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Global Growth: A Shocking Number of Investors Are Missing the Story

Takeaway: Many active managers are simply not long enough in the context of how good the fundamentals have been.

Global Growth: A Shocking Number of Investors Are Missing the Story - globe image

 

The OECD expects a "modest pick-up" in global growth, but warns of risks like "rising protectionism, financial vulnerabilities [and] potential volatility" that could "derail recovery." Meanwhile, the BIS' monetary and economics head, Claudio Borio writes, "Politics tightened its grip over financial markets in the past quarter, reasserting its supremacy over economics." The BIS too cautioned of a global growth slowdown.

 

The warnings have been heeded by investors. "Hedge funds are bracing for a market selloff," Bloomberg writes today. 

 

The sheer number of investors and pundits missing out on such an obvious recovery in global growth data is shocking to say the least. Our analysis suggests that global growth is unequivocally accelerating on a trending basis. This is the underlying factor perpetuating the broad-based recovery in both domestic and global corporate profit growth.

 

Global Growth: A Shocking Number of Investors Are Missing the Story - World Nominal Retail Sales

 

We’ve calculated the weighted average growth rate of Nominal Retail Sales and Industrial Production for the world’s 10 largest economies, which in total represent just shy of 80% of global Nominal GDP. The punchline is that each of the aforementioned indicators is accelerating on a trending basis.

 

Global Growth: A Shocking Number of Investors Are Missing the Story - World Industrial Production

 

All told, when analyzing the data from either a top-down or bottom-up perspective, it’s easy to see that global growth momentum is currently as strong as it’s been at any point in the last ~2.5 years.

 

Global Growth: A Shocking Number of Investors Are Missing the Story - World Exports


RRGB: A New Hedgeye Best Idea Long - Conference Call

RRGB: A New Hedgeye Best Idea Long - Conference Call - z rrgb

 

Hedgeye Restaurants analyst Howard Penney is hosting an institutional Black Book presentation to discuss the addition of Red Robin Gourmet Burgers (RRGB) to his team's Best Ideas List as a LONG. The call will be held Wednesday March 8th at 1pm ET.

 

Send an email to sales@hedgeye.com for more information.

KEY DISCUSSION POINTS

 

REVAMPED MANAGEMENT TEAM

Where the head goes, the body follows, and this analogy can be used when describing the RRGB management team. The recent promotion of Red Robin veteran Denny Marie Post and the recent hire of industry past master Guy J. Constant signals a commitment to a new game plan, one that includes slowing unit growth in order to focus on 4-wall profitability, maximizing technological capabilities to foster an improved guest experience, and streamlining SG&A expenses. Industry veterans, Ms. Post and Mr. Constant bring more than 30 and 20 years of leadership experience, respectively, and are a duo to be reckoned with in the restaurants space, as RRGB works to realign the business for long-term success.

 

TECHNOLOGY & DELIVERY TO FUEL TOPLINE GROWTH

Technology is not necessarily a new endeavor for Red Robin, but the company's approach has undergone a facelift. Red2 was the Company's initial technology initiative, introduced in January 2016, and it spoke of doubling EBITDA by 2020. The initiative included Revenue Growth, Expense management, and efficient capital Deployment. However, by 3Q16 the Company pivoted from their initial Red2 initiative in favor of an abbreviated version (we are calling it Skinny RED) that would move the brand forward. Additionally, as stated on their 4Q16 earnings call, the Company's biggest opportunity lies with off-premise operations. At the end of FY15, RRGB had fallen far behind its competitors in the delivery, to-go, and catering space, with carry-out sitting below 4%, however, the company is now full steam ahead on partnering with DoorDash and Amazon Prime Now to roll-out delivery. With delivery only available at ~84 units, there is still a tremendous amount of white space for RRGB to move forward aggressively.

 

SHEDDING ASSETS, SLOWING UNIT GROWTH WILL HELP SLOWING CAPEX TREND

Given the Company's aggressive brand transformation remodels and technology initiatives, CAPEX had hamstrung the business, with capital expenditures growing by ~55% from 2014 to 2015 and reaching ~$189M at the end of FY16. With only a small number of remodels to be completed in 2017, unit growth slowed significantly (8 net new Company restaurants in 2017), and the decision to close 9 Burger Works locations that were underperforming relative to company expectations, in 2018 we expect the company to eliminate nearly all growth CAPEX, allowing for significant FCF generation going forward.

 

CALL DETAILS

Ping sales@hedgeye.com for more information. If you are not a current subscriber to our Restaurants research there will be a fee associated with this call. 

ABOUT HEDGEYE

Hedgeye Risk Management is a leading independent provider of real-time investment research. Focused exclusively on generating and delivering investment ideas, the firm combines quantitative, bottom-up and macro analysis with an emphasis on timing. 

 

The Hedgeye team features some of the world's most regarded research analysts - united around a vision of independent, uncompromised real-time investment research as a service.


Sector Spotlight Replay | Q&A with Housing Analyst Josh Steiner

missed the live show? catch the replay below

 

Hedgeye Housing analyst Josh Steiner appeared on HedgeyeTV today at 2:30PM ET. He will shared some updated thoughts and research on the U.S. housing market and what investors can expect. 

 

CLICK HERE to access the associated slides.

 


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 80.46%
  • SHORT SIGNALS 78.35%

Hedge Fund Freak-Out: What's Up With All The Calls To "Sell, Sell, Sell!"

Hedge Fund Freak-Out: What's Up With All The Calls To "Sell, Sell, Sell!" - sell button

 

"Hedge Funds Gird for Stock Selloff as Valuations Rattle Nerves," reads a Bloomberg headline this morning. In 2017, U.S. stocks have already added $1.5 trillion in market value. Sky-high valuations and slow-to-materialize economic data has led to investor skittishness, the article continues. So "Hedge funds are bracing for tough times ahead."

 

But why?

Valuation is not a catalyst

#Stocks #ElectionDay $SPY

 

Sure, at 22 times trailing twelve month earnings, stocks aren't cheap. But as we've noted before, one month after Election Day market pundits cried, "stocks are expensive." In the ensuing months, stocks got more expensive. The S&P 500 is up +6% since mid-December.

 

This has been a trend for some time now. Take a look at equity market "style factor" performance over the past six months in the Chart of the Day below. Here are the key callouts:

 

  • High Beta Stocks – the companies most tethered to the moves of the broader market – are up +16.1% in the past six months. Conversely, low beta stocks are up just +2.0%. 
  • Large Cap Stocks are up +11.6% versus +0.6% for small cap stocks in the past six months. 
  • Top 25% Earnings Per Share Growers are up +9.7% versus +2.1% for the bottom 25% of EPS growers in the past six months.

 

"In other words, if you’ve been long Big Cap Growth with a High Beta tilt, you have flat out crushed it on both an absolute and relative return basis," Hedgeye CEO Keith McCullough writes in today's Early Look.

 

The reason why the stock market continues to head higher has nothing to do with valuation and everything to do with the acceleration in the U.S. economy, inflation and earnings.

 

Hedge Fund Freak-Out: What's Up With All The Calls To "Sell, Sell, Sell!" - 03.07.17 EL Chart

What Now?

We've got a lot of ideas. Here's a tiny taste. Consider buying the Russell Growth (IWO) index. Now, the Russell growth index is up 15% since Election Day. But as we'd remind you, expensive can get a heck of a lot more expensive as U.S. growth accelerates.


Cartoon of the Day: Grizzly Markets

Cartoon of the Day: Grizzly Markets - 03.06.2017 bear suit

 

There's a lot of partisan portfolio positioning out there, betting against Trump and this stock market rally. Leave your politics out of your portfolio.

 

 

 

Click here to receive our daily cartoon for free.


Retail: Why It’s Getting Whacked & Where It’s Headed | $XRT

 

The post-Election Day stock market tide has lifted all boats.

 

Well, almost all boats.

 

Over the past three months, Retail stocks (XRT) have been hammered. They’re down -9.3%, while the S&P 500 has soared 7.4%.

 

What’s fueling the plunge? Speculation about a border-adjustment tax (a GOP proposed which would levy a tax against all imports) has crippled the sector. Investors are betting that tariffs on formerly cheap imports of socks, shirts and pants would cost more and hurt retail margins.

 

This policy proposal, should it pass, would obviously be very bearish for U.S. retailers.

 

From 1994 to the present day, there has been a “colossal paradigm shift” in retail, says veteran Hedgeye Retail analyst Brian McGough in The Macro Show video excerpt above.

 

A symbolic victory came in 2001 when China was admitted into the World Trade Organization. Trade barriers between the U.S. and China began to fall and cheap foreign goods came flooding in. This cheaply filled the shelves of marginal brands like Kohl’s and JC Penney, McGough says.

 

Over that period, the percentage of Chinese imports to the U.S. went from 10% of the total in 2000 to about 35% today. Before 1994, the yearly retail consumption norm in the U.S. was about 30 garments per capita. Today it’s 84 units. In other words, the average number of units purchases by US consumers on a per capita basis more than doubled. A border-adjustment tax that increased the cost of such imports would undoubtedly hurt retailers.

 

Looking further into the future, McGough offers up some interesting insights on how Amazon (AMZN) will reshape retail. Will there be Amazon stores throughout the U.S.? McGough weighs in on the future for the $404 billion retail behemoth.


Early Look

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