The Macro Outlook
Toll Brothers concedes that they’re disappointed by how housing has done this year
“Looking back at the last year and thinking about the growth that we saw in 2013 and how deep and dark and long this last housing depression was, we thought the pent-up demand would continue to build and 2014 would be a significantly better year than 2013. And I think if you ask any CEO of any of the big public, they would tell you the same thing. So are we disappointed in flat or slightly negative order growth? The honest answer is yes.” (Toll Brothers Inc (NYSE:TOL))
Traffic was strong though, indicating that there might be interest in housing from a broader group of consumers
“We are encouraged by our traffic…This pattern has continued into August with traffic up 19% per community versus last August….it’s an indication that the whole market is playing with housing again, not just the exclusive those who can afford it and are not trapped in the homes that they’re in.” (TOL)
Housing demand continues to be weak because prices are high and income growth is low
“Without real urgency pushing buyers to make a decision, general industry demand continues to be impacted by uncertainty about the economy and world events, improving but fragile consumer confidence and reduced affordability due to rising prices and limited personal income growth.” (TOL)
But demographics will eventually take over
“Millennials are going to the point where they too will become homeowners, and there are a lot of them. At the same time, the baby boomers are looking for that move down home, since they are becoming empty nesters with different needs.” (Hovnanian Enterprises Inc (NYSE:HOV))
“The current low level of housing formations is not consistent with the population growth or the demographics of our country.” (HOV)
And mortgage underwriters are slowly starting to take a little more risk
“We have seen some green shoots and some good news on the self-employed front. We’re actually seeing people come out with products targeted to self-employed people and no verification of income loans with 30% down and good credit scores. But instead of just not looking at the borrower at all, they’re looking at cash flows. It will take 12 months’ worth of bank statements to ensure that the person really has the cash flow regardless of their tax return. So I think that’s really good news, and frankly I think it’s prudent” (TOL)
“the third party mortgage companies are hungry for deals, and they have been very competitive on rates, and that’s causing some competition.” (HOV)
Don’t forget, we have a midterm election coming up in November
“The election hasn’t come to the front of the brain yet. But it’s getting there and I wouldn’t be surprised as we come closer to the election that we start to focus on the great number of things. There will a lot of promises made for sure.” (TOL)
Emerging markets may have slowed, but they’re still growing faster than the developed world
“The developing world, an area where there is a lot of discussion. Overall, the markets are still vibrant. If you look at the macros, while slowing, they still outpace obviously the developed world.” (Crude Oil)
Just because emerging markets are growing doesn’t mean it’s easy to make money in them
“We had stores in China. We started with 12 back in 2006. We shut that business down and don’t have any plans of going back. We couldn’t figure out how to make any money in China” (Home Depot Inc (NYSE:HD))
“I mean Brazil is one of those things every couple of years you say, ought to be in Brazil and then every couple of years you go, good not to be in Brazil.” (HD)
Consumer
At Barclays’ back to school conference, a lot of CPG companies hit on common themes
“The rise of millennials. The influence of ethnic demographics, social media, the move towards healthier eating, and the rise of the middle-class consumer in emerging markets” (McCormick & Company Incorporated (NYSE:MKC))
The “strapped consumer” is one of Kraft’s key consumer groups
“Today, the strapped consumer represents 6 in 10 households; 6 in 10 households earn less than 50,000 a year. Now if you are a single individual, living on 50,000 a year, that might be doable. But when you think about a family trying to feed four or five or six different people on that income, it becomes a challenge.” (Kraft Foods Group Inc (NASDAQ:KRFT))
Millennials love to cook
“Today’s millennials love to cook with 64% making this statement versus 52% of the remaining U.S. population” (MKC)
Whitewave did a good job of summarizing the healthier eating movement
“People look for quality ingredients, transparency and brands that they can trust. As consumers give more and more thought to the food choices they make for a healthy lifestyle, our brands meet their growing preferences for foods that are nutritious, great tasting, convenient, and responsibly produced.” (Whitewave Foods Company (NYSE:WWAV))
Kraft’s “agile marketing” strategy revolves around data and “shareworthy” content
“to win with agile marketing. First, it’s data, it’s the who. You need a significant set of consumers, and you’ve got to know these consumers in depth. You’ve got to know their behaviors, their preferences. You have to know their needs…The next part of it in terms of agile marketing is content. And it’s building content that is share-worthy.” (KRFT)
Colgate is focused on leveraging its data too
“an area that I have talked about before which drives innovation is analytics, and we believe that analytics is a competence for the 21st century. We have the data. The question is, how do you aggregate it, cleanse it, interrogate it and use it quickly to drive action either in the development of innovation or the execution of programs behind innovation around the world.” (CL)
Technology
Laptops are going to have more 3G and LTE connections built in
“Whether it’s Bluetooth or Wi-Fi or 3G or LTE, things like Bingbooks and Chromebooks are going to be more and more connected, in fact they’re really only functional or highly functional when they’re connected. We think 25% to 50% of those over the next few years will have 3G or LTE connections.” (Intel Corporation (NASDAQ:INTC))
Moore’s law isn’t dead
“In my 32 years at Intel I think I’ve seen the death of Moore’s Law at least four or five times. The first time I remember it was at about three micron and about one micron I remember it was going to die I am always amazed at our ability to innovate and find new ways to keep Moore’s Law alive. We are shipping 14 nanometer product now. We have a path we believe to 10 nanometers and we know how to make 10 nanometers still stay on that in Moore’s Law” (INTC)
Internet of things is going to drive even more data center growth
“I am personally excited about them as technologies and as innovation area. But also they’re fuel; they’re grain of the data center. They are going to fuel billions and billions of pieces of information up into the data center that will then require more and more data centers to be built.” (INTC)
HCA gives an example of how it’s using big data to optimize care in its hospitals
“For example, in terms of hospital-acquired infections, you see a particular facility that’s excelling at reducing hospital-acquired infections. Well what are they doing? What are their protocols? What are their approaches? And then sitting down with physicians and other hospitals that may not have that sort of performance and showing them the data and moving them closer, if not into the best practices range. So that’s just one example, kind of benchmarking sort of techniques." (HCA Holdings Inc (NYSE:HCA))
Healthcare
Large not-for-profit hospitals are focused on creating integrated healthcare networks
“Some of the large, not-for- profit competitors in the market spend more time, I guess, thinking about maybe narrow networks, more in terms of physician strategies in terms of clinical integrated networks” (HCA)
The trend of hospitals directly employing doctors may be slowing down a little though
“Physician employment continues to increase although at a much lower rate than we were seeing probably five, six years ago…quite frankly, when you think about HCA and our physician relationships, we have, I mentioned, 35,000 active physicians on our medical staff. And so we can’t employ all those physicians” (HCA)
If you’re not employing doctors directly, you have to create facilities that they want to work at
“what we’re looking at is, how do we make our facilities the place that they want to work. If they’re a surgeon or they’re a physician that would perform their services within the walls of our hospital, how do we make our facility the best facility for them.” (HCA)
Materials, Industrials, Energy
North American oil drilling activity is booming
“This is an exciting environment for Baker Hughes. Demand is at record levels for drilling services, drill bits, completion systems, artificial lift and production chemicals. And then there is our biggest product line, pressure pumping.” (BHI)
There’s not a lot more efficiency to be gained in well construction
“The old efficiency game and gains around well construction folks have largely played out. Cutting another 14 days off, the time to drill a well in North America isn’t going to happen again. And if anyone thinks the cost of fracking a well is going to remain at today’s low levels, they’re delusional” (BHI)
Brazil’s deepwater fields are the most complex drilling environment in the world
“This is one, if not the most complex drilling environment in the world, full stop. Successful deepwater drilling here requires experience, technology and exceptionally strong local content” (BHI)
Petrobras may become a more active driller in the not too distant future
“it’s been a lull over the last couple of years, but I think the customer there is going to grow the rig count, maybe the latter half of next year and certainly into 2016. So I think Brazil will re-emerge on the global scene as a more active driller than they have been over the last couple of years.” (BHI)
Joy Global still sees plenty of challenges for the mining industry
“It goes without saying that conditions in mining remain difficult and while we see some signs of stabilization in terms of our order rates and service activity, there are still challenges on the horizon” (Joy Global Inc (NYSE:JOY))
Coal is facing continued headwinds in the second half
“challenges remain as U.S. coal production now faces some headwinds in the second half of 2014 from continued depressed coal prices, decreasing export opportunities and a cooler than normal summer.” (JOY)
Metallurgical coal prices may have found a floor, but production cuts aren’t impacting the price because producers are still liquidating inventory
“Met coal prices remain under pressure, but seem to have found the floor to pricing as stock prices have trended in the 110 to 120 range since March. Pricing at these levels continues to pressure over half of global producers. Despite the announcement of over 20 million tons of curtailment, these cuts have not yet materially impacted the market as many producers had stockpiles built up that are still being depleted.” (JOY)
Miscellaneous Nuggets of Wisdom
The foundation of a company isn’t necessarily its assets, it’s its ideals
“if I had to give up one or the other I would keep the silicon’s leadership Moore’s Law and that’s not to say that the architecture itself is not highly valuable. But in the end I believe what has always driven Intel’s ability to bring products that are even higher level of innovation, better cost all of that is that Moore’s Law that is the foundation of what we were born and bred on.” (INTC)
Disclosure: The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.