Takeaway: This webcast originally aired on February 22, 2021. Replay and transcript excerpts are available below.

Dear Hedgeye Nation,

It is no secret that hedge fund managers keep their portfolio picking process under lock and key. 

That's why we hosted THE PITCH: 6 Hedgeye Analysts. 6 Stock Ideas. 60 Minutes.

Take a deep dive into our high-conviction stock idea selection, as Hedgeye CEO Keith McCullough calls on 6 Hedgeye sector heads to break down the next best #Quad2 call. In this edition of THE PITCH, our analysts discuss $DRIO, $TMUS, and more.

Below we have transcribed key excerpts from the conversation. You can watch the entire hour-long interview below.

. . .


Click here to learn more about Brian McGough's "Retail Pro" Product.

"I want to talk about DUFRY (DUFN-CH) or (DFRYF-USA). This is the mother of all reopening plays. 

What is DUFRY? In a nutshell, the primary business is Duty Free in airports. 90% of the business is tied to airports and airport sales. If you take a 10,000 foot view, find me any other brick-and-mortar retailer where the customer is literally land-locked in the store for an hour, there's zero Amazon competition, and the company is a globally diversified monopolist in every market that it operates.. the simple answer is you can't find one. 

It doesn't exist.

Anyone investing in DUFRY today has to look through a lot of turmoil in the current numbers, given it's a travel-oriented company.

But here's a number of underappreciated angles.

  • It only has roughly 10% of the global Duty Free market.
  • We're seeing an accelerating trend where private operators are taking over airports, and trying to upscale the shopping experience.
  • This is a company that's going the route of luxury and evolving into a boutique model.
  • There are a number of key strategic partners to grow their luxury portfolio, who are investing and will be adding a ton of value for DUFRY.

This is very much a story of the entire Duty Free experience changing. This is a multi-year, multibagger."

Watch the full thesis here.


Click here to learn more about Howard Penney's "Consumables Pro" Product.

"Well Keith, we have more multi-year multibaggers. Today we're talking Best Idea Longs in TerrAscend (TRSSF), 4Front Ventures (FFNTF) and Trulieve Cannabis (TCNNF). I want to talk about the Cannabis space this morning; it's a great time to focus here given the catalysts for the industry:

  • Congress is moving towards legalization in DC.
  • Record M&A driving growth in the industry ($1.8 billion this year).
  • Earnings season: TerrAscend (TRSSF) had a killer fourth quarter; this is a company growing its top line revenue +80% and +165% EBITDA in 2021.
  • Valuation discrepancy between the Canadian (trading at 19x sales and 126x EV/EBITDA) and U.S. companies (trading at 7x sales and 27x EV/EBITDA).

By the way on TerrAscend's numbers, once New Jersey flips the switch and legalizes recreational, $TRSSF will see significant upside.

We have an $18 billion market in sales this year in the U.S. Canada...? $3 billion in sales. The Canadian market, including illicit, is about $8 billion. That's essentially the size of California's. What we're seeing is probably a $50 billion total addressable market in the U.S., relative to a $5 billion in Canada. Yet we have this massive valuation difference between the two groups.

I'm going to attribute 100% of this difference to the fact that U.S. companies are traded on secondary exchanges.

If we can get some policy changes in Washington, we'll have institutions and retail investors coming in, which is a huge upside opportunity."

Watch the full thesis here.


Click here to learn more about Jay Van Sciver's "Industrials Pro" Product.

"Today we're going to pitch Porsche SE (POAH.Y), which is the holding company that has shares of Volkswagen (VW).

So we're going to be talking about $VW, and the reason why this stock trades at such a discount is because it's confusing... but it's actually not that confusing; Porsche SE is a holding company that just happens to hold shares of $VW. The weird thing about Porsche SE is that it trades at about a -30% discount to the value of $VW shares because of legal liabilities. That discount is actually greater than the actual estimated exposure for those liabilities; so it's a weird anomaly in the market. Porsche SE is an unusually attractive way to invest in $VW because of that discount.

And Volkswagen itself has made some spectacular investments. They have a third of QuantumScape, a promising battery maker, and a ton of other great assets.

In terms of narratives in this market - don't get me wrong I can talk about how cheap the stock is forever. But when we think about emerging narratives, these are the big areas. Self-driving cars and EV's are some of the most momentum-driven areas of the market right now. When you add all these parts up for $VW, you find that it's trading at half of what it should be. 

And I can buy these shares for a -30% discount through Porsche SE? That holding company discount could go away throughout the year as these lawsuits get settled, which would be a great catalyst. The cool thing about VW (because of diesel-gate) is they invested in so many hot areas - they'll likely be the largest EV maker by the end of the year.

And $VW makes a lot of money; they make almost half of Tesla's revenue just in net income."

Watch the full thesis here.


Click here to learn more about Josh Steiner's "Financials Sector Pro" Product.

"This morning we're going to pitch a name that I think most consumer are familiar with; Capital One (COF) on the long side. There's really a perfect storm of positives backdrops here.

The macro setup is very compelling; we have a very reflationary and favorable #Quad2 backdrop. Obviously the monetary side is there, and the fiscal side has been a huge component of the last 10 months for $COF, and that looks unlikely to change. The credit performance this cycle has been unlike any we've ever seen. $COF is also now in a position where they've added so much cash to their balance sheet that they're going to rollout a very large stock buyback.

From a valuation standpoint, the stock is very cheap relative to the broader bank group. 

Capital One is also the largest subprime auto lender in the U.S. The Covid-induced Work From Home dynamic has triggered a massive demand for new and used vehicles. Used car values have just exploded to the upside, and haven't shown any signs of rolling over. This is an enormous boost for their car loan portfolio and huge tailwind for the stock.

The company recently announced they'll be buying back $7 billion of the stock; which will be about 60 billion shares of the 460 billion total. While the Street's consensus view is for shares to remain flat, the potential is for the share count to come down very quickly. You're also likely to have much stronger earnings per share with the lower share count.

The setup here looks really good from both a macro and an earnings perspective."

Watch the full thesis here.


Click here to learn more about Tom Tobin's "Health Care Pro" Product.

"Dario Health (DRIO) essentially provides a customer (their core customer is diabetics) a little device that helps them keep their tools and kits to measure their blood pressure. It's not fancy at all. But what they have on the backend is an artificial intelligence coach that helps keep people on track.

One of the things that pushed me over the edge has been this "coach" - one of the primary uses of telemedicine going forward will be a tracker like this. In a recent conversation I had with an endocrinologist, they were amazed with Dario's use case and performance with their patients.

The disease management and measurement piece is key.

One of the things that's been going on in the market is that there's a few privately-funded companies that are getting valuations for very similar product-sets and technologies which make Dario look cheap. 

If you look at the multiples now, this thing was left for dead for quite some time. This is a name that's going to get increased coverage from the sell-side and generate a lot of interest.

The stock is only going to go up from here."

Watch the full thesis here.

Communications ANALYST Andrew Freedman

Click here to learn more about Andrew Freedman's "Communications Pro" Product.

"I'm going with T-Mobile (TMUS). In terms of our #process, T-Mobile fits perfectly. It's been crushing it and will be taking market share away from Verizon and AT&T. They've been investing very aggressively in this 5G buildout.

They call it their "layered-cake" with a good mix of low-band, mid-band, and high-band spectrum. It was a great move to buy Sprint as they got a ton if mid-band spectrum and it put them about 12-18 months ahead of their peers. 

As the churn rate from Sprint continues to come down, the synergies will improve and T-Mobile is a huge winner in this deal. In terms of our catalysts, we think they'll blow past their synergy targets. There is also a deleveraging opportunity, we may get buybacks instead, but I'll take either. 

The most important trend to understand for T-Mobile is that we are in the knee of adoption for 5G. T-Mobile is ahead of the curve here - they're going to take a ton of the market share. The first 5G iPhone just hit the market last year, so we're a long way from this being fully adopted. 

In terms of thematically how we're playing the space, we want to be long the share gainers and short the share losers. We also want to bet on that margin gap closing; that'll be good for T-Mobile and bad for your high-margin service providers like Verizon (which is also going to have to spend a ton of money on spectrum).

Finally, in terms of valuation, our bull case is 50%-60% upside. This is the fastest grower in telecom, this stock will be trading at a premium."

Watch the full thesis here.