Q4 GDP grew 2.3% y/y, 30bps below estimates: Per the advance estimate, the U.S. economy grew 2.3% y/
y in Q4, 30bps below estimates and lower than the 3.1% y/y growth in Q3. Personal consumption grew
4.2%, the highest since Q1 2023, driven by a 6.6% surge in spending on goods and a 3.1% rise in spending
on services. However, Fixed investments contracted for the first time since Q1 2023 to -0.6%, while
residential investment rebounded 5.3%. Both exports and imports contracted 0.8% each, while
Government expenditure rose 2.5%, slower than the 5.1% rise in the previous quarter.0
Author: Sambit Mohanty
U.S. Economic Summary
Q3 GDP growth slowed down, in line with estimates: Per the second estimate, the U.S. economy grew
2.8% y/y in Q3, in line with estimates and lower than 3% y/y growth in Q2. Personal spending grew the
fastest since Q1 2023, driven by a 5.6% rise in consumption goods and solid spending on services.
Government consumption rose around 5%. While both imports and exports increased, their growth figures
were revised downward. Fixed investment also rose, driven by higher investment in equipment, though
declines were noted in structures and residential investments.|
Eastroc Beverage Group
Key Points:
- We reiterate our buy call on Eastroc Beverage Group as it surged and broke out of a stage-three flat base on 2x the average volume, hitting new high. The company is expected to benefit from the Politburo meeting’s priority of boosting domestic demand.
- Eastroc Beverage Group is the leading energy drinks manufacturer in China. It ranked the first in terms of sales volume for three consecutive years and had market share of 43% in 2023, ahead of the 31% of Red Bull.
- Electrolyte water is the company’s second largest product, with revenue rising 292% y/y to RMB 1.21B in 9M 2024. The company’s expansion across the nation and the development of new product continued to drive growth.
- The Q3 FY24 results were in-line with expectations. Revenue rose 47.3% y/y to RMB 4.68B, while net profit attributable to shareholders rose 78.4% y/y to RMB 977M.
O’Neil Capital Equipment Sector Weekly
Green Brick Partners Inc (GRBK) – $3B market cap; $27M ADV: We removed Green Brick Partners from the U.S. Focus List as the stock gapped down below its
100-DMA post a weaker-than-expected Q3 FY24 print. Revenue and EPS missed estimates by 3% and 5%, respectively. Use of higher incentives to drive sales and
higher cancellation rate of 8.1% (+200 bps y/y) weighed down on the investor sentiment. Next support is at $65.12 (-10%), followed by its 200-DMA (-12%).
U.S. Economic Summary
Q2 GDP in line with estimates: Per the final estimate, the U.S. economy grew 3% y/y in Q2, in line with
estimates and higher than upwardly revised 1.6% y/y growth in Q1. This marks a rebound from a decline in
GDP growth in the last two consecutive quarters. Growth was driven by increases in consumer spending,
private inventory investment, federal government spending, and non-residential fixed investment,
despite a rise in imports.v
SK Hynix
Attached is a note on SK Hyinx from Charan Kumar, Senior Analyst, Global Equity Research, William O’Neil India.
- We recommend accumulating SK Hynix shares if the stock breaks above KRW 121,100. The stock recently broke out of a flat base and is currently testing support near the 50-DMA.
- SK Hynix remains our top pick among large Asia-based companies with exposure to AI given its leading position in HBM technology. Other key AI beneficiaries are listed in the table at the end of this report. Key stocks include: TSMC (TSM.TW), Samsung (SGl.KR), Advantest (AB@N.JP), Disco (DISC.JP), and Wiwynn (WIW.TW).
- Weak fundamental profile due to a cyclical downturn in the industry: EPS Rank 10 and SMR Rating of E. We expect the fundamental profile to improve significantly in the coming quarters, given the expected recovery in the memory market in 2024. SK Hynix’s earnings per share are expected to increase 163% in 2024, after recording a decline of 440% this year, per consensus estimates.
- Strong technical setup: RS line is trending upward, with an RS Rating of 88 and an A/D Rating of A.
- The stock belongs to the Computer-Data Storage industry group, one of the best-performing industry groups in South Korea with the current Group Rank at 17.
O’Neil Capital Equipment Sector Weekly
Epiroc (EPIA.SE; EPIA SS) – $17B market cap; $20M ADV: We added Epiroc to the Developed Markets Focus List as the stock broke out of a stage-one 52-week cup-withhandle base on above average volume. Epiroc provides mining equipment and services for hard rock excavation applications. It benefits from strong demand stemming from the
declining ore grades, electrification trends, and the shift toward autonomous mining equipment. Its after-market business should offer stability across the business cycles due to
its recurring nature and high operating margins. Consensus expects revenue CAGR of 16% and EPS CAGR of 15% in FY21–23. Fundamental & Technical note
O’Neil Capital Equipment Sector Weekly
Ashtead (AHT.GB; AHT LN) – $26B market cap; $50M ADV: We added Ashtead to the Developed Markets Focus List after the stock reclaimed its 50-DMA on above average volume. Ashtead is the largest equipment rental company
in the U.K. and the second largest in the U.S. Equipment rental companies have benefited from the higher level of construction activity in the U.S. The company aims to increase its U.S. market share to 20% from 12% and may benefit
from the strong growth in its specialty segment. Consensus expects a sales CAGR of 12% and an adjusted EPS CAGR of 15% over the next two years
O’Neil Capital Equipment Sector Weekly
Ingersoll Rand (IR) completed the acquisition of the air treatment business of SPX Flow (SPXC) for $550M. The all-cash transaction will add $180M in annual revenue to the company’s industrial technologies and services segment
(IT&S), 50% of which will be from aftermarket sales. Management expects synergies to yield an adjusted EBITDA margin of more than 30% by the third year in the IT&S segment
ITC
Amid the general market correction, the discretionary spending capacity of a U.S. consumer is bound to be adversely affected. As the spending power declines, consumers become increasingly price sensitive and trade down in an effort to preserve purchasing power. Discount retailers (G5331) benefit as seen in the improvement of their Group Rank to the top of the retail industry, gaining 72 ranks in a four-week period. We believe there are good reasons why the outperformance of tobacco is at an early stage, assuming that high inflation persists. Discount stores have no-frills operating models that are lean, offering products with a broadly inelastic demand and they reinvest operating expense savings into the price, which drives traffic and sales volumes which can help generate a strong alpha.
Combining the O’Neil quantitative metrics and fundamental analysis, we highlight BJ’s Wholesale Club (BJ; $8.4B market cap), Dollar General (DG; $55.7B market cap), Dollar Tree (DLTR; $35.0B market cap), Grocery Outlet (GO; $4.1B market cap), and Ollie’s Bargain Outlet (OLLI; $3.7B market cap)
