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 April 6, 2018April 6, 2018 by Raj Gupta

Market Overview

The U.S. market is in a Rally Attempt within a Downtrend. We are now looking for a follow-through day before shifting the market into a Confirmed Uptrend or, conversely, an undercut of Monday’s lows (S&P 500: 2,553; Nasdaq: 6,805) before shifting the market back into a Downtrend. The majority of U.S. Focus List ideas are still forming new bases. We continue to recommend a patient approach, waiting for the follow-through day and waiting for ideas to firm and present better, more risk-optimal entry points. We maintain our cautious stance on the general market.

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

By Sector

Retail ideas on the U.S. Focus List continue to show strong relative strength, with multiple ideas moving into new highs this week. LULU and FND both broke into new highs are now extended from ideal pivots. FIVE remains actionable as it builds the right side of a new base, while OLLI and WING continue to hold above their respec-tive 50-DMA. The Consumer Cyclical sector bounced off the 200-DMA this week, leading to positive action among a handful of ideas on the USFL. SKX and NFLX both regained the 50-DMA before pulling back Friday, while PLNT bounced off that same moving average. Conversely, semiconductor ideas within Technology remain weak. AMAT, CY, MRVL, MPWR, NVDA, and ON are all living below their 50-DMA as they form new bases.

New Ideas or Deletions

We added Continental Resources ( CLR ) and removed Centennial Res Dvlp ( CDEV ) and Logmein ( LOGM ) from the U.S. Focus List this week.

Global Health Care Sector: Biotech/Pharma

Posted on April 4, 2018April 5, 2018 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.

Market View

Posted on March 29, 2018March 29, 2018 by Raj Gupta

Market Overview

The U.S. market is in a Rally Attempt. We are now looking for a follow-through day before shifting the market into a Confirmed Uptrend or, conversely, an undercut of Friday’s lows of 2,585 before shifting the market back into a Downtrend. The market attempted to follow-through Thursday, but was unable to close in convincing fashion, pulling back at the close. We have cut ~12% of our U.S. Focus List over the last quarter due to technical weakness. A further reduction in the list count would indicate a concerning technical breakdown in leadership. Our 70 ideas are currently trading 10% off YTD highs on average, indicating that most are forming new bases above longer-term support levels. We continue to recommend a cautious approach until a follow-through day occurs.

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

Our USFL of 70 ideas (one removal) gained 1% on average this week, underperforming the S&P 500 (2%) and in-line with the Nasdaq (1%).

By Sector

Retail ideas on the U.S. Focus List are showing strong relative strength over the past week. LULU broke out of a multi-year base post earnings, FND is trading at a new all-time high, and FIVE, OLLI, and WING continue to trade higher off their 50-DMAs. Health Care ideas are also acting well. ABMD, though extended, is consolidating sideways near all-time highs, EW has an RS line at new highs as the stock consolidates above its 50-DMA, and IDXX and ILMN are both holding support at their 50-DMAs. Conversely, Technology remains under selling

Market View

Posted on March 23, 2018March 23, 2018 by Raj Gupta

Market Overview

The U.S. market has been downgraded to Downtrend. The February 14 follow-through day has failed. The S&P 500 and Nasdaq closed below their respective 100-DMAs this week with an elevated number of distribution days. The next level of support is the 200-DMA on both indexes. A majority of leading ideas have pulled back off extended highs and many have now broken below their respective 50-DMAs. We recommend lightening up in both extended ideas and ideas that have broken below short-term levels of support. Going forward, we will be looking for the market to stabilize and establish a new low. At that point, we will be looking for a new follow-though day before we recommend buying.

Stocks on our U.S. Focus List: Current Sentiment
Our USFL of 71 ideas (three removals) lost 5% on average this week, outperforming the S&P 500 (-5.9%) and the Nasdaq (-6.5%).

By Sector

Technology rolled over this week, breaking its 50-DMA and then its 100-DMA in back-to-back sessions. Multiple USFL ideas are now under pressure. Ideas breaking their 50-DMA include ATVI, GOOGL, MRVL, MPWR, NVDA, PSTG, CRM, and WB. Technology ideas holding up the best include SSNC, TYL, RNG, and RHT. Financial has also come under heavy selling pressure this week. All five Banks (MS, WAL, SIVB, TCBI, ZION) on our list broke their respective 50-DMAs. Conversely, Retail and Energy held up the best this week. Within Retail, FND, FIVE, LULU, OLLI, and WING have RS lines at or near new highs. Within Energy, FANG and NEP have rising RS lines.

Hong Kong Pharma

Posted on March 20, 2018March 21, 2018 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.

Market View

Posted on March 16, 2018March 16, 2018 by Raj Gupta

The U.S. market remains in a Confirmed Uptrend. The S&P 500 remains above its 50-DMA, while the Nasdaq is still trad-ing just 2% off all-time highs. Leading ideas across Technology continue to act well, though the majority is now well extend-ed from ideal pivot points. We are looking for leadership to broaden over the next week as Technology consolidates these gains.

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

By Sector

Technology continues to outperform, led by Software, Internet Content, and Semiconductors. Most USFL ideas are extended and will need to consolidate over the next several weeks, including RNG , GRUB , ADBE , CRM , RHT , NOW, and PAYC . Health Care ideas across the USFL remain strong, with five of our eight names ( ILMN , EW , VRTX , IDXX , ABMD ) hitting new all-time highs this week. Financial ideas are also acting well, led by Payment Processors SQ, PYPL , GPN , and WP. Banks ( MS , SIVB ) are also holding up well and Brokers ( SCHW ) remain under accumulation. Conversely, Energy ideas remain weak. NEP and CDEV are still trading well off highs, while FANG remains a leader within the sector, but still 7% off highs.

New Ideas or Deletions

We added Calavo Growers ( CVGW ) and removed Blue Buffalo Pet Prods ( BUFF ) , Essent Group ( ESNT ) , and Noble Midstream Prtns ( NBLX ) from the U.S. Focus List this week.

Illumina

Posted on March 12, 2018February 1, 2019 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.

Market View

Posted on March 9, 2018March 15, 2018 by Raj Gupta

Market Overview

The U.S. market has been upgraded to a Confirmed Uptrend. The Nasdaq broke into all-time highs while the S&P 500 gapped up through its 50-DMA after a better-than-expected jobs reports. Technology, driven by Soft-ware, Semiconductor, and Internet Content, remains the leading sector, however we have noticed improvement across multiple sectors including Financial and Cyclicals. Although markets remain volatile, we advise buying stocks from leading sectors/industry groups as they emerge from constructive consolidations or pull back into areas of support.

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

Our USFL of 76 ideas (two additions) gained 3.5% on average this week, outperforming the S&P 500 (3.3%) but trailing the Nasdaq (4.0%).

By Sector

The USFL significantly outperformed the general market this week, with contribution across all sectors. Technol-ogy ideas increased 4.5% on average due to strength from software (ATVI, TEAM, MB), semiconductors (ON, MKSI, CY), and Internet-Content (GRUB, WB). Health Care ideas increased 5% on average, led by IDXX and ABMD. VRTX was up 3% and remains actionable. Financial ideas increased 4% on average, led by payment processors (SQ, PAGS, PYPL) and regional banks (SIVB, WAL). Other standout ideas this week include Healthequity (+7%) and Wingstop (+6%).

Hong Kong Pharma

Posted on March 8, 2018March 9, 2018 by Raj Gupta

Our Hong Kong-listed Pharmaceutical Focus List stocks have come under recent accumulation, and now four of our five ideas are actionable again. CSPC Pharma broke out from a seven-week consolidation, while 3SBio, Livzon Pharma, and Shanghai Fosun Pharma are all now building the right side of new bases. The fifth idea, Wuxi Biologics, jumped ~20% this week after issuing a 2017 profit alert and is now extended from an ideal pivot. We do caution that all five ideas will be reporting earnings within the next three weeks.

Earnings estimates for the MSCI Emerging Market Health Care Index have reached their highest level since 2010.
Consensus calls for strong double-digit growth in all five of our ideas over the next year. Current year consensus median
EPS and revenue growth for our five Focus List ideas stand at 29% and 31%, y/y, respectively. Next year’s consensus median
EPS and revenue growth stand at 27% and 28%, y/y, respectively.

Market View

Posted on March 2, 2018March 2, 2018 by Raj Gupta

Market Overview

The U.S. market is in an Uptrend Under Pressure. The U.S. market was downgraded this week after a clustering of distribution days and a breach below key support levels. All sectors except Technology are trading below their 50-DMAs as volatility remains elevated. Look for the Nasdaq and S&P 500 to hold support at the 50-DMA and 100-DMA, respectively, to remain optimistic. We advise reducing exposure to stocks that have broken below key support levels.

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

Our USFL of 74 ideas (one addition, one removal) were flat on average this week, outperforming the S&P 500 (-2.0%) and the Nasdaq (-1.1%).

By Sector

Despite high volatility, we continue to see outperformance across pockets of the USFL. Software ideas rose 1.7% on average, led by strong earnings from Salesforce.com ( CRM ), Splunk ( SPLK ), and Realpage ( RP ). Atlassian ( TEAM ) is emerging from a cup-with-handle consolidation and remains actionable. Capital Equipment ideas were under accumulation, led by Heico ( HEI ) and Healthequity ( HQY ). Conversely, Health Care ideas continue to consolidate, led by Align Technology ( ALGN ) and PRA Health Sciences ( PRAH ). Our lone Transportation idea, Fedex ( FDX ), pulled back to support at its 100-DMA.