We are reiterating our conviction on Radico Khaitan as the stock has displayed power-from-pivot action. The stock has gained more than 25% in the 15 days since its addition, indicating further upside. According to our O’Neil Methodology, we advise clients to hold the stock for at least eight weeks, as further strength can be reasonably expected.
Author: Sambit Mohanty
Anhui Honglu Steel Construction
Key points from this report:
- Buy Xingyu as it broke out of a 21-week stage-one consolidation base on higher volume.
- Strong fundamental ratings: EPS Rank of 96, Composite Rating of 97, and SMR Rating of A. 2018, 2019, and 2020 ROE was 15%, 17%, and 22%, respectively.
- Robust technical ratings: RS line is edging up and hitting all-time highs, with RS Rating of 89 and A/D Rating of B+.
- The company is China’s domestic automotive lighting leader. The automotive lighting upgrade trend has been driving TAM, and Xingyu has been gaining market share with its high-end products, cost competitiveness, and quality service. The automotive sales rebound in China is expected to boost Xingyu’s sales growth over the next two years.
O’Neil Capital Equipment Sector Weekly
Changzhou Xingyu Automotive Lighting Systems
Key points from this report:
- Buy Xingyu as it broke out of a 21-week stage-one consolidation base on higher volume.
- Strong fundamental ratings: EPS Rank of 96, Composite Rating of 97, and SMR Rating of A. 2018, 2019, and 2020 ROE was 15%, 17%, and 22%, respectively.
- Robust technical ratings: RS line is edging up and hitting all-time highs, with RS Rating of 89 and A/D Rating of B+.
- The company is China’s domestic automotive lighting leader. The automotive lighting upgrade trend has been driving TAM, and Xingyu has been gaining market share with its high-end products, cost competitiveness, and quality service. The automotive sales rebound in China is expected to boost Xingyu’s sales growth over the next two years.
Avantor
Key points from this report:
- Buy Avantor: The stock broke out from an eight-week cup base in heavy volume. Avantor’s recent earnings accretive acquisitions expand their biopharma offering and geographic presence. This has resulted in positive consensus earnings revisions over the last month, leading to a breakout in the stock. Further, though a beneficiary of COVID-19 vaccine production, they are not exposed to testing, which has resulted in the company’s more diversified peers lagging the current uptrend. The company expects earnings to grow nearly 40% this year, driven by its 50% revenue exposure to an attractive biopharma end-market, coupled with multi-year margin expansion through increasing proprietary offerings and deleveraging.
- Two recent acquisitions: On June 10, Avantor completed its acquisition of Ritter for €890M. On June 1, Avantor announced the acquisition of RIM Bio, a leading China-based manufacturer of single-use bioprocess bags.
- COVID-related revenue: In 2021, management expects $350M–450M in overall COVID-19 related revenue (~5% of total revenue), but with a mix more weighted toward vaccine-related offerings.
- Resilient business model and attractive biopharma market exposure: Avantor estimates its addressable portion of the biopharmaceutical market is $34B. Its solutions are used in 80% of the top 20 marketed biologic drugs.
- Next catalyst: The company is expected to announce Q2 results in July.
Wuxi Lead Intelligent Equipment
Key points:
- Buy Lead Intelligent as it broke out of a stage-four 19-week consolidation base on heavy volume.
- Technical ratings: RS line hit highs with an RS Rating of 95 and an A/D Rating of B+.
- Fundamental ratings: EPS Rank 80, Composite Rating 88, SMR Rating A.
- Lead Intelligent is the world’s leading LIB equipment manufacturer. We believe it will benefit from the LIB players’ expansion amid the electrification trend for passenger cars.
APL Apollo Tubes
Key points from this report:
- We added APL Apollo Tubes to our Emerging Markets Focus List on February 26 after it broke out of a stage-one flat base. The stock has a return of ~35% since addition, while the Nifty 50 index gained ~9% in the same period.
- We are reiterating our buy call as shares broke out of a stage-two 10-week consolidation base on above average volume after recently reporting strong Q4 FY21 results.
- The company is India’s largest producer of structural steel tubes with 50% market share. Strong scale benefits over its peers, huge growth opportunities in an underpenetrated steel tube market in warehousing, airport infrastructure, and high-rise buildings, and strong margin profile aided by the de-commoditizing of its product portfolio are the key growth drivers.
- Fundamental ratings: best-in-class Composite Rating of 99 and SMR Rating of A. SMR Rating backed by expanding pretax margin, ROE, and revenue growth. Solid EPS Rank of 94 with 30%+ EPS growth estimates for FY22 and FY23.
- Technical ratings: Up/Down Volume ratio has been greater than 1 and A/D Rating has been positive for the past eight weeks, indicating strong institutional buying. RS line is approaching an all-time high with an RS Rating of 89 and an A/D Rating of A-.
Kakao
Key points from this report:
- Hold positions here as the stock breaks out to a new high from a late-stage base. It has gained 307% since its addition to our Emerging Markets Focus List in January 2020. The stock broke out of a stage-four, eight-week cup base as Kakao Pay received preliminary approval to set up a non-life digital insurance company.
- The company has multiple growth levers that are driving top and bottom line. Shifting ad revenue to mobile and new ad products is expected to drive the revenue growth of Talk Biz, which is currently growing 50%+ y/y. Increased monetization of new businesses will help reduce loss and improve operating margin.
eMemory Technology
Key points from this report:
- Actionable: Despite the choppy action in Taiwan, eMemory has held up well with its RS line hitting new highs, indicating leadership. Add to incremental positions here as the stock hits a new high on above average volume.
- Good fundamental ratings: Strong EPS Rank of 82 and best-in-class SMR Rating of A. Revenue and earnings growth have accelerated in the last four quarters with the company registering double-digit earnings (>40%) and revenue growth (>30%), which has led to superior fundamental ratings. Looking forward, the company is expected to register strong double-digit growth over the next few quarters.
- Strong technical ratings: RS line is at new highs with a strong RS Rating of 94, indicating its outperformance. Volume trends are also strong with a good A/D Rating of A- and an Up/Down Volume ratio of 1.3x.
- Increasing institutional ownership: The number of funds holding the stock has increased to 212 in March 2021 from 164 in the previous quarter
Novatek
Key points from this report:
- Buy Novatek as the stock is breaking out of a stage-one, 11-week cup base on above average volume.
- Last week, Novatek signed supply and exploration agreements and a series of MoUs at the Saint-Petersburg International Economic Forum that are expected to propel and support its growth.
- Major oil organizations the IEA and OPEC raised their 2021 forecasts on oil demand.
- It reported a solid Q1 print ahead of consensus recently.
- Steadily rising Novatek’s yearly liquid hydrocarbon and natural gas production.
- Strong fundamental ratings: Composite Rating of 92, SMR Rating of C, and EPS Rank of 70. EPS Rank is expected to improve significantly if the results meet the high triple-digit growth estimates for 2021.
- Improving technical setup: Up/Down Volume ratio of 1.2, A/D Rating of B+, and RS Rating of 79. The RS line is rising back to 52-week highs from a short-term decline.
