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 by Raj Gupta

U.S. Market

The U.S. market remains in a Confirmed Uptrend. The S&P 500 and Nasdaq continue their V-shaped recovery
with both regaining their respective 50-DMA this week. We will be looking for this level to now act as support
over the next week. Overall action remains constructive with strong and instant progress since the April 2 followthrough day leading to an increase in breakouts among high quality ideas over the last several days. The distribution day count remains a non-factor at just one day on each index.
Sectors have diverged with Health and Technology showing strong gains over the last week at the expense of
Basic Material, Financial, and Transports. We will be looking for lagging sectors to find their footing and hold
above March lows, while leading sectors continue to push higher. In order for further gains, we do believe leadership will have to broaden over the next few weeks. The best performing industry groups over the last week include Gaming Software, Software Security, Medical Software, Semiconductors, Biotech, Medical Products/Equipment, Discount Retail, and Mining.

Samsung Biologics

Posted on by Raj Gupta

Key points from this report:

 

  • Add to positions: We recommend adding to current positions as the stock broke out of a seven-week consolidation base in heavy volume. The company is benefiting from a growing global biopharma CMO market, multiple biosimilar drugs replacing off-patent blockbusters, and new contract manufacturing agreements related to COVID-19. Consensus calls for strong double-digit top- and bottom-line growth through 2021.
  • New agreement: On April 10, Samsung Biologics announced a contract manufacturing agreement with Vir Biotechnology (VIR) to provide large scale manufacturing services for VIR’s COVID-19 monoclonal antibody program. The deal is valued at $362M.
  • Biosimilar portfolio: Samsung has eight biosimilar drugs in its portfolio, of which four are marketed (biosimilar for Enbrel, Remicade, Humira, and Herceptin) and four are in late-stage clinical trials (Avastin, Lucentis, and Soliris biosimilars and one novel drug). Its partner Biogen (BIIB) is marketing an Enbrel biosimilar (Benepali), Remicade biosimilar (Flixabi), and Humira biosimilar (Imraldi) in Europe. In 2019, Biogen reported revenue of $738M (+35% y/y) from these three biosimilars.
  • Looking forward: For 2020, consensus calls for revenue and EPS growth of 36% and 19%, respectively. For 2021, consensus calls for revenue and EPS growth of 26% and 50%, respectively.

Market View

Posted on by Raj Gupta

U.S. Market
The U.S. market remains in a Confirmed Uptrend. The S&P 500 and Nasdaq traded sharply higher this week
and are now both set to test resistance at their respective declining 50-DMA (S&P 500: 2,910; Nasdaq: 8,453).
To remain constructive, we will be looking for indices to consolidate sharp gains off the lows, allowing high relative strength quality ideas to firm above individual levels of resistance. Conversely, any pickup in distribution that
results in a break below the slowly rising 21-DMA would be concerning and result in a shift to Uptrend Under
Pressure.
Lagging sectors and industry groups led this week, with numerous double-digit moves off the lows. Basic Material, Consumer Cyclical, Utility, Financial, and Energy all rallied 10%+. Technology and Health Care lagged,
despite rallying 8%+ each. The top 12 performing industry groups this week were ranked 139 or worse (1=best;
197=worst), and included Department Stores, Mortgage Reits, Drillers, Lodging, and Gaming. Higher quality
groups that outperformed included Semiconductors, Enterprise Software, Managed Care, Outpatient Care, and
Medical Products/Equipment. ~20% of S&P 500 stocks are now trading above their respective 50-DMA.

Market View

Posted on by Raj Gupta

U.S. Market

The U.S. market is in a Confirmed Uptrend. The S&P 500 staged a day eight follow-through on Thursday, rising
2.3% in higher day-over-day volume. A follow-through day and subsequent upgrade to a Confirmed Uptrend
allows us to gradually increase risk in high quality ideas only if they are forming the right side of their respective
bases or breaking out from consolidation in convincing fashion. We do not recommend dramatically increasing
risk, but we do recommend keeping an open mind and potentially adding risk should conditions improve. To
gain conviction, we need to see indices progress higher over the first one to two weeks and we need to see quality names begin to break above individual levels of resistance. Conversely, if we begin to see instant distribution
in conjunction with ideas failing at resistance or pulling back into their respective bases post breakout, its highly
likely the follow-through day will fail.

Vertex Pharmaceuticals

Posted on by Raj Gupta

Key points from this report:

 

  • Buy VRTX: We recommend buying shares of Vertex as the stock forms the right side of its current base in heavy volume. VRTX has displayed outstanding relative strength, bucking general market weakness and recently even regaining its 50-DMA. Buy here and look to add more as the stock clears through $249.85 resistance.
  • Poised to double revenue/earnings by 2022, driven by triple combo: VRTX has four FDA-approved Cystic Fibrosis (CF) medicines, which together can treat 90% of the total CF population. There is no immediate competitive threat. Consensus calls for EPS of $12.06 by 2022, up from $5.33 in 2019, a 32% CAGR. Revenue is expected to reach $7.27B in 2022 from $4.1B in 2019, a 21% CAGR.
  • COVID-19 impact: On March 27, the company announced they are confident in the continu­ity of their supply chain despite the coronavirus pandemic. Vertex also highlighted that they have enough CF medicine to meet its commercial needs in the future, with all manufacturing facilities remaining operational.
  • Looking forward: The company will report Q1 results in late April. Consensus expects Q1 revenue of $1.26B (+47% y/y) and adjusted EPS of $1.78 (+56% y/y). For 2020, consensus expects revenue and EPS growth of 33% and 44%, y/y, respectively.

Market View

Posted on by Raj Gupta

U.S. Market

The U.S. market is in a Rally Attempt. The S&P 500 and Nasdaq rallied sharply higher off Monday’s intraday
lows before pulling back on Friday. Both have now held those lows for more than three days and are now in position to stage a follow-through day. We continue to recommend waiting for a follow-through day before any
meaningful increase in risk.
Seven of 11 O’Neil sectors rallied by 10% or more this week led by Utility, Consumer Cyclical, and Capital
Equipment. Lagging sectors and industry groups led the bounce before fading on Friday. Growth-oriented and
higher quality industry groups fared well, however; the majority remain well off highs with multiple layers of resistance to still regain. Growth-oriented industry groups showing good relative performance over the last several
sessions include Software, Internet, Semiconductors, Biotech, Medical Products/Equipment, and Managed Care.

Market View

Posted on by Raj Gupta

The U.S. market is now in a Rally Attempt. Indices declined for another week, however the Nasdaq (6,686) and S&P 500 (2,280) are slightly off lows for the third consecutive session, as the market status was moved to a Rally Attempt. If indices undercut recent lows, the status will be moved back to a Downtrend.

 

All 11 sectors declined for the week, led lower by Energy (-20%). The majority of sectors are bouncing around recent lows, led by poorly ranked industry groups (1=best, 197=worst). More than half of the 12 best performing groups for the week were ranked 103 or worse. Industry groups showing an improvement in rank or with RS lines at or near highs are primarily defensive in nature including Cleaning Products (CLX), Discount Retail (COST), Medical-Software (VEEV), Super Markets (KR), Water Utilities (AWR), Food (FDP), and Telecom (CCOI).

 

Despite the possibility of a follow-through day as early as next week, we maintain a very cautious and defensive approach. Indices remain near lows and low-quality stocks from poorly ranked industry groups are attempting to bounce higher. A lot of technical damage has occurred to stocks, and we believe it will take some time to repair. In the meantime, continue to monitor high relative strength quality stocks as they will be a valuable resource for fresh ideas when market conditions improve.

Large-Cap Secular Growth

Posted on by Raj Gupta

In light of the heightened economic uncertainty, our analyst team has compiled in the attached report a multi-sector list of companies that we believe can perform well through market cycles. These companies benefit from secular growth trends, are leaders in their respective industries, and have business models that we expect to be resilient through a challenging period for the econom

Small- and Mid-Cap Secular Growth

Posted on by Raj Gupta

In light of the heightened economic uncertainty, our analyst team has compiled in the attached report a multi-sector list of companies that we believe can perform well through market cycles. These companies benefit from secular growth trends, are leaders in their respective industries, and have business models that we expect to be resilient through a challenging period for the economy.