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

Posted on June 12, 2020 by Raj Gupta

The U.S. market has been moved to an Uptrend Under Pressure. The S&P 500 and Nasdaq gapped down on Thursday, closing at the lows of the day and down more than 5% each in heavy volume. The S&P 500 distribution day count increased to five days in the last five weeks, with three in six sessions. The Nasdaq count remains relatively low at three days. The S&P 500 is testing support at ~3,000, while the Nasdaq is trading at its 21-DMA. The next logical level of support should these levels break is the sharply rising 50-DMA (S&P 500: 2,903; Nasdaq: 8,922).

All 11 sectors closed down for the week, led lower by long-term lagging sectors, Transportation, Capital Equipment, and Energy, which fell 8% or more. Long-term leading sectors, Retail and Technology, held up best, remaining above both their respective 50- and 200-DMA. After multiple sectors reversed lower off their respective 200-DMA this week, we will now be looking for each to find support at their respective rising 50-DMA, which is 4–6% below current levels. Industry groups holding up best over the last week include Gaming Software, Desktop Software, Internet, Telecom, Leisure Products, and Mining. 82% of S&P 500 stocks are trading above their respective 50-DMA and 37% are now trading above their respective 200-DMA. This is down from 98% and 57%, respectively, last week.

We recommend a near-term cautious approach given Thursday’s severe out of character price break that resulted in a massive spike in the VIX and increase in distribution. We expect indices to consolidate very sharp gains over the next several days to weeks and would advise a patient approach to increasing risk until volatility subsides and indices and leading ideas begin to firm. As indices chop, clues will come in the form of relative strength. Focus on high quality ideas that tighten up around logical levels of support, as these ideas will be ready to make their next run if and when the market begins to move back toward highs.

Market View

Posted on June 5, 2020June 5, 2020 by Raj Gupta

The U.S. market remains in a Confirmed Uptrend. The S&P 500 and Nasdaq gapped higher on Friday, closing up 4.9% and 3.4%, respectively, for the week. The S&P 500 now faces resistance at ~3,214, while the Nasdaq is testing new highs at 9,838. Distribution remains a non-factor at three days and one day, respectively.

Ten of 11 sectors closed higher this week, led by Energy, Consumer Cyclical, and Capital Equipment. Long-term leading sectors Health Care, Retail, and Technology lagged for a second straight week, with Health Care the only sector to decline. All sectors remain firmly above their respective 50-DMA, and now eight are trading above their respective 200-DMA, up from just three last week. Industry groups with the sharpest improvement in rank over the last two weeks include Gaming, Home Furnishings, Leisure Products, Apparel, Mobile Homes, Building Products, and Semiconductors. 98% of S&P 500 stocks are trading above their respective 50-DMA and 57% are now trading above their respective 200-DMA. This is up from 95% and 42%, respectively, last week.

With indices stretched from short-term moving averages, we do expect consolidation next week. As that occurs, we will be looking for high quality growth ideas to hold at logical levels of support or continue to trend constructively into new highs. As indices push higher, more and more ideas across numerous sectors continue to surface. We recommend buying the higher quality ideas that are breaking out from consolidation or rallying off logical levels of support, while also offensively locking in partial gains in ideas that have become well extended from
prior pivot points.

Market View

Posted on May 29, 2020 by Raj Gupta

The U.S. market remains in a Confirmed Uptrend. The S&P 500 and Nasdaq rallied strongly for a second straight week, closing near weekly highs on Friday. Near-term support for the S&P 500 is now the 200-DMA (3,002) and resistance is now March highs at 3,136. Support for the Nasdaq remains the rising 10-DMA (9,300) followed by the 21-DMA (9,100), with resistance at 9,542. Distribution stands at four and two days, respectively, with two days expiring on the S&P 500 and one on the Nasdaq next week.

All sectors closed higher for the week, led by Capital Equipment, Utility, and Transportation. Long-term leading sectors Health Care, Retail, and Technology lagged for the week, despite a strong recovery on Thursday and Friday. All sectors remain firmly above their respective 50-DMA, though only three are trading above their respective 200-DMA. Industry groups with the sharpest improvement in rank over the last two weeks include Home Furnishings, Leisure Products, Building Products, Solar, and Trucks. Top ranked industry groups outperforming over the last five sessions include Discount Retail, Telecom, Design Software, Software Security, Semiconductor Equipment, Payment Processors, and Managed Care. 95% of S&P 500 stocks are trading above their respective 50-DMA and 42% are now trading above their respective 200-DMA. This is up from 82% and 31%, respectively, last week.

We maintain a positive view of the general market. Though growth ideas pulled back off highs early in the week, the majority recovered strongly off support and moved back toward highs. This, while long-term lagging sectors have begun to rally sharply off lows, including Capital Equipment, Transportation, and Consumer Cyclical which have jumped by double digits in less than two weeks. Current leadership is holding while new leaders are emerging. Continue to increase risk in fundamentally sound ideas coming out of constructive bases while also reducing risk in ideas that have become well extended from short-term moving average support and likely to base over the next several weeks.

Market View

Posted on May 22, 2020May 22, 2020 by Raj Gupta

The U.S. market remains in a Confirmed Uptrend. The S&P 500 and Nasdaq continue to display resilient action, gapping up Monday and constructively holding gains throughout the week. The S&P 500 is still trading just below 200-DMA resistance, while the Nasdaq is again approaching upper channel line resistance. Distribution stands at four and two days, respectively, with no expiration next week. Support remains the rising 10- and 21-DMA.

Transportation and Consumer Cyclical led all sectors this week while long-term leading sector, Health Care,
lagged, trading relatively flat. All 11 sectors are now above their respective 50-DMA, but just three (Technology, Retail, Health Care) are trading above their respective 200-DMA. Top-ranked industry groups outperforming this week included Database Software, Design Software, Media Software, Semiconductors, Outpatient Care, Payment Processors, and Restaurants. 82% of S&P 500 stocks are trading above their respective 50-DMA, up from 58% last week. 31% are trading above their respective 200-DMA.

We maintain a positive view of the general market. Indices continue to trade above support with limited distribution. Though many ideas have become extended from prior pivot points, multiple new ideas continue to surface each week as the market broadens. Further, we have yet to see concerning technical action among leading names. Continue to selectively increase risk in high quality ideas coming out of constructive bases, while also offensively locking in partial gains in very extended ideas.

Zoetis

Posted on May 19, 2020May 19, 2020 by Raj Gupta

Key points from this report:

BUY Zoetis; stock breaking out of early-stage base: The stock broke out of a stage-one 11-week cup-with-handle base, turning actionable. Though veterinary traffic slowed over the last several months due to COVID-19, the company is already seeing business pick up as the economy reopens. The company holds a leading market share within the $150B animal health industry and is expected to benefit going forward from their newly launched Simparica Trio, increasing penetration into veterinary diagnostics, and an already established best-in-class dermatology portfolio. For these reasons, we believe Zoetis will continue to beat consensus EPS, which they have done consistently over the last five years.

Simparica Trio launch: On February 27, Zoetis received FDA approval for its Simparica Trio, subsequently launching the drug in April in the U.S. Simparica Trio is an oral combination product for the prevention of fleas, ticks, and heartworm. Zoetis expects a $4B global market opportunity in the parasiticide space, with the U.S. being the largest market at $2.5B. Thus far, Simparica Trio has been launched in the U.K., Spain, Italy, and Canada and also received approval in Australia. Management now expects $100M–125M (~2% of total revenue) incremental revenue from Simparica Trio in 2020, up from $150M previously. Simparica Trio has the potential to become the first billion-dollar animal health drug by 2023.
Looking forward: Zoetis will participate in an investor conference on May 27. Q2 results are expected in August. For 2021, consensus expects revenue and EPS growth of 10% and 19%, y/y, respectively.

Market View

Posted on May 15, 2020 by Raj Gupta

The U.S. market remains in a Confirmed Uptrend. The S&P 500 and Nasdaq staged back-to-back upside reversals to close the week, holding above key support levels and keeping an overall low distribution count. Distribution now stands at three days on the S&P 500 and two on the Nasdaq, with no expiration for two weeks. To remain constructive, we would like to see the S&P 500 and Nasdaq hold above Thursday’s intraday lows at 2,766 and 8,705, respectively.

Health Care, Retail, and Technology held up well this week, while lagging sectors such as Utility, Capital Equipment, and Transportation sharply declined by 4–6% each. Despite the pullback, eight of 11 sectors remain above their respective 50-DMA. Top ranked industry groups outperforming this week include Mining, Managed Care, Medical Equipment, Biotech, Enterprise Software, Software Security, Gaming Software, Internet, Discount Retail, and Beverages. 127 of 197 industry groups and 58% of S&P 500 stocks are trading above their respective 50-DMA.

We maintain a positive view of the general market. Indices remain above key levels of support with limited distribution. Most importantly, leadership is very strong with multiple ideas hitting higher highs despite the pullback in the major averages. Continue to selectively increase risk in fundamentally sound ideas coming out of constructive bases or rebounding off logical levels of support.

AbbVie

Posted on May 12, 2020May 12, 2020 by Raj Gupta

Key points from this report:

Buy AbbVie: The stock is breaking out of a stage-one cup-with-handle base in heavy volume, turning actionable. On May 8, AbbVie announced the completion of its acquisition of Allergan (AGN) after receiving clearance from the U.S. Federal Trade Commission. The deal was closed yesterday. This removes an overhang as the deal was initially set to close in Q1. AbbVie now expects its diversified on-market portfolio to drive existing ex-Humira sales to ~$30B, with combined revenue of ~$50B (+51% y/y) this year. The transaction is expected to be 10% accretive to adjusted EPS in 2021, with peak accretion of more than 20%.
Allergan acquisition de-risks AbbVie portfolio: Allergan markets a portfolio worth $15.7B, primarily focused on four key therapeutic areas including medical aesthetics, eye care, central nervous system, and gastroenterology. The combined entity will be the fourth largest pharmaceutical company by revenue with nine blockbuster drugs. The acquisition is expected to mitigate the effect of Humira’s loss of exclusivity in 2023. Humira’s contribution will reduce to 40% of total revenue from 60% now.

Market View

Posted on May 8, 2020May 8, 2020 by Raj Gupta

The U.S. market remains in a Confirmed Uptrend. The S&P 500 and Nasdaq rallied strongly this week, with the
Nasdaq now positive for the year. The next level of resistance for the S&P 500 is the flattening 200-DMA at
~3,000, while the Nasdaq faces resistance at ~9,315. Support for both indices remains the rising 10- and 21-
DMA. Distribution has been a non-factor with both indices at just two days.
Energy, Technology, and Consumer Cyclical led this week, each rising more than 6%. Ten of 11 sectors are now
trading above their respective 50-DMA, up from just five last week. Top ranked industry groups outperforming

over the last week include Enterprise Software, Database Software, Financial Software, Software Security, Semi-
conductors, Electronic Measuring, Internet, and Biotech. 73% of S&P 500 stocks are now trading above their re-
spective 50-DMA, up from 51% last week.

Market View

Posted on May 1, 2020May 2, 2020 by Raj Gupta

U.S. Market
The U.S. market remains in a Confirmed Uptrend. The S&P 500 and Nasdaq reversed off early week gains to
close flat for the week. Despite a sharp pullback Friday, both indices avoided distribution as volume came in below Thursday’s spike. Distribution now stands at two and three days, respectively, with one set to expire on the
S&P 500 next week. Support remains the rising 21-DMA on both indices (S&P 500: 2,797; Nasdaq: 8,421).
Lagging sectors led this week with Energy, Consumer Cyclical, and Basic Material rising +2% each, while Retail,
Health Care, and Utility fell 2–4% each. Five of 11 sectors are trading 1% or more above their respective 50-
DMA, with three trading just below that level. Top ranked groups outperforming this week include Financial Software, Enterprise Software, Internet, Computer Tech Services, Beverages, Cleaning Products, Discount Retail,
Managed Care, and Mining. 51% of S&P 500 stocks are trading above their respective 50-DMA, up from 38%
last week.

Lonza Group

Posted on April 27, 2020April 27, 2020 by Raj Gupta

Key points from this report:

Buy Lonza: The stock is breaking out of a 10-week consolidation into all-time highs. On April 17, Lonza announced a trading update, reporting Q1 revenue growth of 7.4% y/y and reiterating 2020 guidance of mid-single-digit revenue growth. The company has had no major supply chain disruptions and has benefited by receiving more than 40 clinical and commercial inquiries related to COVID-19. We believe Lonza will continue to benefit from a global biologics market that is expected to have a 9% CAGR through 2025, with biologics outsourcing revenue to more than double to $23B in 2022 from $10B in 2017.
Capacity Expansion: Anticipating strong demand, Lonza is expanding its single-use bioreactors capacity through its Visp facility, which is introducing three innovative CDMO offerings (Ibex Design, Ibex Develop, and Ibex Dedicate) spanning the complete product lifecycle in one location. The facilities are already fully booked ahead of expansion.

Looking Forward: The company expects CHF 7.1B in revenue by 2022, at a 9% CAGR, and adjusted EBITDA margin of 30.5% (from 27.4% in 2019). The company also expects its pharma & biotech segment revenue growth to be in the high-single-digits through 2022, with 30%+ core EBITDA margin in 2022. Lonza will present H1 results on July 24.