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.

Hong Kong Pharma

Posted on 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 by Raj Gupta

Market Overview

The U.S. market remains in a Confirmed Uptrend. The S&P 500 and Nasdaq continue to hold above the Febru-ary 14th follow-through day (FTD) with one distribution day each. A handful of leading ideas have been able to push into higher highs (PLNT, MB, TAL, OLLI, NOW, PSTG, RHT, GRUB, RNG, etc.), though most ideas continue to build the right side of new bases. Following our discipline, we continue to recommend a slow approach, gradually committing capital to actionable ideas as the Confirmed Uptrend remains intact.

Stocks on our U.S. Focus List: Current Sentiment
Our USFL of 74 ideas (four additions) gained 2% on average this week, outperforming the S&P 500 (0.5%) and the Nasdaq (1.4%).

By Sector

Since the February 14th FTD, Technology and Utility are leading, rising nearly 3% each. Most of the Utility move was made Friday after the sector jumped more than 2%. Within Technology, MB broke out on earnings this week, turning actionable. ON and CY also both regained their respective 50-DMAs. Conversely, Energy, Con-sumer Staple, and Retail are lagging since the FTD, all flat to down 1%. Within Energy, NEP, NBLX, and CDEV continue to lag, while FANG remains a leader, regaining its 50-DMA. Within Retail, WING pulled back to its 50-DMA post-earnings, while HD reversed lower off its 50-DMA and is now forming a new base.

Global Health Care Sector

Posted on by Raj Gupta

Health Care Sector Improving
The Biotech industry group came under heavy distribution in October, causing the Health Care sector to sharply underperform in Q4. The sector declined 0.8% in Q4, while the S&P 500 and Nasdaq rallied 6.1% and 6.3%, respectively. The Health Care sector is now improving on a relative basis through the first three weeks of Q1, mostly aided by accumulation in long-term lagging industry groups (Wholesale and Generic Drugs and Medical Services); but also continued outperformance within the sector from Managed Care, Research Equipment, and Medical Devices; and most recently, a big breakout in Biotech. The iShares Nasdaq Biotech ETF broke above October highs on heavy volume.
Q4 Preview: Though the Health Care sector is improving on a relative basis to start the year, we recommend a selective approach for a few reasons. First, the improvement in the sector has largely been driven by biotech/drug companies jumping off the bottom. From an O’Neil perspective most of these moves are likely unsustainable and will need to settle over the next few months. Second, the sector remains a long-term (six-month) lagging sector with only two groups ranked in the top 50 of 197 total O’Neil industry groups. Lastly, Q4 consensus EPS is well below the S&P 500. Median S&P 500 Health Care EPS estimates (+6%) are 300bps below the S&P 500 (+9%) with in line revenue growth of 6%. Also, 2018 consensus EPS (+10%) is 100bps below the S&P 500 (+11%). The Health Care sector and the S&P 500 also both trade at 18x 2018. We do, however, expect another season of positive earnings surprises for U.S.-based companies within the Health Care sector, as we believe Wall Street’s 2018 earnings estimates have not been accurately revised to take into account the new lower tax rates, given the complexities of companies’ tax structures. We already saw this
with UnitedHealth. The Company sharply raised 2018 adjusted EPS 16% above its prior guidance and 9% above consensus, resulting in another breakout in the stock.

Market View

Posted on by Raj Gupta

Market Overview

The U.S. market remains in a Confirmed Uptrend. The S&P 500 and Nasdaq did pick up a distribution day on Tuesday, however, the count still remains low at two and three days, respectively. Leadership also remains healthy with new breakouts across multiple sectors each week. We continue to recommend buying ideas as they begin to form the right side of their respective bases or as they emerge from consolidation.

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

Our USFL of 79 ideas (three additions) gained 1.6% on average this week, outperforming the S&P 500 (0.9%) and the Nasdaq (1%).

By Sector

Technology and Health Care ideas across the U.S. Focus List led for the second straight week. Within Technolo-gy, AMAT regained its 50-DMA and MCHP and CY both broke into new highs. ATVI, OLED, ON, NVDA, PAYC, and CRM continued into higher highs after breaking out last week. Within Health Care, UNH broke out after upping 2018 guidance, ALGN broke out of a cup base, ABMD pushed further into highs after breaking above $200, and PRAH broke above four weeks tight into new highs. Conversely, Energy and Basic Material ideas pulled back after big runs to start the year. FANG remains the leader and is still extended from an ideal pivot.