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.

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 resistance along its 50-DMA (+4%) and gapped down (ex. Dividend). It is trading at a 52-week low. We recommend a patient and cautious approach given the market weakness. Several markets remain choppy with near-term trends uncertain.
  • Six markets are in an Uptrend Under Pressure, including Australia, India, and Japan. Hong Kong, Taiwan, and South Korea are in a Rally Attempt. China, New Zealand, and Indonesia are in a Confirmed Uptrend. Malaysia is in a Downtrend.
  • Over the past eight weeks, Transportation, Utility, and Technology have outperformed based on average price performance. There has also been relative improvement in Transportation, Basic Material, and Utility over the past one to four weeks. Refer to pages 9 and 10 for a list of near-pivot ideas from these sectors.

APAC Weekly Summary

Posted on by Derek Higa

Key points from this week’s report:

  • The MSCI Asia ex. Japan index ( AAXJ ) bounced off month-lows and is approaching 50-DMA resistance. We recommend a patient and cautious approach given the market volatility. We expect markets to remain choppy in the near term. Reduce risk in stocks failing to hold above logical support levels or are finding resistance along key moving averages.
  • Seven markets are in an Uptrend Under Pressure, including Australia, China, India, and Japan. Taiwan, South Korea, and New Zealand are in a Rally Attempt. Hong Kong and Malaysia are in a Downtrend. Only Indonesia is in a Confirmed Uptrend.
  • Leadership is narrowing across APAC with large caps outperforming relatively. Taiwan is the best performing market with 55% of stocks currently trading above their 50- and 200-DMA. Refer to page 8 for a list of constructive large-cap ideas.
  • Among sectors, strength is narrowing to Technology with Semiconductor Mfg and Computer-Data Storage outperforming among Tech groups.
  • Highlighted Focus List idea: Tokyo Electron ( RG@N.JP; 8035 JP ). Refer to page 7 for an annotated chart.

APAC Weekly Summary

Posted on by Derek Higa

Key points from this week’s report:

  • The MSCI Asia ex. Japan index is testing multiple levels of support between $82–84. We advise investors to remain cautious amid high volatility and elevated distribution.
  • Seven markets are in an Uptrend Under Pressure, including China, India, and Japan, three markets, including Hong Kong, Malaysia, and South Korea, are in a Downtrend, while New Zealand and Taiwan are in a Rally Attempt. Only Indonesia is in a Confirmed Uptrend.
  • In recent months, there has been a surge in COVID cases in countries like South Korea, New Zealand, Australia, and Singapore despite achieving >70% vaccination. However, the mortality rate has remained ~1% in these countries aided by vaccination. Despite having low COVID cases and higher vaccination, Japan sold off the most this week driven by strict government restrictions following the new variant.
  • In APAC ex. China, India has the highest number of leading stocks. Many of which are extended and under pressure. However, leaders are largely holding up well outside of India. Among APAC sectors, Technology has the highest number of leaders with several remaining constructive. Leaders within small and mid-cap continue to trade constructively thus far despite the recent market pullback. Refer to pages 3-5 for more on leading stocks in APAC ex. China.
  • Highlighted Focus List Idea: Mercari ( MERA.JP ).

Alphabet

Posted on by Derek Higa

Key points from this report:

 

  • We are reiterating our buy call on Alphabet as the stock reclaimed its 50-DMA on heavy volume and is breaking out to a new high from a stage-three flat base following better-than-expected Q3 results. The company has seen continued strength in the advertising business driven by first-party data platforms. Google Cloud is another key growth driver. The stock has gained more than 65% since its addition to our Focus List in November 2020.
  • Excellent fundamental profile: EPS Rank of 97, SMR Rating of A, and Composite Rating of 98.
  • RS line is at highs with good RS Rating of 90 and A/D Rating of C+. Up/Down Volume ratio has been greater than one over the past few weeks, indicating money inflow.
  • The company has seen continued strength in the advertising business, aided by Google Search. It benefits from the first-party data that it collects from customers during site visits, while its peers have been impacted by Apple’s privacy changes, as they depend on third-party data for advertising.
  • Revenue from YouTube advertising almost doubled over the past two years. It has grown by strong double digits since Q3 2020 and was only impacted modestly by the iOS privacy change.
  • Google Cloud is another key growth driver. The company expects operating margin from Google Cloud to benefit from increased scale over time.

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.