XLV pulled back 1.17%, outperforming the broader market for a second straight week which has now led to a rise in its
RS line.
Author: Raj Gupta
Raj Gupta is Director, Research Analyst.
After joining the firm in 2002 as a research analyst, Raj was appointed senior equity analyst in 2006, and lead senior equity analyst in 2014—largely because of his ability to select outperforming stocks. He acts as an expert in the O’Neil Methodology and contributes to the direction of product and service line development. He recommends securities for addition to or removal from the U.S. Focus List, or USFL, and the associated alerts to clients. During his tenure, he was part of the leadership that developed the Global Focus List, which marked the firm’s successful expansion into international equity recommendations. He is also a lead on the IPO Rewind report and contributes to weekly summaries on the performance of the U.S. market. Much of his expertise is delivered as highly customized service to clients.
RAj earned his Bachelor’s degree in Economics from the University of California, Santa Barbara. He began working at the firm directly out of college, driven by his passion for investing and stocks. An avid soccer player, he built and managed an adult league in the Los Angeles area, in which he still plays. He also enjoys international travel; he and his wife commit to at least one major adventure a year.
Market View
The U.S. market is in an Uptrend Under Pressure. The S&P 500 and Nasdaq broke below their respective 50-
DMA, staging multiple downside reversals to eventually close near the lows of the week. The S&P 500 is nar-
rowly holding above 100-DMA (4,491) support before price support at ~4,430. The Nasdaq is now 7% off
highs and sitting on its 100-DMA (15,082). The next level of price support is ~14,755 before the rising 200-
DMA (14,411). The distribution day count stands at three each with no expiration next week.
O’Neil Health Care Weekly
XLV pulled back 75 bps, outperforming the broader market decline. Despite relatively flat trade, the majority of ideas
continue to bounce back and forth within consolidation, making little progress over the last month.
Market View
The U.S. market remains in a Confirmed Uptrend. The S&P 500 and Nasdaq pulled back sharply this week, with both closing below their respective 21-DMA. The next level of support is September highs at 4,545 and 15,403, respectively, which may also coincide with the rising 50-DMA. The distribution day count remains low at three and one, respectively, with one day expiring on the S&P 500 next week.
O’Neil Health Care Weekly
XLV retraced its prior week gains, remaining in a tight trading range and still lagging the broader market and most other
sectors. To remain constructive on an absolute basis, we need to see the 50-DMA hold just below $131.
Market View
The U.S. market remains in a Confirmed Uptrend. The S&P 500 and Nasdaq are trading at or near all-time
highs and above 10- and 21-DMA support. The distribution day count remains low at three and one, respec-
tively, with one day expiring on the Nasdaq next week.
IQVIA Holdings
Key points from this report:
- Buy IQVIA: The stock is breaking out from a 10-week flat base in heavy volume into all-time highs.
- Upbeat medium-term outlook: On November 16, the company hosted its investor day and announced a new medium-term outlook through 2025. Revenue, EBITDA, and EPS are expected to grow 11%, 12%, and at a double-digit CAGR through 2025, respectively. Consensus expects 8–10% revenue growth and double-digit earnings growth. 2022 guidance assumes revenue and earnings growth of 8% and 13%, respectively, which is likely conservative given that this is their initial guide.
- Strong backlog: TAM of $67B: New clinical trials are up 23% versus 2020 and 13% above 2019 levels, with 85% of sites now accessible. The global CRO target opportunity is expected to have a 6% CAGR through 2025 to reach $67B. IQVIA has a backlog of $24.4B (+13% y/y), of which $6.9B is expected to convert to revenue in the next 12 months.
- Dominant position in the $130B addressable healthcare information market: IQVIA estimates the total addressable market for healthcare information and technology enabled commercial operations is worth $130B. IQVIA has one of the world’s largest and most comprehensive collections of healthcare information. This database sharpens IQVIA’s competitive edge to win large contracts at premium pricing.
- Next catalyst: Q4 results are expected in February 2022.
O’Neil Health Care Weekly
XLV gained 72bps on the week, holding steady just above its 50-DMA. Overall, the sector continues to lag the broader
market over the last few weeks due to multiple crosscurrents mostly surrounding positive data from Covid antiviral pills.
IPO Rewind
Winners (annualized gain of 30% or greater)
• Median market cap at IPO was 38% higher than the median market cap of losers.
• Median revenue growth was similar to losers a year before IPO. However, the revenue growth decline is less than losers.
• Two-thirds of winners were losing money a year before IPO, but nearly two-thirds are improving toward profitability after the IPO.
U.S. Elective Surgery
Key points from this report:
- Recovery expected in surgeries: Overall admissions and surgeries are running at 90% and 91% of pre-pandemic levels, respectively. Though the Delta variant did cause a sequential slowdown, surgeries are expected to recover in Q4 and into 2022.
- New COVID-19 antiviral pills: Pfizer and Merck have presented data that can reduce the risk of hospitalization by 89% and 50%, respectively. Both studies saw all high-risk patients recover with no deaths. The U.S. FDA advisory committee will give their views on emergency use authorization of Merck’s pill by the end of November.
- Reopening beneficiaries: Though elective surgery ideas were negatively impacted in Q3 by the Delta variant, results were better than feared. Management commentaries are positive heading into Q4 with sequential growth expected.
- High COVID-19 exposure: The majority of leading ideas through Q3 came from Tools and Bioprocessing as they were benefiting from vaccine production. We believe Avantor (AVTR), Bio-Rad (BIO), Catalent (CTLT), Danaher (DHR), and Repligen (RGEN) need time to digest major moves higher earlier this year. Look for all to remain above their rising 200-DMA to remain constructive long term.
- Elective surgery/reopening ideas: We believe the following ideas can beat Q4 consensus: ABMD, ALGN, CNMD, DXCM, EW, GMED, INMD, INSP, ISRG, NVST, PCRX, PEN, PGNY, PODD, SYK, TNDM.
