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23.05.2022
Bottom Up meets Top Down
- US Retailers
- US Retailers
Last week Walmart & Target spooked the equity market. This week a number of additional US retailers report earnings & the fear is they provide further evidence that soaring inflation is hurting margins.
The chart below captures macro model confidence & Qi’s Fair Value Gap for some of this week's reporting companies. It enables stock pickers to firstly identify where bottom up analysis of company fundamentals is key; & which stocks are actually more of a macro play.
And then, when a stock is a macro trade, is the stock rich or cheap versus the macro environment?
And then, when a stock is a macro trade, is the stock rich or cheap versus the macro environment?
![This Weeks Reporters](/assets/media/designs/uploads/content/discoveryelement/465/this-weeks-reporters-441599.png)
In most cases, idiosyncratic risks dominate macro. Amongst this week’s reporters Best Buy, Nordstrom, Dollar General, Gap, Dollar Tree, Ralph Lauren and Urban Outfitters all show model confidence below our 65% threshold. It’s business as usual for stock pickers.
But equity managers need to know that Macy's & Dick’s Sporting Goods are the two reporting retailers with a strong macro story.
In fact, DKS model confidence is not only strong (82%) but rising. The macro regime echoes that of the broader S&P500 – a desire for reflation & easy financial conditions.
It is currently 1.5 sigma or 25% cheap to model value. That is the bottom of the 1y Fair Value Gap range. Indeed, it has only been this cheap to model & in regime 6x since 2009. Back-testing this FVG produces a 67% hit rate & +10.7% average return.
Back-testing Macy’s current FVG & the equivalent stats are 57% & +5.5%.
But equity managers need to know that Macy's & Dick’s Sporting Goods are the two reporting retailers with a strong macro story.
In fact, DKS model confidence is not only strong (82%) but rising. The macro regime echoes that of the broader S&P500 – a desire for reflation & easy financial conditions.
It is currently 1.5 sigma or 25% cheap to model value. That is the bottom of the 1y Fair Value Gap range. Indeed, it has only been this cheap to model & in regime 6x since 2009. Back-testing this FVG produces a 67% hit rate & +10.7% average return.
Back-testing Macy’s current FVG & the equivalent stats are 57% & +5.5%.
- Qi as a productivity tool - free up time to focus stock picking skills on the names being driven by company fundamentals
- Qi as a risk manager - identify where macro dominates & what your key exposures are
- Qi as a trade idea generator - Macy's & Dick's Sporting Goods are showing significant dislocations versus macro fundamentals. Both show model value deteriorating but they have already priced in a fair degree of bad macro news already. New longs should ideally wait for model value to turn higher but, for those looking for a possible relief rally, these are potential efficient trade expressions to monitor.