European Weekly Summary

Key points from this week’s report:

Please refer to the attached PDF for the full report.

 

  • The Stoxx 600 was moved to an Uptrend Under Pressure after it breached its 21- and 50-DMA this week.
  • The pressure reflects the recent sector rotation, with Technology significantly lagging the general market this week. We are not overly concerned by that move: the sector’s long-term trend is not broken yet.
  • RS Rating: It’s All Relative, our recent quantitative research brief that demonstrates the effectiveness of William O’Neil + Co.’s proprietary Relative Strength Rating, suggests picking stocks from Health Care, Technology, and Utility. Actionable ideas include Sartorius ( SRT3X.DE ), Softcat ( SCT.GB ), and BKW ( BKW.CH ).
  • European Focus List: We didn’t add or remove any stocks from our Focus List this week.
  • Svenska Handelsbanken ( SVK.SE ) has been added to our Conviction Laggards.

European Weekly Summary

Key points from this week’s report:

 

  • The Stoxx 600 has been moved back to a Confirmed Uptrend after the index recently hit new highs, breaking above its 200-DMA for the first time since the COVID-19 outbreak.
  • Our study shows that, historically, long bull runs start with spikes in breakouts. Although it might be too early to call for such a scenario, the recent increase in breakouts in the region is encouraging. We recommend that investors buy stocks with sound fundamentals, breaking out of early-stage bases.
  • The health care sector, a long-term leader ( over 26 weeks ), has been lagging the general market from May to early July, but since it has regained momentum over the past three weeks. Actionable ideas include Straumann ( STMN.CH ), Sartorius ( SRT3X.DE, EFL constituent ), and Biomerieux ( BM.FR ).
  • Focus List Updates: Last week, we added Schneider Electric ( [email protected] ) to the list. AAK ( AAK.SE ) was added to our Conviction Laggards list.

European Weekly Summary

Key points:
  • The Stoxx 600 remains in an Uptrend Under Pressure with three distribution days. It continues to trade constructively along its rising 50-DMA, which serves as support. A key level of resistance remains at its 200-DMA, 2.8% above its current level.
  • All markets except Denmark, the Netherlands, Sweden and Switzerland (Confirmed Uptrend) are in an Uptrend Under Pressure. The average number of distribution days in the region has slightly increased this week to 4.25.
  • We continue to be cautiously optimistic and recommend only adding to positions in stocks that are breaking out of an early-stage base on volume. Avoid extended names.
  • Technology has continued to lead the market this week and is now outperforming over 26 and 52 weeks. Actionable Focus List names include Dassault Systems (DSY.FR). Outside our Focus List, we recommend looking at Germany’s largest IT System House Bechtle (BC8X.DE; $7.8B market cap).
  • Looking at our rotation chart, Health Care’s deteriorating momentum has bottomed. From our Focus List, Lonza (LONN.CH) is actionable.

How to Play Key Consumer Trends Emerging From COVID-19

n this report, we highlight how investors can play the key trends emerging from COVID-19 in the Consumer Retail world. The outbreak has had a profound impact on the way consumers live their lives.

 

  • Trend 1: Ecommerce sales growth acceleration for athletic footwear manufacturers could lead to structurally higher margins over time. During the most recent earnings season, we observed extraordinary online sales growth across the sector. Recent commentary from management suggests this trend has continued, despite a relaxation of lockdown measures. Top picks: Deckers Outdoor ( DECK , Li-Ning ( LNIN.HK ).
  • Trend 2: Discount food retailers poised to outperform. Discount food retailers outperform during times of economic stress, as consumers trade down to preserve purchasing power. The U.K. post-2008 serves as a historical precedent for this. Top picks: Dollar General ( DG ), Dino Polska ( DIP.PL ).
  • Trend 3: Strong retail brands with strong online propositions getting stronger. The pandemic has expedited the shift of consumer spending habits toward online. This has been a secular trend across sub-segments of retail. Many digital retailers have seen sales growth soar by as much as 100%. Top picks: Boohoo ( BOO.GB ), Meituan Dianping ( MEDI.HK ).
  • Trend 4: Making a house a home during COVID-19. Consumer spend on DIY and home improvement has increased during COVID-19. The lockdown could have spawned the birth of a new generation of DIY-inclined consumers. Top picks: Pool Corp ( POOL ).

European Weekly Summary

Key points:
  • The Stoxx 600 is in an Uptrend Under Pressure with three distribution days. The index is finding good support at its rising 50-DMA. A key level of resistance is at the 200-DMA.
  • Among the 17 indices we cover in the region, including the Stoxx 600, 14 are in an Uptrend Under Pressure. The Denmark OMX is one of the indices that is trading the most constructively.  From our Focus List, Simcorp is trading near pivot.
  • By sector, rising short-term momentum remains concentrated in Cap Equipment. Actionable ideas from our Focus List include Spirax-Sarco (SPX.GB; SPX:LN), Tomra System (TOM.NO; TOM:NO), Indutrade (INDT.SE; INDT:SS), Teleperformance (ROFR.FR; TEP:FP), Ashtead Group (AHT.GB; AHT:LN), and Halma (HLMA.GB; HLMA:LN).
  • We did not make any changes to our European Focus List this week. The list continues to be a source of great performance, outperforming its benchmark by 1900bps.

Nike

NKE shares are down more than 6% today following Q4 earnings. There was a significant amount of COVID-19 related disruption in the quarter. Key numbers came in well below street estimates: revenue -38% y/y (cons. -28%), gross margin was 820bps lower y/y to 37.3% (consensus 43.5%), and EPS of -51c was well below expectations of +9c. Looking beyond the numbers, how­ever, we find the equity story extremely appealing. The company is under­going a major digital transformation, which will be structurally beneficial for margins long-term. As highlighted in our preview, investors should look beyond short-term noise to where NKE may be in one to two years. Earnings are likely to accelerate, in our view, largely due to gross margin expansion, driven by an increased contribution from online sales. This is adequate justification for NKE’s current valuation multiples. Shares are taking a hit today but look for key resistance at ~$93. We continue to see NKE as a core holding for long-term growth investors. Should the market focus on the bigger picture and not the COVID-19 disruptions of the current quarter, the stock may break out of pivot at $104.69, having formed a 22-week cup-with-handle base. At this point, based on our methodology, would we suggest accumulating.

European Weekly Summary

Key points:
  • The Stoxx 600 is in an Uptrend Under Pressure with four distribution days. Among the 17 indices we cover in the region, including the Stoxx 600, 10 are in an Uptrend Under Pressure.
  • Short-term momentum (over the last four weeks) remains concentrated in Cyclical, Financial, and Capital Equipment while deteriorating among Staple and Health Care
  • Leading stocks continue to trade constructively, which reflects in the increasing number of stocks in the O’Neil European Focus List. Last week, we added Sika (SIKA.CH), Experian (EXPE.GB), Softwareone (SWON.CH), BHG Group (BHG.SE), and DSV (DSV.DK) to our list.
  • Focus: BHG Group (BHG.SE, $1B market cap) is a beneficiary of a secular trend of increasing consumer spending in DIY and home improvement that is observed across the world during the pandemic. We recommend that investors build positions in this well-rated name

European Weekly Summary

Key points:
  • Yesterday, the Stoxx 600 was shifted to an Uptrend Under Pressure after the index breached its 21-DMA. To remain constructive, we look for the index to consolidate along its rising 50-DMA, which is key immediate support.
  • In conjunction, Norway, Portugal, and Luxembourg were moved to an Uptrend Under pressure. Among the 16 indices we cover in the region, seven, including the U.K., are now in an Uptrend Under Pressure. The average distribution day count continued to rise over the past five days and is now at 6.2.
  • We see the value/cyclical trend to resume and maintain a bullish view on Capital Equipment.
  • This morning, following reports that the U.S. administration is weighing a $1T infrastructure program as part of plans to boost the economy, construction stocks are now in the spotlight.

European Weekly Summary

Key points from this week’s report:

Please refer to the attached PDF for the full report.

 

  • European markets remain in a Confirmed Uptrend, but the distribution remains elevated, and several key indices are now extended from their 21-DMA, suggesting some consolidation in the near term.
  • We recommend that investors add positions in the best fundamental stocks when they break out of a proper base or form the right side of a base, and trim positions in extended names, particularly among sectors with a deteriorating short-term momentum such as Health Care.
  • Markets in the region continue to experience a strong rotation toward value and cyclical stocks, indicating a trend that may perdure further, according to the twelve-month oscillation charts of these sectors versus the Stoxx 600.
  • We recommend that investors notably rebalance their portfolio toward Capital Equipment, which is a sector in Europe that offers several strong fundamental stocks breaking out of early-stage base or forming the right side of a base.
  • Over the past three weeks, we have added 10 new names to our European Focus List, including six from the Capital Equipment sector, reflecting the rising sector’s short-term momentum. Among these new additions, Teleperformance ( ROFR.FR ), Spirax ( SPX.GB ), Tomra ( TOM.NL ), and Indutrade ( INDT.SE ) are actionable.
  • Outside of our Focus List, we recommend that investors look at: Relx ( REL.GB ), Homeserve ( HSV.GB ), Balfour Beatty (BBY.GB), Ashtead (AHT.GB), Kongsberg ( KOG.NO ), RWS ( RWS.GB ), Varta ( VAR1X.DE ), and Valmet ( VALM.FI ).

European Weekly Summary

Key points:
  • A majority of European Markets are in an Uptrend Under Pressure. We are concerned by the recent clustering of distribution days, and we recommend trimming positions in extended names and selectively adding positions in ideas that are breaking out of a proper base.
  • Improving short-term momentum among lagging (26 weeks) Cyclical and Capital Equipment is not surprising given the divergence of performance over the past 12 months. While it is still too early to identify a trend, we advise building positions in fundamentally sound companies that are breaking out of a proper base (ROFR.FRSWEB.SE).
  • Year-to-date, our O’Neil European Focus List is outperforming its benchmark by 20pp.  Last week, we added Simcorp (SIM.DK), Sweco (SWEB.SE), and Teleperformance (ROFR.FR) to the list and did not remove any names.