Author: Derek Higa

Derek Higa is a senior equity analyst and a lead for the APAC region and the Consumer Cyclical sector. He serves on the Global Focus List Committee, which approves all equity recommendations for developed, emerging, and frontier markets, and compiles Asia Watch, a weekly recap of regional investing news. Since joining William O’Neil + Company in 2005, he has lent his market expertise to alpha capture, product development, and historical studies on outperforming stocks. Derek graduated summa cum laude from California State University Los Angeles with a B.S. in Finance and Information Systems. He holds a Series 65 securities license.

Ford

Posted on by Derek Higa

Key points from this report:

 

  • Add to positions as Ford breaks out above the pivot ($16.5) of a stage-four 19-week cup base. Q3 earnings significantly beat estimates and it raised its full-year adjusted EBIT guidance. Profitability is improving through restructuring and simplifying its product lineup. It targets achieving half of sales from higher-margin electric vehicles by 2030. Although it is early days, we believe it is on track to achieving this target.
  • It targets 8% adjusted EBIT margin in 2023 after the completion of the turnaround announced in 2018 from 4.1% in 2019.
  • It is spending more than $30B through 2025 on electrification. The launch of the electric F-150 in mid-2022 will help maintain its lead in the 3M U.S. pickup truck market, where it holds 32% market share.
  • Q3 adjusted EBIT was $3B (-18% y/y), beating consensus by 83%.
  • It will reinstate a quarterly dividend from Q4 that was suspended in March 2020. We believe the resumption of the dividend is reflection of management’s confidence in achieving set profitability targets by 2023.
  • The company increased its 2021 adjusted EBIT guidance to $10.5B–11.5B from the $9B–10B provided in Q2.

APAC Weekly

Posted on by Derek Higa

Key points from this week‘s report:

Please refer to the attached PDF for the full report.

 

  • We continue to recommend a selective and patient approach. Look for market confirmation to gradually allocate risk, focusing on ideas with rising relative strength and constructive technical price action above key moving averages.
  • Six markets, including India and Japan, are in a Confirmed Uptrend. Two are in an Uptrend Under Pressure, including Australia and China. Five markets are in a Rally Attempt, including South Korea, Taiwan, and Hong Kong.
  • Weakness in the iShares MSCI emerging markets index ( EEM ) is primarily due to China. The iShares MSCI emerging market ex. China index ( EMXC  is trading constructively above its 200-DMA.
  • Historically, the EEM has performed well with the weakening of the U.S. dollar and underperformed with the appreciation of the dollar. However, despite inflation fears, the U.S. dollar index ( 0USDR ) has risen above January lows and is near 52-week highs with no immediate sign of a downward trend change.
  • Stocks from Consumer Cyclical, Energy, Financial, and Utility are performing well in the past four to eight weeks in emerging markets. We see rotation into the financial sector. Refer to pages 8 and 9 for stocks near pivot across emerging markets.
  • Highlighted Focus List idea: Bank Central Asia ( BCA.ID; BBCA IJ ). Refer to page 6 for an annotated chart.

APAC Weekly Summary

Posted on by Derek Higa

Key points from this week’s report:

Please refer to the attached PDF for the full report.

 

  • The MSCI Asia ex. Japan index broke above its 50-DMA and faces resistance at its 100-DMA. Focus on ideas with rising relative strength and constructive technical price action above their key moving averages, while being patient and selective.
  • We upgraded Japan last week to a Confirmed Uptrend.
  • Sectors outperforming over the past four weeks include Consumer Cyclical, Energy, Financial, and Retail. Refer to page 8 for large-cap stocks near pivot. Several are found in the financial sector.
  • Hong Kong remains in a Rally Attempt with narrow strength. However, the percentage of stocks trading above the 50-DMA improved significantly to 46% from 21% eight weeks ago. Refer to page 9 for an annotated chart of the Hang Seng index.
  • Chinese tech stocks are finding support off lows, but RS Ratings have had the most improvement for leading sectors like Energy and Basic Material thus far. Refer to page 11 for Hong Kong ideas.
  • Highlighted Focus List idea: BYD (BYD.HK; 1211 HK). See an annotated chart on page 7.

Social Media Update

Posted on by Derek Higa

Key points from this report:

 

  • The digital advertising market had a stellar H1 2021, benefiting from strong advertising demand, which picked up in H2 2020 following the COVID-19 outbreak. Strong H1 growth was also due to easy comparables versus a year ago. Going forward, tougher comparisons in H2 2021 will slow growth despite strong advertising demand.
  • Global digital advertising spend is expected to increase 20% y/y in 2021, compared with 11% in 2020. The market has a long runway before it reaches its peak.
  • In Q2, companies reported strong advertising revenue growth. Low comparatives in Q2 2020 are skewing y/y growth. The strongest verticals are those that have performed well throughout the pandemic. Going forward, growth is expected to slow due to tougher comparisons. However, on an absolute basis, companies are expected to report a sequential increase in H2 2021.
  • Historically, U.S. digital advertising revenue in H2 has been greater than in H1 on an absolute basis, due to normal seasonality.
  • Social media companies reported strong user trends in 2020, aided by COVID lockdowns. This is expected to slow as restrictions are eased. Snap is the only company to report accelerated user growth among social media companies in Q2.
  • Mature companies, including FB and GOOGL, are trading at a relatively lower valuation. On the other hand, SNAP, TWTR, and PINS are trading at a premium PE based on FY21 and FY22 estimates. SNAP has the best technical ratings, including a superior RS Rating of 94.  Additionally, SNAP has superior forward-looking growth compared with PINS and TWTR. Refer to page 6 for a comparison of O’Neil Ratings and Rankings for these companies.
  • We recommend investors hold positions in Focus List ideas GOOGL, FB, and SNAP ahead of Q3 earnings, which will begin with SNAP reporting on October 21. Look for SNAP to break above $83 to add to positions following a strong reaction to earnings. GOOGL will become actionable on a break above $2,925 following a good print. Wait for FB to form a base and hold above 200-DMA support. A break below $318 could result in more significant downside.
  • TWTR and PINS are the most vulnerable, in our view. TWTR shares have a history of high volatility due to inconsistent execution. PINS shares remain vulnerable due to a significant slowdown in user growth.

APAC Weekly Summary

Posted on by Derek Higa

Key points from this week’s report:

Please refer to the attached PDF for the full report.

 

  • The MSCI Asia ex. Japan index (AAXJ) found support near the August/September lows of $83 (-2%) and retraced back to its 21-DMA, which is acting as resistance. We recommend a cautious and patient approach awaiting market confirmation given the volatility. Wait for indices to hold above prior lows and clear above logical resistance levels to become constructive.
  • Four markets, including India, are in a Confirmed Uptrend. Three are in an Uptrend Under Pressure, including Australia and China. Five markets are in Rally Attempt, including Japan, Taiwan, and Hong Kong. South Korea is in Downtrend.
  • Over the past year, India has outperformed all other major APAC markets as well as the S&P 500. The SENSEX has gained more than 100% since the follow-through day on March 31, 2020. Several positive events have favored the market’s rally.
  • In India, institutional investors account for about 70% of the free float. Institutional stock purchases were significant during early 2021, but this has tapered off in the recent six to eight months. We believe the lack of institutional participation during the recent market acceleration is a cautionary signal for a pullback or consolidation period to occur in the near term.
  • Indian stocks are extended. Half of the liquid stocks in India are trading 20% or more above their 200-DMA. This is significantly higher compared with other major APAC markets. Refer to page 10 for mini charts of extended stocks. If mandated to buy, we recommend that clients focus on select stocks breaking out of early-stage bases with strong accumulation. Refer to page 11 for ideas.
  • Highlighted Focus List idea: Trim IRCTC (IR1.IN; IRCTC IN).

APAC Weekly Summary

Posted on by Derek Higa

Key points from this week’s report:

Please refer to the attached PDF for the full report.

 

  • The MSCI Asia ex Japan index (AAXJ) has declined below its key moving averages and is testing support along August/September lows of $83. It is still trading 9% below its 200-DMA and 18% below February 2020’s high of $102.4. We continue to recommend a cautious approach as broad price action remains weak.
  • Three markets, including India, are in a Confirmed Uptrend. Three are in an Uptrend Under Pressure, including Australia and China. Three markets are in a Rally Attempt. Japan, Hong Kong, Taiwan, and South Korea are in a Downtrend.
  • Oil prices are near multi-year highs. The current price increase is driven by an unexpected global V-shaped recovery, leading to demand exceeding supply in a short period. Consensus expects supply to catch up later this year. Historically, oil prices and the MSCI Asia Pacific index largely move in tandem. However, there are short periods (six to nine months) where they have deviated.
  • The Energy sector is the clear outperformer over the past eight weeks. This is mainly attributable to coal producers and oil and gas exploration companies. Refer to page 8 for mini-charts of ideas trading near pivot from the Energy sector.
  • Highlighted Focus List idea: Tata Power (TTP.IN; TPWR:IN).

APAC Weekly Summary

Posted on by Derek Higa

Key points from this report:

 

  • We are downgrading Japan to a Downtrend from an Uptrend Under Pressure. We recommend a cautious and defensive approach. Refer to page 3 for stocks with defensive characteristics.
  • Today, the Nikkei 225 was down 2.2% on above average volume and registered its fourth distribution day. It is trading more than 10% below its 52-week high and has declined below its 50- and 200-DMA. The next logical level of support is 26,954 (August lows; -2%). Refer to page 2 for an annotated chart of the Nikkei 225.
  • Notable large-cap ideas that are under pressure and have pulled back from their recent 52-week highs include Toyota Motor (TYMO.JP; 7203 JP), Sony (SO@N.JP; 6758 JP), KDDI (DDIC.JP; 9433 JP), Softbank Corp (SOF1.JP; 9434 JP), Nippon Telg & Tel (NTT.JP; 9432 JP), Denso (DE@N.JP; 6902 JP), and Z Holdings Corp (YHOO.JP; 4689 JP). Murata Manufacturing (SM@N.JP; 6981 JP) and Shin-Etsu Chemical (UC@N.JP; 4063 JP) have declined below their 50- and 200-DMA.
  • The Health Care and Technology sectors are weakening. Energy has outperformed over the recent four-week period. Select stocks related to the reopening theme continue to hold up well. Refer to page 4 for a list of stocks that have remained resilient.
  • After today’s status change, three out of 13 APAC markets are in a Confirmed Uptrend. Three are in an Uptrend Under Pressure, including Australia and China. Five markets, including Hong Kong and Taiwan, are in a Rally Attempt. Japan and South Korea are in a Downtrend.

APAC Weekly Summary

Posted on by Derek Higa

Key points from this week’s report:

Please refer to the attached PDF for the full report.

 

  • The MSCI Asia ex. Japan index has immediate resistance along its declining 50-DMA ($87.7). It is still trading 8% below its 200-DMA and 17% below February 2020’s high of $102.4. We continue to recommend a cautious approach as market conditions remain mixed. Be patient in underperforming Chinese markets.
  • India and Thailand are in a Confirmed Uptrend. Six are in an Uptrend Under Pressure, including Japan, Australia, South Korea, and China. Five markets, including Hong Kong and Taiwan, are in a Rally Attempt.
  • Today, we shifted Japan to an Uptrend Under Pressure from a Confirmed Uptrend. Value and cyclical stocks from the Capital Equipment, Consumer Cyclical, and Financial sectors are outperforming over the past 1–4 weeks. Refer to page 7 for a list of stocks near pivot in Japan.
  • Since 2015, the Japanese market rally has been driven by growth stocks as opposed to the dominance of value stocks between 2000 and 2010. Like other markets in APAC, Japanese growth and value stocks move largely in tandem.
  • Furthermore, when a correction occurred, Japanese value stocks outperformed growth on a relative basis. Refer to pages 3 and 4 for value and growth analysis for Japan.
  • Highlighted Focus List idea: NOF Corporation (NOFC.JP; 4403 JP)

APAC Weekly Summary

Posted on by Derek Higa

Key points from this week’s report:

Please refer to the attached PDF for the full report.

 

  • The MSCI Asia index is trading below the 200-DMA. We recommend a cautious approach given the recent market volatility.
  • Three markets, including Japan and India, are in a Confirmed Uptrend. Five are in an Uptrend Under Pressure, including Australia, China, and South Korea. Three markets are in a Rally Attempt, while Hong Kong and Singapore are in a Downtrend.
  • Across the region, weekly stock breakouts continue to remain higher in leading markets. Breakouts remain below the three-year average in China, Hong Kong, South Korea, and Taiwan.