.

 

Since Trump was elected, though, measures of Consumer Confidence have hit 15-year highs, GDP growth accelerated and the 10-year Treasury yield (a barometer of U.S. economic expectations) soared from 1.86% all the way up to 2.36%.

 

“It’s a little unclear post the election whether this upswing in market valuations and broader consumer confidence measures will manifest in the form of increased luxury consumption,” Steiner says.

 

As he points out, the S&P 500 is up 6% since Election Day. Wealthy people tend to “annuitize” – or convert investment gains into income – 3% to 5% of those unrealized gains, he says. And snce the top 10% of Americans by wealth distribution own 85% of all financial assets, this could obviously be a major tailwind to housing.

 

A few words of caution. “Historically, you always get this honeymoon phase from Election Day to Inauguration Day. But, the big question remains, then how much of that is directly translatable in spending,” Steiner says.

 

Time will tell.


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