Dear Hedgeye Nation,
We just hosted 10 of the sharpest investing minds on HedgeyeTV for a 3-day bonanza of world-class interviews. Batting cleanup on the second day of our semiannual Hedgeye Investing Summit, Hedgeye CEO Keith McCullough was joined by none other than Mike Taylor, Portfolio Manager at Critical Mass Partners.
During their conversation, McCullough and Taylor discussed COVID data, the current economic environment, and his best new stock ideas. Notably, on the back of mentioning a few of his stock picks, those tickers saw immediate action and price spikes, including $ROCH (now PureCycle Technologies (PCT)) jumping over 15% and Rekor Systems (REKR) nearly 10%.
Below we have transcribed key excerpts from their conversation.
You can access the entire hour-long interview, as well as the 8 other financial market webcasts, here.
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Taylor on Healthcare, COVID, and China:
In January, many were saying that it was going to get worse but if you modeled it out state by state, you could see it peaking.
All of these [Covid] variants are going to be non-events. They may be a little bit more potent and transmissible, but this is a rounding error once the public is vaccinated.
This was most likely a man-made virus. It is not very hard to do it. If we wanted the truth, we would obtain the last 5 years of handwritten scientific notebooks from the Wuhan lab. There are too many interests in China so no one wants to call them out and would rather just have the story fade away.
Taylor on $SAVE:
The rest of the year we are going to have a lot of this garbage trade plow through. Spirit Airlines (SAVE) is my biggest long. Spirit could do $7 in EPS next year and is currently trading at 5x on that number right now. It should trade in the mid to low teens.
Think of stocks like a vector. They have momentum, mass, and a direction. And when you have too many people plowing into the same trade and it doesn't work, something violent will happen.
Taylor on the Hedge Fund Community and $GME:
Surprisingly, [hedge funds] do not have a choice. They are mandated to pair up factors. You must balance your book. Everyone gets into a good short idea and if it does not work, the outcome is magnified. It is a critical part of investing, that is realize what everyone else must do. Bench markers and how they handle GME is a great example. This leaves for great opportunity.
Trading around benchmarks and flows is a great skill to have that not too many people focus on. If you can balance the micro and the macro, you have a successful career running money.
Such an important part of investing is understanding what everybody else has to do. $GME was just emblematic of all of it.
Taylor on Macro Awareness Relative to the Fed and Inflation:
You need to be aware on the inflation trade. We will have inflation. The entire world drew down inventory in COVID and now everyone has to build that back up in the next 6 months. The demand is going to go through the roof while commodity and mills have decreased utilization due to social distancing.
In August, that it when you start think about the second half of 2022. You will have to look at the demographics and they stock people less people are having fewer kids. This is an inflation bubble. You shouldn't look at the US 10-year as the problem. You can have interest rates increase while stocks also go up.
The Fed does not want inflation. The job of the US Treasury is simply to make us look solvent. If the 5 year gets to 3.2% yield, that is a disaster for the federal government. That would double the governments coupon rate.
Taylor's Two Best Long Ideas:
$ROCH (now PureCycle Technologies (PCT)) just SPACed and they have a market cap of $2.7 billion. They have the only patent technology to recycle plastic like polypropylene. Everyone uses polypropylene and people would prefer to use recycle polypropylene. They will have a monopoly. They will build 30-50 plants over the next couple of years. States are going to mandate that this product needs to be recycled and they will be the only player. This could become a $14 billion market cap in the next few years.This is a 10+ bagger over the next 3-5 years.
Rekor Systems (REKR) is a company that has the technology that takes video so indicate and see if a car is registered and insured. This will lead to tickets and $REKR gets a slice of the ticket. They also get referrals for insurance. This is a $700 million market cap company and they just went live in 1 state. They are going to go live in 5 others soon and have 25 others lined up.