Author: Heetae Kim

Heetae Kim is a Senior Equity Analyst at William O’Neil + Co., a registered investment advisor serving 400 top-performing institutional portfolio managers worldwide. The firm employs 150 associates in Los Angeles, New York, Boston, San Francisco, and London. Heetae lends his expertise in growth investing to the U.S. Equities Committee and currently focuses on generating ideas for the firm’s Global Laggards product. He also covers the Americas region and the Retail sector. Heetae has also served on the Global Focus List Committee, which approves all equity recommendations for developed, emerging, and frontier markets. His deep knowledge of technical and quantitative analysis has allowed him to work extensively with alpha capture programs, generating positive alpha returns based on client-specified strategies. Mr. Kim joined the firm in 2006, after graduating from the University of California, San Diego with a dual major in economics and political science, with an emphasis on international relations. He also holds a Series 65 license. He enjoys traveling, reading and is an avid sports fan. When time permits, he plays basketball and likes watching basketball, football, and baseball.

Global Laggards

Posted on July 19, 2018February 1, 2019 by Heetae Kim

Highlighted Charts

U.S.: Gold Fields (

), Illinois Tool Works, (

), Wynn Resorts (

), Belmond (

), Palmolive (

), Ormat Technologies (

), New York Community Bncrp (

), Tivity Health (

), Cracker Barrl Old Cent St (

), Extreme Networks (

), Nielsen Holdings (

)

Developed: Newcrest Mining (NCM.AU; NCM AU), Wpp (WPP.GB; WPP LN), Lixil Group (LIXI.JP; 5938 JP), Wilmar International (EZYH.SG; WIL SP), Inter Pipeline (IPL.CA; IPL CN), Danske Bank (DAB.DK; DANSKE DC), BOC Hong Kong (BOC.HK;2388 HK), Convatec (CTEC.GB; CTEC LN), Asos (ASC.GB; ASC LN), Rohm (ROHM.JP; 6963 JP), Randstad (RAND.NL; RAND NA)

Emerging: GMK Norilsk Nickel (GMK.RU; GMKN RM), Lg (LCY.KR; 003550 KS), Minor International (RGRT.TH; MINT TB), Natura Cosmeticos (NAT.BR; NATU3:BZ), SK Innovation (SBG.KR; 096770 KS), Nh Investment and Secs (LUS.KR; 005940 KS), Mediatek (MDT.TW; 2454 TT), Korean Airlines (K

.KR; 003490 KS)

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

U.S.

Belmond Ltd. (

), formerly known as Orient-Express Hotels Ltd., operates 47 luxury hotels, trains, and river cruises in 24 countries. Properties include the Hotel Cipriani and Hotel Splendido in Italy.

Shares have been trading below their 40-WMA since November 2017. The stock’s RS line has been declining since February 2017 and its RS Rating stands at a low of 20. Fundamental profile remains very poor with an EPS Rank of 38 and an SMR Rating of E. Three-year earnings growth is a poor -16% and its stability factor of 30 is one of the worst in the industry, along with its ROE of 2% and a single-digit pretax margin.
has significantly missed consensus estimates in the past three quarters. In Q1 2018, the Company reported adjusted EBITDA of -$2.2M, below the $1.6M profit expected by consensus. Revenue was 12% below consensus estimates. For the full year, management guided for an unimpressive RevPAR growth of 2-6% in constant currency.
The Company is likely to miss its long-term targets, with 2018 EBITDA of $140M-150M still far from its 2020 EBITDA target of $240M. EBITDA CAGR for 2018-2020 is expected to reach the high single digits, versus double digits the past two years. The stock trades in line with the sector at a FY 2018 EV/EBITDA of 12.2x.

Alcoa (

) – Basic Material – ($8B market cap, $122M ADV) produces aluminum (67% of Q2 2018 revenues), alumina (30%), and bauxite (2%) and is the largest global aluminum producer outside of China.

Shares fell 14% on more than 700% above average volume after Q2 2018 earnings results.
Prior to earnings, shares failed in an attempt to retake both the 50- and 200-DMA. In addition, the 50-DMA ($48.09) is now below the 200-DMA, creating a declining level of resistance.
Shares were unable to hold above $43-44, which had acted as support several times in the past five months. On a bounce back into this area, shares may see significant resistance.

Reported Thursday July 19,

‘s Q2 2018 sales of $3.59B and adjusted EBIDTA of $904M rose 25% and 79%, y/y, respectively. Sales beat the consensus by 3.5% but adjusted EBITDA missed by about 5%.
- Sales beat on higher realized aluminum/alumina prices in the quarter, but EBITDA missed due to the impact of U.S. tariffs (from June 1 on) and certain operational issues including a temporary shutdown at a U.S. smelter.
is exposed to the imposition of tariffs on U.S. imports, in that it has aluminum smelters in Canada for which sales are to the U.S.
- The Q2 impact to EBITDA was $15M, which only included June. It estimates a $12M-14M impact each month going forward.
Full-year 2018 guidance was revised much lower: full-year adjusted EBIDTA of $3.0B-3.2B, from $3.5B-3.7B previously. There were three main reasons for the 14% lower view (at the midpoint):
- Lowered aluminum price assumption by 9%.
- Lowered alumina price assumption by 7%.
- Provided full-year tariff impact guidance of -$100M.
While now extended from an ideal entry, we would hold shares if already short or wait for a low volume bounce into $43-44 resistance to take a short position.

Global Laggards

Posted on July 12, 2018February 1, 2019 by Heetae Kim

Highlighted Charts

U.S.: Newmont Mining ( NEM ), Oshkosh ( OSK ), Goodyear Tire & Rubber ( GT ), Ingredion ( INGR ), Western Gas Equity ( WGP ), Aegon ( AEG ), Lloyds Banking Group ( LYG ), Mckesson ( MCK ), Chicos Fas ( CHS ), Childrens Place ( PLCE ), Advanced Energy Inds ( AEIS ), DXC Technology ( DXC )

Developed: Dic ( EQ@N.JP; 4631 JP ), Flsmidth ( FLB.DK; FLS DC ), Nikon ( OU@N.JP; 7731 JP ), Ezaki Glico ( BQ@N.JP; 2206 JP ), Snam SPA ( SRG.IT; SRG IM ), KBC Group ( KB.BE; KBC BB ), Shionogi ( SQ@N.JP; 4507 JP ), Sugi Holdings ( SUGP.JP; 7649 JP ), Nitto Denko ( IF@N.JP; 6988 JP ), Sophos ( SOPH.GB; SOPH LN ), Ryanair Holdings ( RYA.GB; RYA LN )

Emerging: China Petrochemical Development ( CPD.TW; 1314 TT ), Siam Cement ( SCQT.TH; SCC TB ), Minor International ( RGRT.TH; MINT TB ), Bidvest Group ( BVTJ.ZA; BVT SJ ), Bardespar SA ( R4P.BR; BRAP4 BZ ), The Foschini Group ( TFGJ.ZA; TFG SJ ), Quanta Computer ( QUM.TW; 2382 TT )

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

Advanced Energy Industries ( AEIS ) – Technology, $2.4B market cap

AEIS designs and manufactures power conversion products. These products enable thin film manufacturing processes such as deposition and etch for various semiconductor and industrial products. Two semiconductor equipment manufacturers, Applied Materials ( AMAT ) and Lam Research ( LRCX ), jointly accounted for 57% of total 2017 revenue.

In mid-April, shares of Lam Research ( LRCX ) and other stocks in the semiconductor manufacturing ecosystem fell after LRCX gave a disappointing outlook for shipments for the rest of 2018. Other high profile semiconductor companies like Taiwan Semiconductor Co. ( TSM ) have also shared a soft outlook for the semiconductor industry.

Following the disappointing shipment outlook shared by LRCX, AEIS broke below the 50-DMA on above average volume. Shares are now living below this level.

The Industry Group Rank of the Electronic-Semiconductor Equipment has fallen to 117, with 197 being the worst ranked O’Neil group.

AEIS has a poor RS Rating of 12, and shares are now trading 36% off highs after topping in early November 2017.

Per consensus estimates, revenue growth is expected to decelerate from 39% in 2017 to 10% in 2018 and 7% next year. The forecasts for 2018 and 2019 were recently revised down.

Shares have been on a steady decline since breaking below long-term support at the 200-DMA on December 1, 2017.

The number of funds holding AEIS shares fell to 481 as of the end of June 2018, from a record high of 510 as of December 2017.

Support levels: ~$56 (mid-January 2017 trading range) and ~$47 (late October 2016 trading range).

We recommend covering short positions on a decisive break above the 100-DMA ( $64.26 ).

Global Laggards

Posted on July 5, 2018February 1, 2019 by Heetae Kim

Highlighted Charts

U.S.: Teck Resources (

), Xylem (

), Illinois Tool (

), Wynn Resorts (

), General Mills (

), Ormat Technologies (

), S E I Investments (

), Cigna (

), Chicos Fas (

), Arris International (

), BlackBerry (

), C H Robinson (

)

Developed: Henkel ( HENX.DE; HEN GR ), Penta-Ocean Construction ( BL@N.JP; 1893 JP), Mazda Motor (KO@N.JP; 7261 JP ), Adidas ( ADSX.DE; ADS GR), Nippon Suisan Kaisha (NS@N.JP; 1332 JP ), Prairiesky Royalty ( PSK.CA; PSK CN ), Convatec ( CTEC.GB; CTEC LN ), Shionogi ( SQ@N.JP; 4507 JP ), Yamada Denki ( YAEL.JP; 9831 JP ), Dip ( DIPC.JP; 2379 JP), Ana Holdings ( ANAW.JP; 9202 JP )

Emerging: Posco ( PIS.KR; 005490 KS ), Siam Cement ( SCQT.TH; SCC TB ), Natura Cosmeticos ( NAT.BR; NATU3 BZ ), Bank Negara Indonesia ( BNE.ID;

NI IJ ), Truworths ( TRUJ.ZA; TRU SJ ), Asustek Computer ( ASU.TW; 2357 TT )

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

Adidas (ADSX.DE; €38.33B market cap; $188M ADV) is the second largest retailer of athletic shoes and apparel in the world.

Since 1998, shares have tanked after revenue growth slowed to the low single digits, versus double digits in previous years. History is likely to repeat itself in 2018. After growing 15% y/y in 2017, consensus expects 6% sales growth in 2018, partially impacted by negative FX.

Q1 figures released in early May indicate a sharp declaration in organic growth (+10% excluding FX, versus +16% in FY 2017), particularly in Western Europe (+5% excluding FX, versus +17% in Q4).

Short-term momentum is also eroding on the back of rising tariffs between the U.S. and China that may impact sales momentum, as two-thirds of sporting goods shipped to the U.S. comes from Chinese manufacturers; and because Germany, the Company’s top sponsored team, was kicked out of the World Cup early at the group stage level.

2018 and 2019 earnings forecasts have not changed significantly since July 2017, despite better-than-expected figures in Q1 2018.

In April, the stock seemed to top after a 250% gain since October 2014. After breaking out of a 34-week consolidation in early April, shares broke down later in April. Since then, the stock has been under distribution (A/D Rating < 0) and its RS line has been declining. Up/ Down volume is very weak.

After the Company released Q1 figures on May 3, its RS line crossed below its 50-DMA.

Global Laggards

Posted on June 28, 2018February 1, 2019 by Heetae Kim

Highlighted Charts

U.S.: Coeur Mining (

), Oshkosh (

), Smith A O (

), Anheuser Busch (

), Citizens Financial Group (

), Cigna (

), Ebay (

), Teradyne (

Technology (

), Spirit Airlines (

), Hawaiian Holdings (

)

Developed: Fortescue Metals (FMG.AU; FMG AU), Solvay ( SOL.BE; SOLB BB ), Volvo ( VOBF.SE; VOLVB SS ), Vat Group ( VACN.CH; VACN SW ), Faurecia ( BERT.FR; EO FP ), Ezaki Glico ( BQ@N.JP; 2206 JP ), Essity ( ESSI.SE; ESSITYB SS ), Investor ( ISBF.SE; INVEB SS ), Ono Pharm ( PS@N.JP; 4528 JP ), Don Quijote Holdings ( DONQ.JP; 7532 JP ), Fujifilm Holdings ( FP@N.JP; 4901 JP ), Siltronic ( WAFX.DE; WAF GR ), Otsuka ( OTSK.JP; 4768 JP), Ryanair (RYA.GB; RYA LN)

Emerging: Grupo Mexico ( GME.MX; GMEXICOB MM ), Larsen & Toubro ( LST.IN; LT IN ), Bidvest ( BVTJ.ZA; BVT SJ ), Bradespar ( R4P.BR; BRAP4 ), E-Mart ( EMA.KR; 139480 KS ), Winbond Eltn ( WIN.TW; 2344 TT )

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

U.S.

Citizens Financial Group (

) – Financial ($19B market cap; $187M ADV)

The Company operates through two wholly owned banking subsidiaries, Citizens Bank N.A. and Citizens Bank of Pennsylvania, with 1,150 branches and 3,300 ATM in 11 states in the New England, Mid-Atlantic, and Midwest regions. As of March 31, 2018,

had $153.5B in assets.

‘s shares remain under heavy selling pressure and are currently trading below key support levels. The recent release of the Dodd Frank Act Stress Test (DFAST) is adding more pressure on the stock.

On June 21, the Federal Reserve released the DFAST results. The headline results were disappointing and below street expectations.

The “severely adverse” scenario features a severe global recession with the U.S. unemployment rate rising by almost 600bps to 10% accompanied by a steepening Treasury yield curve.

The most severe hypothetical scenario projects $578B in total losses for the 35 participating bank holding companies during the nine quarters tested (from end of 2017 to Q1 2020).

The participating bank holding companies aggregate Common Equity Tier 1 Capital Ratio, which compares high-quality capital to risk-weighted assets, fell from an actual level of 12.3% in Q4 2017 to a minimum level of 7.9% in the hypothetical stress scenario.

‘s Common Equity Tier 1 Ratio fell from 11.1% as of the end of 2017 to a minimum level of 6.8% during the simulation. In addition, the bank’s Tier 1 Leverage Ratio fell from 10% to a minimum of 5.9%.

Shares recently breached their 40-WMA on above average volume and are now 18% off highs despite a strong fundamental profile (EPS Rank: 95).

The stock has a poor RS Rating of 48 and an A/D Rating of D-.

We believe the recent overhang will remain with the stock and it will retest prior lows of ~$32.

Global Retail Sector

Posted on June 27, 2018June 27, 2018 by Heetae Kim

Some highlights from the report:

U.S. Retail – Restaurants

The restaurant industry has been through better times of late. Increased consumption on account of a strong economy and lower taxes has given a boost to the industry.
Longer-term trends are still sluggish for the industry and we expect the industry group to continue to trade sideways on the chart.
The only Focus List stock from the Restaurant group is Wingstop ( WING ). We expect the stock to consolidate in the near term.
Long idea: TXRH; Short idea: JACK

International Retail – Restaurants

In the APAC region, we see bullish trends in Xiabuxiabu ( XIAB.HK ), Jubilant Foodworks ( JF1.IN ), and Domino’s Pizza Enterprises ( DMP.AU ).
We see a shorting opportunity with Saizeriya ( SAIZ.JP ) in Japan.

Top Focus List picks for the Retail Sector: LULU, OLLI, HOME, AMP.IT, AS.IN, BAP.AU

Global Laggards

Posted on June 21, 2018February 1, 2019 by Heetae Kim

Highlighted Charts

U.S.: POSCO ( PKX ), Enpro Industries ( NPO ), Borg Warner ( BWA ), Clorox ( CLX ), Arch Coal ( ARCH ), Affiliated Managers ( AMG ), Tivity Health ( TVTY ), Chicos ( CHS ), Lam Research ( LRCX ), Oracle ( ORCL ), International Business Machine ( IBM )

Developed: Akzo Nobel ( AKZA.NL; AKZA NA ), Komatsu ( KM@N.JP; 6301 JP ), Michelin ( MCL.FR; ML FP ), Renault ( RENU.FR; RNO FP ), Anheuser-Busch Inbev ( ABI.BE; ABI BB ), Japan Retail Fund ( JRFI.JP; 8953 JP ), Japan Lifeline ( PANL.JP; 7575 JP ), J Front Retailing ( MZYA.JP; 3086 JP ), Be Semiconductor ( BESI.NL; BESI NA ), Netent ( NET.SE; NETB SS ), Kuehne + Nagel ( KNIN.CH; KNIN SW )

Emerging: China Petrochemical Dev. ( CPD.TW; 1314 TT ), IRB Infrastructure Developers ( IDV.IN; IRB IN ), Ultratech Cement ( URC.IN; UTCEM IN ), Amorepacific ( AMN.KR; 090430 KS ), Oil & Natural Gas ( ONG.IN; ONGC.IN ), Moscow Exchange ( MOC.RU; MOEX RM ), Woolworths ( WHLJ.ZA; WHL SJ ), Winbond ( WIN.TW; 2344 TT ), Samsung ( SZS.KR; 018260 KS )

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

U.S.

Arch Coal (

) – Energy ($1.6B market cap) – Coal producer with operations in West Virginia, Virginia, Kentucky, and Wyoming.

generates two-thirds of its revenues from the U.S. and one-third from overseas, mostly in Europe/Asia.

Reiteration of short idea from 5/24/18.Shares fell 15% on 700% above average volume after the Q1 earnings miss, breaking through the 200-DMA.

Shares recently failed in an attempt to retake both their 50- and 200-DMA. In addition, the 50-DMA ($84.41) is now below the 200-DMA, creating a declining level of resistance.

Immediate support is at May lows of $76, with the next level of support just below $70. This would be a 13% gain on a short position from current levels. A break above $88 would signal a stop-loss on the short position.

After emerging from bankruptcy in Q3 2016, with a large reduction in debt and operations that were once again profitable, the Company reported five quarters of solid growth.

From Q4 2016 to Q4 2017, it averaged 16% sales growth and 40% EPS growth. It also beat consensus EPS estimates by double digits in four of the five quarters.

However, Q1 2018 EPS missed consensus by 33% as sales declined by 4% and missed consensus by high single-digits. It was hit by a trifecta of lower volume, lower realized prices, and higher cash costs in the quarter.

The Company also lowered guidance for full-year 2018 volume for coking and thermal coal, and raised cash cost guidance by high single-digits.

Consensus now expects sales and EPS to decline an average of 4% and 11%, respectively, for the next eight quarters. Full-year 2018 consensus EPS estimates have come down 26% since the Q1 miss. 2019 consensus estimates have come down by 11%.

Despite pledges by the Trump administration to keep the coal industry alive, competition from natural gas in the U.S., and natural gas and other renewables overseas, will likely continue to erode the industry’s revenues.

U.S. natural gas production is at an all-time high and supply is expected to continue growing along with domestic demand for the next two decades.

Coal production increased in 2017 for first time in three years, but remains 35% below its 2008 peak. However, demand did not increase and is expected to fall by single digits annually going forward. Supply is expected to fall this year, but flatline thereafter, which could put more pressure on prices.

Despite the cheap valuation (7x trailing 4Q EPS), declining earnings for the next few years could create a value trap.

Global Laggards

Posted on June 14, 2018February 1, 2019 by Heetae Kim

Highlighted Charts

U.S.: Valvoline (VVV ), Oshkosh (OSK ), Hasbro (HAS ), Tyson Foods (TSN ), Transcanada (TRP ), First American Finl (FAF ), Mednax (MD ), Magellan Health (MGLN ), Mercadolibre (MELI ), Advanced Energy (AEIS ), International Business Machines (IBM ), Spirit Airlines (SAVE )

Developed: Mitsui Chemical (PC@N.JP; 4183 JP), Omron (OMRN.JP; 6645 JP), Toppan Printing (PT@N.JP; 7911 JP), Dongfeng Motor (DFMG.Hk; 489 HK), Reckitt Benckiser (RB.GB ; RB LN), Daiwa Securities (DS@N.JP ; 8601 JP), Novo Nordisk (NON.DK ; NOVOB DC), Lawson (LAWS.JP ; 2651 JP), Nitto Denko (IF@N.JP; 6988:JP), Sumco (UMCO.JP; 3436:JP)

Emerging: Korea Zinc (KRZ.KR ; 010130:KS), Weg (WG3.BR; WEGE3:BZ), Paradise (PCL.KR; 034230:KS), Bidvest Group (BVTJ.ZA; BVT:SJ), Thai Oil (THOI.TH; TOP:TB), Samsung Fire & Mar In. ( AFM.KR; 000810:KS), Truworths Intl (TRUJ.ZA; TRU:SJ), Bharti Infratel (BHJ.IN; BHIN IN), Wipro (WIP.IN; WPRO:IN)

APAC Weekly Summary

Posted on June 13, 2018February 1, 2019 by Heetae Kim

The MSCI Asia has yet to break out of a flat trend and continues to be stuck in a tight range near the 200-DMA. Overall, our stance remains unchanged; we continue to be cautious on the region until we see a definitive change in trend. Despite this, there are markets that look relatively more favorable. Japan and India are examples. Both markets are setting up constructively after finding support off the 200-DMA. In our note, we go over the unbiased technical similarities of each market as we wait for confirmation.

In sector rotation, Indian Financials and Japanese Health Care have both shifted positively in relative performance recently. Lastly, we highlight Asahi Intecc (AS@H.JP, 7747:JP) on our Focus List.

Global Laggards

Posted on June 7, 2018February 1, 2019 by Heetae Kim

This report has been curated by our sector analysts to find stocks showing technical weakness. We believe these stocks are laggards relative to their own domestic markets. We recommend that they be underweighted as they may be vulnerable to further downside risk and underperformance.

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

U.S.

Teradyne (

) – Technology ($7.4B market cap) – Teradyne is a global supplier of automation equipment for test and industrial applications. The Company is engaged in the development and manufacturing of systems used to test semiconductors, wireless products, data storage and complex electronics systems in the consumer electronics, wireless, automotive, industrial, computing, communications, and aerospace/defense industries.

On April 24, the Company guided for Q2 2018 revenues of $505M at the mid-point (-4% q/q), which was well below consensus estimates of $694M at that time, as demand for mobile testing systems materially weakened during Q1 2018. Slower-than-expected node transition by Apple (from 10nm to 7nm processing technology) is the main factor for the soft outlook.
Going forward, revenue growth is expected to decelerate. In the SoC Test market (smartphone-related),

expects 2018 revenue of $2.2B–$2.4B (-13% y/y at mid-point), versus previous expectations of $2.4B–2.8B (-2% y/y at mid-point). Given the lower SoC Test market estimate,

expects H1 2018 revenues to be similar to H2 2018, as opposed to prior expectations that revenues will be more back-end-loaded in 2018. This cautious outlook has resulted in downward revisions to 2018 and 2019 EPS consensus forecasts.
Shares sharply breached their 40-WMA on above-average volume following the disappointing outlook. Shares have been unable to rebound to original levels since August 2016.
has a poor RS Rating of 33 and Datagraph Rating of 53.
Shares are now trading 24% off highs after topping in March 2018.
Per consensus estimates, EPS growth is expected to decline 17% in 2018 and increase 33% in 2019.
We anticipate shares will roll over after hitting resistance near the 50-DMA and may retest prior lows of ~$32.

Global Laggards

Posted on May 31, 2018February 1, 2019 by Heetae Kim

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

U.S.

Spirit Airlines (SAVE) – Transportation ($1.8B market cap) – Low-cost carrier with services within North America and to and from the Caribbean and Latin America. SAVE heavily focuses on ancillary revenues (~50% of total).

Consensus EPS estimates have been on a downward trajectory for the past nine months. 2018 EPS estimates have fallen around 30% over the period.
Current P/E ratio is a bit lower than the industry average, but 2018’s expected P/E ratio is about 15% higher.
Top-line growth is in line or a bit higher than the three- and five-year averages, but operating costs are rising faster than revenue growth. Despite 19% revenue growth in Q1:
- Q1 fuel costs rose 46%, y/y, to 31% of total OP costs, from 27% in Q1 2017. Higher fuel costs gave it the ability to raise ticket prices while maintaining a competitive advantage, but it may not have been a net benefit.
- Q1 labor costs rose 22% y/y, remaining at 24% of total OP costs.
Relying mainly on capacity expansion over next two years to drive growth and the competitive environment to improve (especially if major airlines like United compete less at the low-end to non-major U.S. city destinations).
Clearly defined area of resistance at the downtrending 40-WMA. First support at $34 and then at $32. Cover shorts above $38.50.