“Whether I start or come off the bench makes no difference to me. My game has always been go as hard as I can as long as I can.”
–John Havlicek
John Havlicek died last night. He was 79. As a kid growing up in Columbus, OH, “Hondo” was a legend; one in the Pantheon of Ohio State greats we worshipped and heard stories about from our dads, uncles, teachers and coaches. As a member of the 50 Greatest Players in the NBA’s History, eight NBA champion Celtics teams, and the star on Ohio State’s only NCAA basketball championship team, Havlicek was obviously talented.
But what cemented Havlicek’s immortality – and inspired his college and NBA teammates to make him their captain - was his tireless work ethic and unrivaled conditioning. He literally ran his opponents to exhaustion. At Hedgeye, if there’s one character trait that we prize more than any other, it’s this willingness to grind.
Back to the Global Macro Grind…
As a part of the sales team at Hedgeye, we have a unique perspective in that we attend dozens of meetings every month at the largest institutional investors with each of the nine sector heads, and the macro team. We hear all the pitches, the push back, the consensus and the incredulity; we also have the luxury of knowing our analysts’ strengths and blind spots that only comes with time in grade. As such, we’re often asked by PMs, “what are your three favorite ideas?" So here goes:
Visa – Best Idea Long – V – along with MA – has been a rocket ship since it came public 11 years ago. A consensus long by the street and the buy side, the most common pushback we get is: “how much upside is left? Isn’t it too consensus?” The short answer is lots and no.
Our Financials/Housing sector head Josh Steiner presented his Black Book last month and made a compelling case that a combination of TAM growth, share growth, and operating leverage, provides an unusually attractive total return framework that could see the stock 3-6x higher by 2027.
Steiner is expanding his coverage of the payments space, which is going through seismic change and leaving in its wake, winners and losers. Over the balance of 2019 he’ll be presenting Black Books on MA, AXP, DFS, PYPL, and SQ. Please contact if you’re interested in learning more about Steiner’s research on V and payments companies.
Grubhub – Best Idea Long – GRUB – is the largest of the aggregators and we think the long-term consolidator/winner in the delivery business. The value of delivery to restaurants is hard to overstate and is arguably the most consequential change to affect restaurants and eating in a generation. As an example, CMG reported yesterday that SSS increased 9%, most of which was driven by transaction growth.
Delivery through DoorDash was a huge part of that success. Our Restaurants sector head Howard Penney is confident that we’re in the early innings of a sea change shift in consumer behavior, as dining-in via delivery becomes a more common way people “eat at a restaurant.” The Delivery aggregators will be the long-term winners in this triangle, as they “own” the customer data.
We expect Casual Dining chains to become less relevant, and “cloud kitchens” to capture this shift from traditional, customer-centric restaurants. GRUB is currently the dominant aggregator, and has a strategic investor in YUM. Penney thinks the delivery sector can be a $100bn market in 5-10 years.
Penney will soon be presenting an update to his Global Delivery Black Book with updated data from Uber Eats, Postmates, in addition to GRUB, Just Eats, and Takeaway. Please contact if you’re interested in Penney’s work on the Global delivery companies.
Tesla – Best Idea Short – TSLA seems like an obvious short, but how many obvious shorts have plenty of borrow available and $43bn in alpha? Our Industrials Sector Head Jay Van Sciver has been a virtuoso threading the covers and presses of this Best Idea short since he first came out on the name in June, 2017.
Jay’s original thesis posited that the unlimited demand the growth bulls were relying on was likely to evaporate in early 2019 when the Federal tax credits began phasing out. And 2019 would coincide with rivals rolling out new electric vehicles to compete with Tesla. Since then, Jay has validated and expanded the diminishing demand thesis with proprietary alternative data tracking fewer test drives, and fewer app downloads, and the company has confirmed demand drying up with successive price cuts and capex cuts.
Yesterday’s Q1 earnings report shows that sales are nowhere near where mgt guided even three months ago, and the stock continues to tumble. Jay thinks there’s still plenty of downside in the stock, especially since the company has more than $15bn in debt, and no earnings. Jay will have an update to his TSLA short thesis a few days after the Q is filed. Please contact if you’re interested in Van Sciver’s on-going work on TSLA.
And finally, I’d be remiss if I didn’t note the key US takeaway from Darius’s note to Institutional subscribers yesterday:
US Growth is Slowing at a Slower Rate. Yesterday’s MAR Durable Goods and Capex data showed solid sequential strength to close out Q1. Annual growth in Durable Goods New Orders was unchanged at 2.3% YoY, but only after FEB was revised up from an initial print of 1.8%. Capital Goods New Orders accelerated +240bps to 5.3% YoY, which was the fastest rate of growth since NOV.
This follows last week’s positive Retail Sales data for MAR. With these two updated data points – which are the ninth and tenth ranked factors in our 30-factor, dynamically re-weighting predictive tracking algorithm for US growth – our final nowcast for today’s 1Q19E Real GDP print is 2.89% YoY/1.90% QoQ SAAR.
That’s below the Bloomberg Consensus estimate at 2.30% QoQ SAAR and the Atlanta Fed, at 3.12% YoY/2.77% QoQ SAAR, which we think further calls into question the FOMC’s dovish posture and the sustainability of macro markets pricing in a rate cut(s).
Our immediate-term Global Macro Risk Ranges (with intermediate-term TREND signals in brackets) are now:
UST 10yr Yield 2.47-2.62% (bearish)
UST 2yr Yield 2.27-2.43% (bearish)
SPX 2 (bullish)
RUT 1 (bearish)
NASDAQ 7 (bullish)
Utilities (XLU) 56.85-58.51 (bullish)
REITS (VNQ) 83.70-88.24 (bullish)
Energy (XLE) 66.45-68.78 (bullish)
Financials (XLF) 26.76-27.80 (bearish)
Oil (WTI) 62.51-66.68 (bullish)
Gold 1 (bullish)
Copper 2.86-2.96 (bearish)
Go Bucks. Beat Michigan (and cheer on those Blue Jackets).
PB
Patrick Barber
Institutional Sales
