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Stocks Mentioned in Recent Research

GLOBAL OUTLOOK

Downtrend:

Rally Attempt:

Confirmed Uptrend:

Uptrend Under Pressure: /span>

Europe Detail
Asia Detail

FEATURED

Market View

Market Overview

The U.S. market is in a Confirmed Uptrend. Despite the pullback on Friday, the majority of growth ideas held up well, with multiple recent IPOs also breaking out into new highs. Further, small-cap indices, including the S&P 600 and Russell 2000, also held up well relative to the other major averages, indicating a further rotation into U.S.-based ideas. Overall, despite choppy market conditions, we maintain our positive view as the major averages remain above moving average support with a low number of distribution days. Stocks on our U.S. Focus List: Current Sentiment Our USFL of 69 ideas gained 1.1% on average this week, outperforming the S&P 500 (-0.2%) and the Nasdaq (+0.3%).

By Sector

Software ideas on the U.S. Focus List led this week. RNG, TEAM, VEEV, and PAYC are all trading at or near new highs, while RP, NOW, TYL, and ADSK all regained their respective 50-DMA. Retail names also rallied, led by AMZN which continues to make new highs, as well as FIVE and LULU, which both found support around their respective 50-DMA. Conversely, with the exception of WP and SQ, the majority of Financial ideas lagged this week, including WAL, ZION, TCBI, and SCHW, which are all testing the low end of long-term support.

MARKET VIEW

Market Overview

The U.S. market is in a Confirmed Uptrend. Despite the pullback on Friday, the majority of growth ideas held up well, with multiple recent IPOs also breaking out into new highs. Further, small-cap indices, including the S&P 600 and Russell 2000, also held up well relative to the other major averages, indicating a further rotation into U.S.-based ideas. Overall, despite choppy market conditions, we maintain our positive view as the major averages remain above moving average support with a low number of distribution days.

Stocks on our U.S. Focus List: Current Sentiment
Our USFL of 69 ideas gained 1.1% on average this week, outperforming the S&P 500 (-0.2%) and the Nasdaq
(+0.3%).

By Sector

Software ideas on the U.S. Focus List led this week. RNG, TEAM, VEEV, and PAYC are all trading at or near new highs, while RP, NOW, TYL, and ADSK all regained their respective 50-DMA. Retail names also rallied, led by AMZN which continues to make new highs, as well as FIVE and LULU, which both found support around their respective 50-DMA. Conversely, with the exception of WP and SQ, the majority of Financial ideas lagged this
week, including WAL, ZION, TCBI, and SCHW, which are all testing the low end of long-term support.

The U.S. market is in an Uptrend Under Pressure. The S&P 500 is still holding its 21-DMA, while the Nasdaq
remains above its 50-DMA. Though no distribution days will expire next week, the count remains relatively low,
at two days on the S&P 500 and three on the Nasdaq. Leadership, however, remains a concern as the market
continues to rotate into previously lagging industry groups. Though we have seen an improvement in quality
growth over the last few sessions, most ideas are still trading within consolidation and have yet to show enough
improvement to begin buying. Therefore, we continue to recommend a selective approach focusing on ideas
with the best relative strength while reducing exposure to names that have broken and stayed below near-term
levels of support.
Stocks on our U.S. Focus List: Current Sentiment
Our USFL of 68 ideas gained 0.4% on average this week, underperforming the S&P 500 (+0.8%) and the
Nasdaq (+1%).
Actionable Focus List ideas: ASGN ( ASGN ), Flir Systems ( FLIR ), Global Payments ( GPN ), Nextera Energy Prtn Lp
( NEP ), SS&C Tech ( SSNC ), Union Pacific ( UNP ), Unitedhealth ( UNH ), Vertex Pharmaceuticals ( VRTX ), Wingstop
( WING )
USFL ideas weekly earnings line-up:
Monday: Close: RNG, WTW
Tuesday: Close: CLR, ENV, QTWO, SUPN, WRD
Wednesday: Close: FANG, ZTO
Thursday: Open: WP; Close: PLNT
By Sector
There was mixed action among U.S. Focus List ideas within each sector this week. Within software, PAYC, TEAM,
and SSNC broke out into new all-time highs post earnings, while other ideas including NOW, ATVI, TYL, and
ADSK remain under pressure and below their respective 50-DMA. Within Heath Care, ILMN continues to push
into higher highs following earnings, while IDXX, PRAH, and ALGN continue to hold above their respective 50-
DMA. EW and ABMD are now forming new bases below their 50-DMA after reacting negatively to earnings.
Among the payment processors, GPN and SQ moved higher post earnings, while MA, V, WP, PYPL, and FLT are
trading around their respective 50-DMA after pulling back on earnings. With the exception of WING, which
broke out on earnings, most Retail ideas are consolidating. LULU, FIVE, and HD are trading around their re-spective 50-DMA and remain technically intact, while OLLI and HOME are trading more than 10% off highs and
below that same level of support.
New Ideas or Deletions
We added ASGN ( ASGN ) and Union Pacific ( UNP ), and removed ON Semiconductor ( ON ) and Marketaxess
( MKTX ) from the U.S. Focus List this week.

The U.S. market is in a Confirmed Uptrend. We will move the market back to Under Pressure should we see the Nasdaq
close below its 50-DMA next week. We are concerned with the action of leading ideas, which came under severe selling
pressure on Friday, resulting in the Nasdaq closing below its 21-DMA. Multiple names either pulled back sharply to their
respective 50-DMA or broke below that level post-earnings results. Earnings will continue to play a big role next week, with
another 25% of the U.S. Focus List reporting. We recommend a patient approach in the near term, waiting to see support
come back into the market over the next few sessions.
Stocks on our U.S. Focus List: Current Sentiment
Our USFL of 68 ideas lost 1.8% on average this week, underperforming the S&P 500 (+0.6%) and the Nasdaq (-1.1%).
Actionable Focus List ideas: Diamondback Energy ( FANG ), Envestnet ( ENV ), Flir Systems ( FLIR ), Heico ( HEI ), Home Depot
( HD ), Nextera Energy Prtn Lp ( NEP ), Paypal ( PYPL ), RingCentral ( RNG ), Unitedhealth ( UNH ), Vertex Pharmaceuticals ( VRTX ).
USFL ideas weekly earnings line-up:
Monday: Open: ON; Close: ILMN
Tuesday: Open: FIS; Close: PAYC
Wednesday: Open: IDXX; Close: PRAH, SQ
Thursday: Open: GPN; Close: ANET, ATVI, FLT, RP, SSNC, WING
By Sector
All sectors pulled back sharply to close the week, led lower by Health Care. Multiple Medical Product ideas gapped down
post earnings, including ABMD, ALGN, and EW. ABMD and EW are now testing support around their respective 100-DMA,
while ALGN is still holding above its 50-DMA. IDXX and ILMN are also pulling back off extended levels ahead of earnings

next week. Technology ideas also sold off Friday. ATVI, MPWR, PSTG, VEEV, RP, and ADSK all broke back below their re-
spective 50-DMA. Retail ideas, which had been leading, all pulled back as well. LULU, OLLI, and HOME broke their respec-
tive 50-DMA on Friday, while FIVE and HD look set to test that same level in the coming days. Financial ideas held up the

best, despite selling off on Friday. SIVB, FLT, V, MA, FIS, SQ, and ENV all hit new highs this week before fading into Friday’s
close.
New Ideas or Deletions
We added Envestnet ( ENV ) and removed TAL Education ( TAL ) from the U.S. Focus List this week.

SECTOR SUMMARY

Key points:

USD break out to 52-week highs.
Pressure on EFA and EEM funds (local holdings in ETF negatively affected by USD strength). Currency-hedged ETF a way to avoid some losses (Developed: HEFA; Emerging: HEEM).
Turkey is the latest EM market to deal with major currency losses this year (joining Brazil, Argentina, and South Africa).

Key Points:

 

U.S.

  • The iShares Nasdaq Biotech ETF ( IBB ) and the iShares U.S. Pharmaceuticals ETF ( IHE ) are both now testing YTD highs after coming under accumulation over the last month. The majority of top holdings within each ETF have reported beat-and-raise quarters and are now rallying off the lows, with a handful breaking out into new highs ( LLY, PFE ). Though the fundamental backdrop is positive, uncertainty regarding healthcare policy and drug pricing continues to be an overhang on the industry. We recommend a selective approach, focusing on technically intact, profitable biotech and pharmaceutical companies driven by underpenetrated and superior FDA-approved drugs.
  • Our U.S. Focus biotech/pharma ideas all have multiple patent-protected FDA-ap­proved drugs and are expected to grow sales and EPS by double digits over the next two years. U.S. Focus List ideas include Vertex Pharma, Zoetis, and Supernus Pharma. U.S. Stocks of Interest include Horizon Pharma, Pacira Pharma, and Jazz Pharma. VRTX and ZTS are actionable at current levels, while SUPN, our third U.S. Focus List idea, has come under recent selling pressure post Q2 results. Though its fundamental profile remains intact, the stock will need to improve technically in the coming weeks to stay on our U.S. Focus List.

EMEA

  • The European biopharmaceutical market was estimated at $44B in 2017 and is expected to reach $68B by 2023, having a CAGR of 9%. The efficacy and safety of new drugs, specifically for complex and chronic diseases, are driving market growth. Currently, 70–80% of healthcare costs in the EU are spent on chronic diseases. Similar to the U.S., we recommend a selective approach, focusing on the few ideas that are outperforming on a relative basis due to superior EMA approved drugs marketed in underpenetrated regions of Europe.
  • Our European Focus List ideas include Ipsen IPN.FR, Swedish Orphan Biovitrum SOBI.SE, and Vifor Pharma VIFN.CH.

APAC

  • Despite a favorable fundamental backdrop, our Hong Kong-listed Focus List stocks have pulled back to long-term support levels due to a weakening gener­al market. Last week, China’s currency reported eight straight weeks of losses and reached its lowest level in more than a decade. Therefore, we recommend waiting for market conditions to improve before buying Hong Kong-listed Focus List ideas. The APAC biologics market is expected to have a CAGR of 15.6% during 2016–2024, driven by favorable regulations for approval.
  • Our APAC Focus List ideas include CSPC Pharmaceutical Group CPHA.HK, Wuxi Biologics WXBO.HK, 3Sbio SBIL.HK, and Ipca Laboratories LAB.IN. APAC Stocks of Interest include Sun Pharma TIC.IN and Torrent Pharma TRR.IN.

Key points:

Sector rotation is favoring industrials as well as defensives in the short term. Of note, industrial and resource sectors have the shown the best sales and EPS growth in Q2, benefiting from strong U.S. GDP and accelerating industrial production over the past few months. Below are the growth rates of S&P 500 stocks from these cyclical sectors (percentages are the medians, 75% of companies have reported).
Basic Material: Sales growth of 12%, 1% ahead of consensus. EPS growth of 37%, 4% ahead of consensus.
Capital Equipment/Transportation: Sales growth of 9%, 1% ahead of consensus. EPS growth of 24%, 5% ahead of consensus.
Energy: Sales growth of 22%, in line. EPS growth of more than 100%, also in line.
From these groups and within the S&P 500, Focus List stocks to buy include FLIR and UNP, while a few others to take a look at include CF, SHW, IR, FTV, and RHI.

ECON SUMMARY

Q2 GDP advance estimate released:
The Bureau of Economic Analysis has released its Q2 advance estimate for real GDP at 4.1% y/y, 190bps above the revised Q1 real GDP.

Q1 GDP third estimate revised downward.
As per the third estimate released by the Bureau of Economic Analysis, Q1 GDP increased 2.0% y/y, 200bps lower than
the second estimate.

Q1 GDP rate comes in above consensus.
As per the second estimate by the Bureau of Economic Analysis, Q1 GDP increased 2.2% y/y, 100bps higher than the
advance estimate. Median GDP growth rate forecast for 2018 was increased to 2.5% from 2.1%.

EQUITY RESEARCH

Market Status

Argentina: Uptrend Under Pressure, with 4 distribution days
Brazil: Uptrend Under Pressure, with 4 distribution days
Mexico: Uptrend Under Pressure, with 6 distribution days

Global Laggards

Heetae Kim, Aug 09, 2018

Highlighted Charts

U.S.: Pan American Silver ( PAAS ), Crown Holdings ( CCK ), Autoliv ( ALV ), Hilton Worldwide ( HLT ), Harley Davidson ( HOG ), Kraft Heinz Company ( KHC ), Sunpower ( SPWR ), SEI Investments ( SEIC ), Perrigo ( PRGO ), Tivity Health ( TVTY ), Sothebys ( BID ), Delux Corp ( DLX ) Netscout Systems ( NTCT ), Jetblue Airways ( JBLU ).

Developed: Kobe Steel ( [email protected] ), Kawasaki Heavy Industry ( [email protected]; 7012 JP ), Daimler ( DAIX.DE, DAI GR ), Thai Beverage Public ( THBE.SG; THBEV SP ), Nomura Real Estate ( NREH.JP; 3231JP ), UDG Healthcare ( UDG.GB; UDG LN ), Isetan Mitsukoshi Holdings ( [email protected]; 3099 JP ), AMS ( AMS.CH; AMS SW ), Nexon ( NXCL.JP ; 3659 JP ), East Japan Railway ( EAJR.JP; 9020 JP )

Emerging: Com2us ( CUS.KR; 078340 KS ), Tata Global Beverages ( TEA.IN; TGBL IN ), KB Financial Group ( KHB.KR; 105560:KS ), Sino-America Silicon Products ( SAS.TW; 5483 TT ), Korean Airlines ( KAA.KR; 003490 KS ).

Stocks worth focusing on in this week’s Global Laggards:

Hilton Worldwide ( HLT ) – Cyclical ( $23B market cap ) – a hospitality company operating more than 5,300 properties (~879,000 rooms) through 14 brands across 106 countries. Its brands include Hilton Hotels & Resorts, Waldorf Astoria, Embassy Suites, and Hampton.

The stock has been trading along its 10-WMA since February and broke below its 40-WMA after reporting earnings last week. The stock is testing the lower end of the current consolidation at ~$75-76; should this break, the next level of support is ~$67.
HLT’s RS line has been declining from late April with a current RS Rating of 50 (poor). Its three-year earnings growth rate is -3%, along with an EPS Stability Factor of 26, which is the second weakest among its industry group peers. Its after-tax margin of 9.2% in the latest quarter was among the lowest of all U.S. lodging stocks. The stock’s A/D Rating has remained negative for seven out of the past nine weeks, indicating ongoing distribution.
After exceeding EPS expectations over the last several quarters, HLT’s Q2 EPS was in line with consensus expectations.
The RevPAR guidance for 2018 remains unimpressive at 3-4% y/y. Management expects system-wide RevPAR growth for Q3 at 2.5-3% y/y, which is below the full-year guidance range.
HLT generates roughly 70% of its EBITDA from U.S. hotels and we continue to believe that the U.S. lodging industry is near its peak.
In 2019, supply growth in the U.S. lodging industry will surpass demand growth for the second time in 10 years. HLT’s development pipeline continues to grow; it had a pipeline of 362,000 rooms (2,370 hotels) at the end of Q2. Slightly less than half of this pipeline consists of developments for the U.S., and this leaves HLT vulnerable to RevPAR underperformance in the coming years.

Strategy View

Randy Watts, Aug 09, 2018

Key Points:

 

  • Second earnings season with 8%+ sales and 20%+ median EPS growth for S&P 500 companies—both at highest level since 2010–2011. Median EPS beat of 4%.
  • Small caps even better with 10% sales and 23% median EPS growth for S&P 600 companies. Also better median EPS beat of 6%.
  • Strong industrial production, GDP growth, earnings results, small-cap outperformance, and recent rotation to cyclical sectors (except for Consumer Cyclicals) are all bullish highlights.
  • See attachment for actionable Focus List names ( WP, BL, MPWR, ASGN, etc.), other leading mid/large-cap industrial names ( CF, IR, XYL, UAL, etc.), and leading small caps ( EYE, SKYW, SAIL, GOLF, CBPX, etc.)

FOCUS LISTS

Aug 10, 2018
The U.S. market is in a Confirmed Uptrend. Despite the pullback on Friday, the majority of growth ideas held up well, with multiple recent IPOs also breaking out into new highs. Further, small-cap indices, including the S&P 600 and Russell 2000, also held up well relative to the other major averages, indicating a further rotation into U.S.-based ideas. Overall, despite choppy market conditions, we maintain our positive view as the major averages remain above moving average support with a low number of distribution days
Aug 10, 2018
The Stoxx 600 was mixed this week, recording losses for two out of four trading sessions until Thursday. As of Thursday’s close, it had a weekly gain of about 0.23%, and was more than 1% above its 50- and 200-DMA. However, intraday Friday, the index was down 0.81%. It remains in a Rally Attempt and we look for the index to hold its 50-DMA. This week, we upgraded Italy to a Rally Attempt, and downgraded Denmark to an Uptrend Under Pressure after it broke below its 50- and 200-DMA.
Aug 10, 2018
Australia’s ASX All Ordinaries Index rose 0.64% this week. It added one distribution day, taking its total count to six. The index is currently in a Confirmed Uptrend.
Aug 10, 2018
China's CSI 300 (
) rose 2.48% this week, rebounding from last week's decline. We moved the market to a Rally Attempt after it closed positive in three out of the last four sessions. However, we still remain cautious with an eye on the U.S.-China trade war.
Aug 10, 2018
Saudi Arabian Mining Company (
) is one of the leading mining and metals companies in the Kingdom of Saudi Arabia. The Company's key catalysts include production expansion of aluminium and phosphate and rising commodity prices.
Aug 10, 2018

WHITE PAPERS

EPS Rank Study

Oct 12, 2016

In this paper, we examine the effectiveness of using William O’Neil +Co.’s proprietary Earnings Per Share (EPS) Rank as a primary factor in managing a portfolio of U.S. equities. Our study included nearly 12,000 U.S. equities from January 1995 to December 2015.

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