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Myriad (MYGN): Mr. Tobin's Q

My Partner, Tom Tobin, fortuitously called this one ahead of the quarter; MYGN closed down -5% today. Tobin tends to be lucky, often. I have attached an aerial picture of the 3 year ramp that MYGN has had to 20,000 feet. The shorts look like they covered the top (short interest peaked there at close to 30% of the shares out).

See Tobin's Portal postings for the fundamental view into and out of today's conference call. I see downside risk here to $52.51.
KM
  • MYGN breaking $63.71 today was a material negative event
(chart courtesy of stockcharts.com)

The Dead Heat: MGM vs. LVS

The Question here is which of these two charts looks worse? And I can't give you an answer... after dropping 9% and 11% today, respectively, they both look scary.

My partner, Todd Jordan, continues to be cautious on this group for structural reasons that you'll find on balance sheets, or Todd's portal.

KM
  • MGM broke my short term "Trade" support line of $30.23 today
  • LVS broke my short term "Trade" support line of $46.19 today
chart courtesy of stockcharts.com
chart courtesy of stockcharts.com

Lehman (LEH): When Will Fuld Show Us What's Really In His Hand?

Did he lie? Did he fib? Did he know? Do we care?

Accountability has not been part of the leadership equation here. Transparency was not part of the Fuld business model either. There is officially no love for the "Level 3 Asset" scheme, and now Fuld wants to sell the Street real estate and Neuberger Berman?

He may very well do that, and at the same time, the Street is selling his stock. Down another -13% today. That's an unlucky number. Luck may not save the day here anyway. Ever play ‘Monopoly’ against someone who is levered up and forced to sell assets?

KM
  • LEH support? $11.35 looks like next stop
Chart courtesy of StockCharts.com

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Chart Of the Day: Macro vs. Earnings Season, Beware...

As another 2008 Earnings Season limps to a close, you'll find this chart as relevant as any other out there. Notice that we are exiting the 3rd earnings season (blue on the chart) of the year, and pay close attention to the path that the US market has taken post the previous two.

I know - everyone doesn’t "do Macro". But I also know … that everyone knows… that it matters.

If you are still levered up long, beware of this upcoming Macro Season.
KM

(Chart by Andrew Barber, Director - Research Edge LLC)

Target (TGT) vs. WalMart (WMT): Who Thinks Cash Is King?

On their conference call this morning, Target (TGT) attempted to appease Bill Ackman by talking up their "buy back" program which will fabricate a Q4 earnings lift. This short term call is going to have negative long term ramifications.

Target bought back another $1.7B worth of stock (33.8M shares) at an average price just north of $50/share. I am initiating that price as my new stop loss level on the short side.

Below I have attached capital intensity charts for WMT and TGT. Pershing Square likes playing the levered long investing game. Unfortunately that shortsighted strategy was best served for years that are behind us now. The economic cycle has changed course. As cost of capital increases and access to capital tightens, we want to own prudent management teams that are cutting capex and holding cash in the bag for the rainy days that cometh.

*Full Disclosure: I remain long WMT and short TGT in our “Hedgeye Portfolio”
KM
  • TGT
  • WMT
TGT Capex as % of Sales
WMT Capex as % of Sales

Cotton: Important Historical Context

Since July 31, cotton prices have wanted to do nothing but go down. One might say that it is simply a function of oil’s decline. This is, no doubt, a driver. But I don’t buy it in full. After having close to zero correlation for most of the year, both have slid meaningfully over the past few weeks. In fact, cotton has been higher beta than oil in recent weeks – a reversal of what we have seen in past cycles when they have correlated.

This is pretty important to me given that a material slide in cotton costs could ease the apparel industry’s supply chain strain for a brief while – which would cause me to evaluate where I stand on some of these names vis/vis horrible ‘trend’ and decent ‘trade’.

Leave it to my colleague Andrew Barber to find something in the commodity history books to explain this away. The analysis by Moore Research Center below shows how the seasonal nature of planting/harvesting cotton rather consistently flows through to the yy change in the price of the commodity.

The seasonally weakest time period over the past 33 years? You guessed it. Mid August. It is always tough for me to stomach that ‘seasonal trading charts’ like this have the right to exist. We’ll see if this continues in the coming weeks.

Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

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