“For to those of whom much is given, much is required."
- John F. Kennedy
My colleague Michael Blum wrote the Early Look last week and highlighted Hedgeye Cares, our employee led charity. Unfortunately, this year we were not able to host our annual Hedgeye Cares golf outing, which many of you have generously donated to in the past. In response, our team is committing to match up $100,000 in any donation we receive for Hedgeye Cares.
As of the announcement last week, we are close to 50% towards achieving of our goal. As it is Giving Tuesday, we are making one last push to achieving this goal to support these charities that are in need right now, more than ever.
Many of the charities we support are local to our communities. One that is near and dear to our hearts is Bridgeport Caribe Youth Leaders (BCYL). BCYL is Bridgeport, CT based non-for profit with the stated mission to:
“Provide youth with sports, educational and civic direction helping them build the character and self-esteem they need to reach their full potential and value in society.”
Our Retail analyst and colleague Brian McGough serves on BCYL’s board. Graduates of their program routinely attend our annual golf tournament to speak about ways in which the program helped them to move forward in life and achieve their goals. Their stories are truly inspiring.
We certainly understand this has been a tough year for many, so any amount is more than appreciated. Donations can be made HERE.
Thanks for your consideration.
Back to the Global Macro Grind…
What a year it has been my, comrades! The most hedged event in history, the 2020 Presidential election (see "Chart of the Day" below) has come and gone. Now we are left to play the game in front of us. With the VIX almost sub-20 (buy the dips level!) and our GIP model pointing to a series of #Quad2 (accelerating growth, accelerating inflation, and easy monetary policy) quarters, it may finally be a stock picker’s market . . . of sorts.
This is shaping up to be pretty typical #QUAD2 morning with treasuries weaker across the curve, the dollar down versus the Euro, emerging markets trading meaningfully higher, and most commodities continuing to ramp. Even our former darling Gold is having a decent morning up +1.7%, which of course, is probably a good opportunity to exit any lingering gold exposure.
Of course that doesn’t mean that all the news this morning is positive. In fact, some of the data from Europe continues to be bleak. A few data points to note:
- Manufacturing PMI in Europe fell from 54.8 to 53.8 from October to November;
- The Euro area inflation rate came in at -0.3% and 0.2% ex-food and energy, which was a record low; and
- German unemployment hit the lowest level since April, which was in the midst of the initial COVID lock-down.
Needless to say our favorite short country level exposure remain in continental Europe, specifically Germany and Spain. And while like many shorts as of late, that hasn’t worked out perfectly. But being naked levered long global equities isn’t how we roll.
But of course, this morning the news is that two COVID-19 vaccines are headed to early FDA approval. As many as 40 million vaccines could be distributed in the U.S. by year end. So, it should be a good day for your stock “picks” on the long side.
As a result, we’ll kick things off with a few “picks” from our Research Team:
- Encore Capital Group ($ECPG) – If you want small cap value, this is small cap value. ECPG is one of the largest debt collectors in the world at currently trades at roughly 3x forward earnings. As unemployment increases or stays high, credit card charges inevitably spike, which leads to debt collectors being able to meaningfully grow the top line. Despite charge offs not increasing yet due to various components of the CARES program, ECPG is already growing and grew revenue 13% y-o-y last quarter.
- Dollar Tree ($DLTR) – My colleague Brian McGough is the king of tail ideas and he just elevated DLTR to near the top of his Best Ideas list. While this isn’t totally non-consensus as the stock had a big move last week, the company recently expanded its “breaking the buck” strategy, so is moving to become a multi-price point retailer, to 500 stores from its current 100 store test run. The result so far of this is that management is seeing 2x the basket size from consumers that purchase from this expanded assortment. Over the long run as this strategy is fully rolled out, we think DLTR will see up to $5.00 in additional annual earnings per share that consensus isn’t currently baking into forecasts.
- One Medical / 1Life Healthcare ($ONEM) - If long stocks that are early in their adoption curve, this is one for you. ONEM is a membership based primary care platform with seamless digital health offerings and compelling in-office care that is convenient to where their customers live and work. In the most recent quarter, reported on November 10th, ONEM had a 29% increase in ending membership count with revenue increasing 46% to $101.7MM in the same period. Based on our proprietary tracker of app downloads, ONEM has already surpassed Q3 new membership with only 2/3s of the quarter complete, which should bode well for accelerating growth and the potential to beat estimates.
Stocking picking is never easy, especially when the macro and factors are driving the markets day-to-day. But for those are three names we like, all else equal, over the longer term. Luckily though, if the thesis changes, we have more than 250 ideas (both long and short) on our firm wide Best Ideas list. And when the thesis changes, we change . . . what do you do, sir (or madam)?
Immediate-term @Hedgeye Risk Range with TREND signal in brackets:
UST 10yr Yield 0.82-0.92% (neutral)
UST 2yr Yield 0.14-0.19% (neutral)
SPX 3 (bullish)
RUT 1 (bullish)
NASDAQ 11,762-12,292 (bullish)
Tech (XLK) 119.90-124.42 (bullish)
Energy (XLE) 34.44-40.92 (bullish)
Utilities (XLU) 62.09-65.35 (bearish)
Gold Miners (GDX) 32.48-36.08 (bearish)
Shanghai Comp 3 (bullish)
Nikkei 26101-26978 (bullish)
DAX 13005-13499 (neutral)
VIX 19.45-24.76 (bearish)
USD 91.51-92.65 (bearish)
Oil (WTI) 41.93-46.94 (bullish)
Nat Gas 2.57-3.05 (bullish)
Gold 1 (bearish)
Keep your head up and stick on the ice,
Daryl G. Jones
Director of Research
