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 by Heetae Kim

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

U.S.

Hawaiian Holdings ( HA ) – Transportation ( $1.8B market cap ) – Provides transportation and cargo services with a focus on Hawaii.

  • The stock has been trading in a downtrend since failing out of a late-stage base last June. The stock has been unable to break above the 40-WMA since then and is now struggling along the 10-WMA. RS Rating remains weak at 12. We believe shares are poised to test recent lows along ~$32.50. If this level breaks, we see shares trending toward ~$26.00.
  • Consensus expectations are for 2018 EPS growth of -8%. EPS growth is expected to be flat in 2019.
  • Competition has been increasing for routes to Hawaii. The downtrend started on June 14, 2017 on news that United Continental (UAL) would add 11 new flights to Hawaii. Southwest ( LUV ) has also announced its intent to fly to the state.

Developed

JD Sports Fashion ( JD.GB; JD:LN ) – Retail ( $4.8B market cap ) – Multi-channel retailer of sports fashion and outdoor brands.

  • The stock has had a long prior uptrend on the weekly chart and has been lagging the market over the past six months. We believe shares may be topping out following four years of a strong uptrend where the 40-WMA has held as support. The stock is now failing along the 40-WMA and the RS Rating remains weak at 28. We believe shares will trend lower from here to test 52-week lows along £300 (14% from current level).
  • EPS growth is expected to decelerate in the upcoming fiscal year to +9%.
  • Real wages have been declining in the U.K. and the U.K. accounts for two-thirds of the Company’s revenue.
  • The Company has a large physical footprint with stores from physical locations accounting for 86% of revenue (as of half year 2017). These locations could turn into a liability as consumer shopping habits continue to shift online.

Equity Research

Posted on by Heetae Kim

SUMMARY
• We currently view the general market in Europe to be favorable for shorting stocks as many developed markets within the region are classified in a Downtrend and still attempting to rally. The Stoxx 600 (

) made a sharp break below its 200-DMA in early February and continues to trade below this level with the 50-DMA, 100-DMA, and 200-DMA all rolling over. We recommend shorting stocks with weak RS Ratings near resistance at major moving averages.

Global Laggards

Posted on 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.
National Beverage ( FIZZ ) – Consumer Staples ( $4B market cap ) – Manufactures and distributes multi-flavored soft drinks, juice, flavored carbonated, and spring water products.

*   The stock’s RS line is hitting new 52-week lows as the stock is finding resistance along its 10-WMA. It has a weak RS Rating of 24. We believe the stock will likely fall to near-term support in the low ~$80s and see the potential for an eventual drop to the last breakout range at ~$63.
*   The Company reported Q3 FY 2018 revenue of $227.5M, below consensus expectations of $232.1M. The stock sold off 8% on the miss on March 9, a very strong day for the market.
*   Revenue growth has peaked and is expected to decelerate over the next two fiscal years.
*   Growth has been driven by the Company’s LaCroix sparkling water and competition is now increasing in the sparkling water space, with larger players making pushes to take market share. Pepsi recently launched Bubly, Nestle has been rolling out sparkling water brands, and Coca-Cola bought Topo Chico last year.

Developed
Pandora ( PND.DK; PNDORA:DC) – Retail ( $11B market cap ) – Designs, manufactures, and sells jewelry.

*   The stock has consistently failed to hold above its 40-WMA. Its RS line is hovering near multi-year lows and it has a poor A/D Rating of D+. We see the stock continuing to trend lower and expect it to test recent lows at ~€515.
*   The Company gave 2018 sales guidance of +7-10% (local currency), below consensus expectations of +10.8%. Revenue growth has been decelerating since 2015. The Company guided for EBITDA margin of 35%, versus the 37.3% reported in 2017.
*   The wholesale channel accounted for 50% of revenue in 2017, and revenue declined -1% y/y in this segment (local currency).
*   The U.S., which is the Company’s largest market accounting for 21% of revenues, continues to be affected by a challenging retail environment, according to management.
*   Signet (SIG), the leader in the U.S. jewellery market with roughly 10% share, reported earnings on March 14 and sold off 20%. The Company is expected to report negative low-to-mid single digit comps for 2018.

Global Laggards

Posted on 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.

Vermilion Energy ( VET ) – Energy ( $3.8B market cap ) – Engaged in oil and gas exploration in various countries.

*   Shares are nearing July 2017 support at $30. A break below this level could see shares trending down to test the next level of support around $27.
*   The stock is heavily underperforming the price of oil and the energy sector. It has a weak RS Rating of 24 and A/D Rating of E.
*   Despite a dividend hike post-Q4 results, shares fell on above average volume.
*   2017 production was at the low end of management’s guidance of 68,000-69,000 boe/day. 2018 guidance calls for moderate production growth of 10%.
*   2018 sales will be likely be ~15% below 2014 sales, while EPS will be less than one-third that of 2014.
*   The stock’s current P/E multiple of 61 is 5x the industry average.

Developed

Hugo Boss AG ( BOSSX.DE; BOSS:GR ) – Cyclical ( $5.9B market cap ) – Germany-based designer, producer, and marketer of branded clothing.

*   Shares are breaking their 40-WMA with a Relative Strength line that is turning lower. We believe shares are topping out near-term and expect the stock to trend lower toward ~€70 ( ~15% below current price ).
*   The Company reported Q4 currency-adjusted sales of +5% y/y, below luxury industry growth of low double digits. Q4 net income came in at €45M, well below consensus of €61M.
*   The Company has limited operating leverage in 2018 due to FX headwinds and investment in store refurbishment. The Company projects flat EBITDA margin in 2018, translating to EBITDA below €500M, 5% below consensus expectations.
*   Wholesalers in Europe and the U.S. have been under pressure due to changing consumer shopping habits. The wholesale channel accounts for 34% of Company revenue.

Global Laggards

Posted on 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.
Omnicom ( OMC ) – Capital Equipment ( $17B market cap ) – Provides advertising, customer relation management, and public relations.

*   The stock is failing to hold above its key moving averages after finding support in November. Its RS Rank of 42 is weakening week over week. We believe shares will continue in a long-term downtrend and eventually retest lows of ~$65.
*   On February 15, shares reversed from four-month highs after the Company reported weak organic growth ( -0.6% ) in North America (~60% of total revenue) in Q4. Total revenue growth declined y/y in three consecutive quarters.
*   Management expects a subdued 2-3% organic growth in 2018.
*   Old media advertising companies have come under pressure again after peer WPP ( WPP.GB ; WPP ) disappointed on Q4 results and slashed its mid-term profit outlook. WPP is expecting flat organic sales growth for 2018.
*   Q4 was the slowest growing quarter for the ad industry since the Great Recession. We believe flat growth in 2018 will put pressure on shares as the industry continues to struggle due to the ongoing shift of ad dollars todigital media, as well as tightening marketing budgets.

Global Retail Sector

Posted on by Heetae Kim

Some highlights from the report:

U.S. Retail – Restaurants
1.  The restaurant industry group has been showing strength in the near term. Its Industry Group Rank improved to 37 from 110 eight weeks ago.
2.  Longer-term trends are still sluggish in the industry and we expect an overall sideways trend for the group.
3.  The only Focus List stock in the Restaurant group is Wingstop ( WING ). We expect the stock to consolidate over the next few months.
4.  Long/Short pair recommendation: Long DPZ/Short CAKE

Global Laggards

Posted on 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.

Pricesmart (PSMT) – Retail ($2.4B market cap) – Operates membership warehouse clubs in Central America, the Caribbean, and Colombia.

  • The stock is finding near-term resistance along its 10-WMA and has lagged performance-wise over the past three years. Its RS line is currently making new multi-year lows and its A/D Rating has deteriorated to D-. We believe shares will trend lower to test multi-year lows near ~$68.50.
  • The Company has frequently missed consensus earnings expectations. It missed consensus EPS expectations in four consecutive quarters, all resulting in sharp selloffs following results.
  • Q1 FY 2018 results were disappointing, with the Company reporting EPS of $0.74, versus consensus of $0.85. Gross margin dropped 40bps on a decision to lower prices in Central America and the Caribbean to drive revenue.
  • Despite a low store base (39 warehouses in FY 2017), the Company’s pace of expansion has been very slow at roughly two new openings a year. Additionally, most markets in which the Company operates seem to offer few store count growth opportunities.
  • As the world turns digital, the Company will have to increase investments in omnichannel offerings that may put pressure on profit margins going forward.
  • Fund sponsorship peaked in November 2016.

Global Laggards

Posted on 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 under weighted as they may be vulnerable to further downside risk and under performance.

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

U.S.

Maxlinear Cl A ( MXL ) – Retail ( $1.5B market cap ) – Provides RF and mixed-signal integrated circuits for cable and satellite broadband communications and the connected home, and infrastructure markets.

  • The stock has failed to hold above the 40-WMA and is now trading below the 10-WMA. The RS line is making new 52-week lows as the stock has been under heavy distribution. We believe the stock will continue to trend lower from here to test the recent lows of $20.38.
  • Maxlinear recently reported mixed Q4 2017 results and Q1 2018 estimates. Revenue growth was negatively impacted by ongoing China optical weakness.
  • Q4 revenue of $113.7M ( +31% y/y; flat q/q ) was just below consensus of $114M. Non-GAAP EPS of $0.38 was $0.01 above consensus.
  • Management guided for Q1 2018 revenue of $110M–114M, below consensus of $116.5M. Higher connected home revenue is expected to be offset by continued weak China optical capex and seasonal softness in the industrial end market.
  • Revenue growth is expected to decelerate over the next three quarters and consensus EPS expectations for 2018 and 2019 have been revised lower.

Global Laggards

Posted on by Heetae Kim

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

U.S.
Cheesecake Factory ( CAKE ) – Retail ($2.3B market cap) – Owns and operates full-service, casual dining restaurants in the U.S.

*   Shares have been unable to hold above the 10-WMA and 40-WMA. We believe shares will continue to trend lower to test 52-week lows near ~$38.
*   RS Rating is weak at 22. Distribution has been increasing and the stock has an A/D Rating of D+.
*   The Company missed consensus EPS expectations in two of the past three earnings. The Company is expected to report Q4 revenue growth of -5% and EPS growth of -21%.
*   SSS at The Cheesecake Factory restaurants decreased 0.8% in 9M 2017 driven by a 3% decline in traffic. SSS at Grand Lux Café restaurants decreased 2.5% in the same period, driven by a 5% decline in traffic.
*   Revenue trends have been negatively impacted due to the Company’s numerous mall-based locations, which have seen declines in traffic.

Developed
Great Wall Motors ‘H’ ( GWA.HK; 2333:HK ) – Cyclical ($4B market cap) – Chinese manufacturer of SUVs.

*   Shares are finding resistance near the 10-WMA and 40-WMA. The stock is forming a head-and-shoulders with the right shoulder along the 40-WMA. We believe shares will trend lower to test the next support level near May 2017 lows (~HKD 7.80), representing potential downside of approximately 11%.
*   A/D Rating of D+ has worsened this week.
*   RS line near multi-year lows. RS Rating of 48.
*   The Company recently reported disappointing January wholesale volume, which declined 12% m/m (110,000 units sold), although rose 21% y/y due to a low base. SUV sales declined 10% m/m.
*   Weakening sales volume could be a sign of weakening customer traffic as well as high competition going forward, as purchase taxes on 1.6T engines increased in 2018.
*   In January, the Company reported preliminary 2017 results that showed net income falling 52% y/y on sales growth of 3% y/y. Sales were driven by rebates on older models and higher marketing expenses. This was due to inventory de-stocking and increasing competition.

Global Laggards

Posted on 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.

Jack in the Box ( JACK ) – Retail ( $2.7B market cap ) – Operates and franchises Jack in the Box quick service restaurants in the United States.

*   Shares are finding resistance at the 21-EMA and are currently testing support along ~$91. We believe the stock will eventually break support and follow the RS line lower toward the low $80s.
*   The stock’s RS line is near multi-year lows. It has a weak RS Rating of 13 and A/D Rating of D+.
*   Fund sponsorship has been steadily declining since peaking in the September 2016 quarter.
*   The Company recently gave FY 2018 guidance that fell short of street expectations. The Company expects EBITDA of $260M-270M (versus street of $288M). Part of the reason for the weak EBITDA was contractual obligations to support services for Qdoba as part of the spinoff sale to Apollo Global Management.
*   The Company missed consensus EPS expectations in three of the past four quarters.

Developed

Hoya ( HQ@N.JP; 7741:JP) – Health Care ($19.4B market cap) – Hoya is a global supplier of eyeglasses, medical endoscopes, intraocular lenses, optical lenses, and key components for semiconductor devices, LCD panels, and HDDs.

*   The stock is breaking back below its 50- and 200-DMA on heavy volume.
*   The stock’s RS line is hitting YTD lows with an RS Rating of 11 and an A/D Rating of D.
*   The Company released Q3 FY 2018 results, below expectations due to lower-than-expected profit from the Company’s life care segment. Operating profit of ¥33.2B fell short of the ¥34.2B consensus estimate. Sales of eyeglass lenses in Europe and Japan were weak and sales of endoscopes in Europe were weaker than expected. Hoya announced new full-year pretax profit guidance of ¥128B, below consensus of ¥130.2B.