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

The U.S. market is in a Confirmed Uptrend. The S&P 500 and Nasdaq staged a Day 7 follow-through day ( FTD ) on
Wednesday, rising more than 2% on above average volume. The FTD, however, is beginning to show signs of
failing following poor technical action on Friday. The Nasdaq closed back below its 200-DMA, while the S&P
500 retraced the FTD move and is now testing support at its 200-DMA. It is not uncommon to see near-term
profit taking shortly after a FTD given the size and quickness of the move off the bottom, however, in order to
stay constructive, we will need to see support come back into both the major averages and leading ideas alike
over the next few sessions. Further downside in both the S&P 500 and Nasdaq, coupled with failed breakouts in
leading ideas, will result in a failed FTD. Our recommendation remains the same. Take a gradual and selective
approach to increasing risk, buying only high-quality ideas that have held up well, as we remain in an overall
trendless and choppy market environment.
Stocks on our U.S. Focus List: Current Sentiment

Our USFL of 49 ideas gained 1.1% on average this week, underperforming the S&P 500 ( +2.1% ) but outper-
forming the Nasdaq ( +0.7% ).

Actionable Focus List ideas: Aon ( AON ), Chefs’ Warehouse ( CHEF ), Ciena ( CIEN ), Edwards Lifesciences ( EW ), Fab-
rinet ( FN ), Healthequity ( HQY ), Horizon Pharma ( HZNP ), Illumina ( ILMN ), Microsoft ( MSFT ), Nomad Foods

( NOMD ), Paypal ( PYPL ), Planet Fitness ( PLNT ), PRA Health Sciences ( PRAH ), Procter & Gamble ( PG ), RBC Bear-
ings ( ROLL ), Twilio ( TWLO ), Ulta Beauty ( ULTA ), Unitedhealth ( UNH ), Vertex ( VRTX ), Visa ( V ), Wright Medical

( WMGI ), Zoetis ( ZTS )
By Sector
Health Care ideas led this week. New additions HZNP and WMGI broke out from early stage bases,
while UNH and ZTS broke into new highs on the follow-through day. PRAH and EW regained their respective
50-DMA, while ILMN and VRTX are now building the right side of new bases. Consumer Staple ideas remain
resilient continuing to make new highs each session. LW, MKC, and PG continue to trend into higher highs,
while NOMD and CHEF both regained their respective 50-DMA following earnings results. Lower beta Financial
names also continue to hold up well. AON is making new highs, while MA, PYPL, FIS, and V are all forming the
right side of new bases. The action within Technology has been mixed. New ideas TWLO and FN broke into new
highs post earnings, while PAYC, GOOGL, NOW, CRM, and SSNC continue to consolidate in choppy fashion.
New Ideas or Deletions
We added Aon ( AON ), Horizon Pharma ( HZNP ), Microsoft ( MSFT ), Twilio ( TWLO ), Paypal
( PYPL), Fabrinet ( FN ), Ulta Beauty ( ULTA ), Wright Medical ( WMGI ), and Ciena ( CIEN ), and removed Match
( MTCH ) from the U.S. Focus List this week.

Market View

Posted on by Raj Gupta

The U.S. market is in a Rally Attempt. The S&P 500 and Nasdaq have now held above the October 29 intraday

low (S&P 500: 2,603; Nasdaq: 6,922) for four sessions. We are now looking for a follow-through day ( FTD ) be-
fore shifting the market into a Confirmed Uptrend. Currently, both indices are hitting resistance just under their

respective 200-DMA. Should the indices clear above that level next week, the next level of resistance will be the
50-DMA, which is ~5% above current levels. Overall, we still believe it is too early to increase risk in the market,
given that the majority of ideas are still repairing themselves technically. Just 12 (~29%) of 41 U.S. Focus List
ideas are trading above their respective 50-DMA, while only 114 stocks within the S&P 500 are trading above
that level. If we get a FTD, our recommendation will be to gradually increase risk, committing capital to only

high relative strength ideas that have recovered the quickest and have reached risk optimal entry points. We be-
lieve the market will provide additional opportunities to buy growth ideas as it progresses higher and through

the multiple levels of resistance that still remain. Remain patient for now, but be ready to buy a few actionable
U.S. Focus List ideas when and if we get that FTD.

Stocks on our U.S. Focus List: Current Sentiment
Our USFL of 41 ideas gained 3.9% on average this week, outperforming the S&P 500 ( +2.4% ) and the Nasdaq
( +2.6% ).
Actionable Focus List Ideas: Chefs’ Warehouse ( CHEF ), Healthequity ( HQY ), Procter & Gamble ( PG ), Quantenna
Communications ( QTNA ), Xilinx ( XLNX ), Zoetis ( ZTS )
USFL ideas weekly earnings line-up:
Monday: Close: CDEV
Tuesday: Close: MTCH, PLNT
Wednesday: Close: SQ
Thursday: Open: WP
By Sector
Technology recovered this week, with multiple ideas rebounding from oversold levels. Despite the rally, most
ideas are still consolidating and have yet to reach ideal pivot points. XLNX is the strongest, breaking out into new
highs, while QTNA regained its 50-DMA and is actionable as an early aggressive entry. VEEV and INTU found
support at their respective 200-DMA and are still basing overall. Capital Equipment ideas also recovered, with
ROLL breaking into new highs post earnings and HQY now constructively forming the right side of a new base.

Global Health Care Sector— Medical Devices and Equipment

Posted on by Raj Gupta

Some highlights from the report:

U.S.

Given our recent downgrade of the U.S. market to a Downtrend, we now recommend an equal-weight position from overweight within Medical Technology. The iShares U.S. Medical Devices ETF ( IHI ) has broken both its 50- and 100-DMA on heavy volume. We believe the next level of support is the 200-DMA, which is ~5% lower.

Multiple ideas across the U.S. Focus List have broken near-term levels of support warranting a cautious approach until technical profiles improve.

Fundamental profiles remain intact and valuation and growth remain in line with historical medians. The current 66 profitable companies above $500M in market cap within the Medical Product and Equipment industry groups have a five-year EPS median growth rate of 13% and a five-year median (high-to-low) P/E ratio range between 16 and 45. Over the next year, consensus calls for similar growth and valuation. Next fiscal year’s EPS is expected to grow by a median of 13% with a P/E ratio of 25x.

U.S. Focus List ideas: ABMD, ALGN, IDXX, ILMN, EW, PRAH; Stocks of Interest: WMGI, HAE

 EMEA

Health Care remains a long-term leading sector, but has come under severe selling pressure over the last two weeks due to general market weakness. We recommend a selective approach across the region with few growth ideas currently showing technical strength.

European Focus List idea:STMN.CH; Stock of Interest: ELKB.SE

 APAC

Health Care is outperforming over the last 26 weeks, but is now weakening over the last month. There are multiple stocks of interest in this region, as many ideas have strong fundamental profiles, despite weak technical profiles. We recommend a patient approach until market conditions improve before buying medical technology ideas within the region.

APAC Focus List ideas: AS@H.JP, COH.AU, NAN.AU; Stocks of Interest:WXBO.HK, MPS.HK, TERU.JP

Nanosonics

Posted on by Raj Gupta

Key Points:

The stock regained its 50-DMA on heavy volume after an Australian investment firm announced the acquisition of 15M shares. We recommend building positions as the stock forms the right side of a new base.

Technical ratings: Sharp rise in the stock‘s RS line this week, RS Rating 85, A/D Rating A+.

Fundamental ratings: EPS Rank 62 (expected to improve given consensus EPS growth of 50% in FY 2019 and 167% in FY 2020), Composite Rating 92, SMR Rating C.

Abiomed

Posted on by Raj Gupta

Key points from the report:

The stock is building the right side of a new base in very heavy volume. We recommend building a position now, ahead of the pivot point of $450.93.

Technical ratings: Sharp rise in the stock’s RS line this week, RS Rating 97, A/D Rating C+.

Fundamental ratings: Highest EPS Rank of 99, top SMR Rating of A, best Composite Rating of 99.