In 1963, we began profiling the characteristics of top-performing stocks prior to their outstanding runs in market cycles dating back to the 1880s. Through our decades of research, we have produced powerful proprietary Ratings and Rankings that help identify leading and lagging stocks. These metrics form the foundation of our O’Neil Methodology (OM) and our evaluation services.
Our Global Laggards list comprises stocks that have poor O’Neil Ratings and Rankings. This list 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.
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
In 1963, we began profiling the characteristics of top-performing stocks prior to their outstanding runs in market cycles dating back to the 1880s. Through our decades of research, we have produced powerful proprietary Ratings and Rankings that help identify leading and lagging stocks. These metrics form the foundation of our O’Neil Methodology ( OM ) and our evaluation services.
Our Global Laggards list comprises stocks that have poor O’Neil Ratings and Rankings. This list 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.
Criteria used to build the list include:
Our proprietary Relative Strength Rating gauges the market’s top performers by looking at a stock’s price change relative to all stocks within a country. The rating is calculated over 12 months, with higher weighting for more recent months. Stocks are ranked in order of greatest percentage price change and assigned a rank from 99 (best) to 1 (worst). Stocks on this list will usually show a low or declining RS Rating.
Our proprietary Accumulation/Distribution Rating shows where money is flowing by tracking the relative degree of institutional buying and selling over the prior 13 weeks. It is a technical rating based on price and volume statistics, where A = best and E = worst. Stocks on this list will usually have a low or falling Accumulation/Distribution Rating, indicating institutional selling.
Our unique Negative Alerts Score uses 11 monitoring characteristics to detect a stock’s decline, allowing you to act early on weakening holdings. Stocks on this list will usually have multiple alerts, indicating a possible breakdown.
Wingstop (WING)
Roark Capital Group has made a bid to acquire Buffalo Wild Wings ( BWLD ) at $150 per share. This values BWLD at 11x trailing 12-month EBITDA and 27x 2018e P/E. Comparatively, Wingstop ( WING ) currently trades at 33x trailing 12-month EBITDA and 49x 2018e P/E. Although WING seems overvalued, we believe these stocks are not comparable given their differing business models and growth trends. We believe WING will continue to trade at a premium versus the restaurant industry given its strong growth profile and underlying momentum of its business. We recommend investors continue to hold shares of WING and would recommend adding to positions on any pull-back to ~$36.
BWLD has Been Struggling
BWLD has reported negative SSS growth in six of the past seven quarters and expectations are for 2017 SSS of -1.5%. The Company has also reported a string of EPS misses with the Company missing consensus adjusted EPS expectations in nine of the past twelve quarters. Even with the acquisition offer, investors in BWLD have not been rewarded over the past four years.
WING’s Profile is Much Stronger
With its focus on expanding through franchises and a majority of its business concentrated in takeout, WING maintains a strong margin profile among restaurants. The Company has improved pretax margins every year since 2012 with 2016 pretax margin at 29%. The Company has reported positive SSS growth in six of the past seven quarters and has reported EPS ahead of consensus in every quarter since the IPO. The Company is expanding unit growth by 13% this year and has a pipeline of 500 US restaurants and 600 international restaurants, which would double its current restaurant count. We see further upside to earnings on the back of a successful national advertising campaign, roll-out of split menu pricing, reprieve from wing cost inflation, and the potential rollout of delivery in the coming year. WING has the strongest Composite Rating (a combination of technical and fundamental ratings) within the restaurants group and we believe there is much more upside to shares. The stock is currently extended, but we recommend investors add to positions on any pull-back to its most recent base ~$36.
Global Laggards
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.
Southwest Airlines (
) – Transportation ($32B market cap; $286M ADV)
* The stock is forming a lower high as shares are breaking the 40-WMA. The RS line is breaking down and the stock is under increasing distribution. The stock has a poor RS Rating of 47 and an A/D Rating of D-.
* We have been noticing increasing selling pressure across airlines. The Industry Group Rank has steadily declined over the past eight weeks and is now ranked #154.
* The stock sold off after reporting Q3 results where management stated that a y/y decline in CASM ex-fuel would be an aggressive expectation and a flat CASM ex-fuel y/y would be more likely. Q3 RASM declined 0.5% y/y (flat excluding hurricanes) and adjusted CASM increased 3.3% y/y, on account of higher labor costs. The Company guided Q4 RASM up slightly to +1.5% and adjusted CASM of flat to 1.5% (versus previous expectations for flat). Load factor fell 50bps y/y to 84.8%.
* According to the Bureau of Transportation Statistics, domestic airfare in the U.S. has been trending lower over the past three years, averaging $356 (inflation adjusted) for Q2 2017. U.S. airlines may struggle in the 2nd half if airfares remain under pressure. Wages and fuel costs have been heading higher, which will negatively impact margins.
Global Laggards
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.
Tesla – Consumer Cyclical ($50B market cap; $1.7B ADV)
* Shares broke through the 40-WMA on 3.6x average daily volume after Tesla missed Q3 2017 expectations. Relative Strength has declined since September and could be on its way to year lows. A/D of D- has accelerated downward over the last two weeks. We believe the stock will continue to lag going forward and expect the 40-WMA to serve as an area of resistance.
* In Q3, the Company struggled to meet production expectations on its much anticipated Model 3 sedan, producing only 222 out of the 1,500 vehicles expected.
* The Company intends to achieve an ambitious 5,000 Model 3 vehicles per week by late Q1 2018, which is half of the 10,000 weekly production estimate it provided in Q2 this year. This is while net reservations have grown significantly.
* Q3 EPS loss of $2.92 missed street estimates of -$2.31. It also reported a FCF of -$1.4B, below expectations of -$1.2B.
Global Laggards
In 1963, we began profiling the characteristics of top-performing stocks prior to their outstanding runs in market cycles dating back to the 1880s. Through our decades of research, we have produced powerful proprietary Ratings and Rankings that help identify leading and lagging stocks. These metrics form the foundation of our O’Neil Methodology (OM) and our evaluation services.
Our Global Laggards list comprises stocks that have poor O’Neil Ratings and Rankings. This list 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.
Global Retail Sector
Underlying Fundamental Trends Improving for Retail Sector, but Sector Performance and Momentum Lag
Preliminary U.S. Consumer Sentiment data from the University of Michigan showed a big surge in October. The sentiment index rose to 101.1, above
expectations for 95, reaching a 13-year high. The data indicates greater optimism amongst consumers as we head into the holiday season. The National Retail Federation expects a bump in holiday sales this year with November and December retail sales (excluding auto, gas, and restaurants) forecast to reach $682B, +4% above 2016 sales of $655.8B. This is above the +3.5% five-year average. Revenue and earnings trends are also looking solid to close the year. With Q3 earnings underway, expectations call for Q3 median revenue and EPS growth for S&P 500 retail stocks of +4% and +8%, respectively. Consensus expects revenue and EPS growth to pick up in Q4.
Global Laggards
In 1963, we began profiling the characteristics of top-performing stocks prior to their outstanding runs in market cycles dating back to the 1880s. Through our decades of research, we have produced powerful proprietary Ratings and Rankings that help identify leading and lagging stocks. These metrics form the foundation of our O’Neil Methodology (OM) and our evaluation services.
Our Global Laggards list comprises stocks that have poor O’Neil Ratings and Rankings. This list 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. Criteria used to build the list include:
Our proprietary Relative Strength Rating gauges the market’s top performers by looking at a stock’s price change relative to all stocks within a country. The rating is calculated over 12 months, with higher weighting for more recent months. Stocks are ranked in order of greatest percentage price change and assigned a rank from 99 (best) to 1 (worst). Stocks on this list will usually show a low or declining RS Rating.
Our proprietary Accumulation/Distribution Rating shows where money is flowing by tracking the relative degree of institutional buying and selling over the prior 13 weeks. It is a technical rating based on price and volume statistics, where A = best and E = worst. Stocks on this list will usually have a low or falling Accumulation/Distribution Rating, indicating institutional selling.
Our unique Negative Alerts Score uses 11 monitoring characteristics to detect a stock’s decline, allowing you to act early on weakening holdings. Stocks on this list will usually have multiple alerts, indicating a possible breakdown.
Global Laggards
In 1963, we began profiling the characteristics of top-performing stocks prior to their outstanding runs in market cycles dating back to the 1880s. Through our decades of research, we have produced powerful proprietary Ratings and Rankings that help identify leading and lagging stocks. These metrics form the foundation of our O’Neil Methodology (OM) and our evaluation services.
Our Global Laggards list comprises stocks that have poor O’Neil Ratings and Rankings. This list 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.
Global Laggards
In 1963, we began profiling the characteristics of top-performing stocks prior to their outstanding runs in market cycles dating back to the 1880s. Through our decades of research, we have produced powerful proprietary Ratings and Rankings that help identify leading and lagging stocks. These metrics form the foundation of our O’Neil Methodology (OM) and our evaluation services.
Our Global Laggards list comprises stocks that have poor O’Neil Ratings and Rankings. This list 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.
