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

Market Overview

The The U.S. market remains in a Confirmed Uptrend. The S&P 500 and Nasdaq continue to trade in choppy fashion, closing back below their respective 50-DMA on Friday. We will be looking for each to regain that level early next week as a further break lower will likely result in a move back to the 200-DMA. This is a bifurcated market. Multiple ideas are still hitting new highs or consolidating constructively, while multiple other ideas, most-ly from lagging industry groups, are also gapping down to new lows post earnings. We continue to recommend a selective and patient approach, buying only leading ideas from leading and/or improving industry groups as they break out of sound price bases on heavy volume.

Stocks on our U.S. Focus List: Current Sentiment

Our USFL of 74 ideas (one net addition) gained 1.7% on average this week, outperforming the S&P 500 (+0.5%) and the Nasdaq (+0.6%).

By Sector

Energy remains the clear leading sector. CLR and WRD are now extended from a proper pivot, however FANG remains actionable after regaining its 50-DMA this week. Retail ideas continue to act well with AMZN regaining the 50-DMA, and WING, HOME, LULU, FND, OLLI, and FIVE all still trading at or near new highs. Financial closed the week strong, despite mostly sideways action. SCHW, TCBI, SIVB, FLT, SQ, and PYPL are all now back above the 50-DMA. Conversely, Technology closed back below its 50-DMA this week, following a big selloff in semiconductors. Multiple ideas including MRVL, MKSI, AMAT, and CY are all now back below their 50-DMA.

Market View

Posted on by Raj Gupta

Market Overview

The U.S. market is in a Confirmed Uptrend. On Tuesday, the S&P 500 and Nasdaq staged a Day 6 follow-through, giving the go-ahead to gradually buy high-quality stocks with strong sales and earnings as they break out of sound price bases. Going forward, we will be looking for the major averages to regain their respective 50-DMA and for upside volume to pick up as indices clear resistance. We will also be looking for leadership to broaden as the majority of leading ideas are currently consolidating ahead of earnings, with few yet to break out. Our confidence in the follow-through day will increase if we begin to see these factors play out over the next few weeks. Conversely, signs that this follow-through day will fail include a clustering of distribution coupled with failed breakouts in leading ideas.

Stocks on our U.S. Focus List: Current Sentiment

Our USFL of 73 ideas (including four additions) gained 2.9% on average this week, outperforming the S&P 500 (+2%) and the Nasdaq (+2.8%).

By Sector

Energy led all sectors by a wide margin this week. Recent USFL additions, CLR and WRD, are leading the Oil&Gas-U.S. Expl&Prod industry group, and both remain actionable at new highs. Technology ideas also led this week, with the majority of software names bouncing off their respective 50-DMA. These names include TEAM, SPLK, RHT, RNG, TYL, QTWO, ADBE, and PAYC. Semiconductors are still recovering with a few regaining their respective 50-DMA this week, including MPWR, AMAT, CY, ON, and MKSI. Conversely, Financial ideas have lagged this recent move higher. Banks, including MS, TCBI, WAL, and SIVB, as well as payment processors, WP, PYPL, SQ, and FLT, all continue to consolidate around their respective 50-DMA.

Global Health Care Sector: Biotech/Pharma

Posted on by Raj Gupta

Key Points:

U.S.

*   The iShares Nasdaq Biotech ETF ( IBB ) continues to chop around with no clear trend over the last three months. We are now looking for the ETF to hold long-term support between $100-103. Though the fundamental backdrop is positive, uncertainty regarding healthcare policy and drug pricing continues to be an overhang on the entire industry. Further, multiple companies, including CELG and ABBV, have run into pipeline mishaps to start the year, resulting in severe technical breakdowns in individual charts.
*   Our recommendation is to focus on profitable biotechs driven by underpenetrated and superior FDA approved drugs with limited to no competition. VRTX, our sole U.S. Focus List idea, along with stocks of interest, LGND and SUPN, fit this profile. Additionally, all three are currently constructively forming new bases during this market correction, rather than breaking down below longer-term support levels.

EMEA

*   The European pharmaceutical market faces a number of challenges, including Brexit which has forced companies to obtain separate marketing authorization for their products. Further, innovators are increasingly being challenged by tougher pricing negotiations by payers, who are challenged by relatively weak economic growth and high drug prices. The European pharmaceutical market is expected to grow at a CAGR 3.5% from 2015–2022.
*   Similar to the U.S., we recommend a selective approach, focusing on the few ideas that are outperforming on a relative basis due to superior EMA approved drugs marketed in underpenetrated regions of Europe. IPN.FR, our sole European Focus List idea, along with stock of interest, SOBI.SE, fit this profile.

APAC

*   Chinese drug stocks remain under accumulation despite poor market conditions. The recent expansion of insurance coverage through the inclusion of drugs on China’s National Reimbursement Drug List (NRDL) and regulatory changes to speed up drug approvals are driving growth. In a policy meeting yesterday, the Chinese cabinet announced that it will offer preferential tax rates to generic drugmakers, setting the corporate income tax for qualified firms at 15% from 25%. The State Council also said it would draw up new incentives aimed at encouraging the development and production of generic drugs. China’s pharmaceutical market is projected to grow to ~$167B by 2020 from $117B in 2016, according to the U.S. Department of Commerce.
*   We have four drug names on our Focus List.  SFPG.HK and LVZN.HK are actionable. CPHA.HK and SBIL.HK are extended.

Hong Kong Pharma

Posted on by Raj Gupta

Hong Kong-listed Pharmaceutical Focus List stocks continue to be under heavy accumulation. Three of our five ideas remain actionable: Livzon Pharma (LVZN.HK; 1513:HK) broke out from a six-week cup, 3SBio (SBIL.HK; 1530:HK) broke out from a 10-week cup, and Shanghai Fosun Pharma (SFPG.HK; 2196:HK) broke out from a nine-week cup-with-handle. We caution that all three ideas will be reporting over the next two weeks. The other two ideas, WuxiBiologics (WXBO.HK; 2269:HK) and CSPC Pharma (CPHA.HK; 1093:HK), are now extended after reporting very strong 2017 results. We recommend waiting for constructive pullbacks to the 50-DMA before adding to those two ideas.

Illumina

Posted on by Raj Gupta

O’Neil Methodology

• The stock is breaking out of a seven-week consolidation and is actionable. We recommend adding to shares here as its A/D Rating of B remains strong despite lower volume over the last few sessions. Should the stock pull back, we will be looking for the top of the base (~$249) to hold. Support below that is the rising 21-DMA (~$235).
• The stock’s RS line hit a new YTD high last week before the stock broke out. RS Rating of 88. A/D Rating of B. U/D Volume 1.2.
• EPS Rank of 94. High Composite Rating of 95. Top SMR Rating of A.