Author: Tristan d'Aboville

Tristan d’Aboville is an Executive Director, Research Analyst, managing the European Research Product. Mr. d’Aboville has more than 16 years of experience in equity research and sales. Since joining the firm in 2012, he has applied his client-centric style with analysts and portfolio managers, anticipating and exceeding their needs. He writes the well-received weekly European commentary, and follows it with a client conference call to discuss findings. Prior to William O’Neil + Co., Mr. d’Aboville was a top-producing salesperson at Kepler Capital Markets, formerly known as Julius Baer, and at Natixis Bleichroeder, covering European equities for large U.S. institutional clients. He started his career as an equity analyst at Aurel-BGC, later moving to Natixis Bleichroeder, where he became the lead analyst for the European Hotels, Leisure and Catering Sector. He was recognized as a Top Analyst for Predictability & Recommendations by AQ Publications in 2003. Extel named him one of the top three European analysts covering the business services and hotel & leisure industries. Prior to the securities industry, Mr. D’Aboville was an auditor with Arthur Anderson. Mr. d’Aboville earned a Master of Science in Managerial and Financial Economics from ISC Paris School of Management. Later, he studied Global Affairs at New York University. He is a Certified International Investment Analyst (CIIA). A sportif, Mr. d’Aboville enjoys kite surfing, sailing, skiing, tennis, chess, and spending as much of his free time as possible with his wife, young daughter, and son.

European Weekly Summary

Posted on by Tristan d'Aboville

Key points:
Europe: no end in sight: The chance of seeing the Ishares Dj Stoxx 600 breach its Monday Dec 10 low is very high. Such action would send the index back in a Downtrend.

Cash is king – Real Estate remains the best relative out performer. Top defensive plays: Around town ( AT1X.DE ) and Catena ( CATE.SE ).

Still relatively bullish on Nordic fish farmers. In the long run, low supply coupled with strong demand from emerging countries will continue supporting the price of Atlantic salmon. Buy Marine Harvest( MHG.NO )

European Weekly Summary

Posted on by Tristan d'Aboville

Key Points

I – Europe Falling Back to a Downtrend

The IShares Dj Stoxx 600 (in a Downtrend – See Page 5) breached its oneyear low yesterday and is now in unchartered territory. This is the second time this year that its follow‐through day failed. We see the 30.70 low of June 2016 acting as the next level of support.

Heavy distribution on Thursday followed a rout in U.S. futures after Canadian authorities arrested Huawei’s CFO at the request of the U.S., delivering a blow to the ongoing peace talks in the China‐U.S. trade war.

The yield curve inversion of the five‐ and three‐year treasury notes that occurred Monday for the first time in more than a decade added to investors’ worries.

In the wake of Ishares Dj Stoxx 600 weakness, we downgraded France, Germany, Norway, Sweden, Austria, Portugal, Spain and Luxembourg to a Downtrend. A majority of the 17 markets we cover are now in a Downtrend.

II – Defensives Continue to be the Best Bet Right Now

Amid extreme volatility with multiple variables like Italy’s debt crisis, a slowdown in the U.K. housing market, Brexit, etc., defensive stocks continue to relatively outperform the market. Of stocks with improving Relative Strength Ratings (over the past four weeks) and decent fundamental (SMR>50) that are under accumulation (A/D Rating >0), a majority are from:

1. Utility‐Electric Power, which includes Iberdrola (

), Terna (

), REN (

), and Focus List name Telecom Plus (TEP.GB – see Page 3). The latter continues to display strong technical characteristics and is actionable after breaking out of a 36‐week cup last week.

2. Staples: Among others, included are Unilever (ULVR.GB), Nestle (

), and Diageo (

). From our Focus List, Davide Campari (CPR.IT – See Page 4) is holding well, trading above its 50‐DMA.

3. Telecom: Swisscom (

) and Proximus (

).

European Weekly Summary

Posted on by Tristan d'Aboville

Key Points

The IShares Dj Stoxx 600 (Status: Under Pressure) has remained above its October 26 low but has already accumulated three distribution days. Its next level of resistance is the 50-DMA at 36.03, 2% above its current level.

We do believe that, for the November 7 follow-through day to develop into a new bull market, we need to see new leadership emerging and indices progressing higher and through resistance, specifically at the 50- and 200-DMA. However, with the exceptions of the Swiss ( 0SWISSMI ) and Danish ( 0DKKFXIN ) indices, all other European indices, including the IShares DJ Stoxx 600 ( EXSA.DE ), are still trading below their 50- and 200-DMA. 

While we remain extremely cautious on European equities, there are encouraging signs that developed over the week:

  1. A few growth ideas, including several technology names, have been regaining momentum this week.
  2. The number of ideas on our European Focus List, which is a good indicator of the health of the market, has started to stabilize.  

That said, we encourage investors to remain patient, since most growth ideas continue to repair technical damage from the past few months. Recent additions to our Focus List remain very defensive profile ideas. Actionable ideas include:

Givaudan ( GIVN.CH ): Leading player in the global flavor and fragrance market. Shares are breaking out of a Stage 1 cup-with-handle.

AztraZeneca ( AZN.GB ): A multinational biopharmaceutical company focusing on key therapeutic areas, including oncology, respiratory, and cardiovascular, renal, and metabolic diseases ( CVRM ). The stock continues to trade in a buy range after breaking out of a flat base on November 9.

Telecom Plus ( TEP.GB ): U.K.-based provider of discount telecom and utility services. Shares broke out of a 36-week saucer and are actionable.

Marine Harvest ( MHG.NO ): The largest global fish farming company. The stock is still trading constructively along its 50-DMA, 6% from the pivot of its most recent base.

European Weekly Summary

Posted on by Tristan d'Aboville

Key Points

I – Failing follow-though day? Europe downgraded to Uptrend Under Pressure

The clustering of distribution days that occurred across the region indicates that the November 7 follow-through day is failing. As a result, yesterday, along with many European markets, the Stoxx 600 was moved to an Uptrend Under Pressure after recording a third distribution day. The index will be downgraded to a Downtrend should it cut below its October 26 low.

Along with the rising number of distribution days across markets, we are not seeing any leaders emerging in the form of breakouts. There are very few places to hide currently.

II – Implementing a defensive approach

We reiterate our cautious stance and advise raising cash if possible or focusing on stocks that offer fundamental defensive profiles. Among other indicators, look at the stock’s O’Neil stability factor, dividend yield, and RS line.

In this report, we provide a list of stocks with these characteristics (see page 3): RS line at a new high, dividend yield greater than 2%, and stability factor less than 30, which guarantees constant earnings growth. These stocks are likely to continue outperforming the general market on a relative basis.

III – Focus: Staples & Healthcare

It is not surprising that the list is dominated by Staples ( e.g. ULVR.GB, DGE.GB ) and large Healthcare Caps ( ROG.CH, AZN.CH  ), given their defensive profile and cash flow, which supports strong shareholder return.

From this group, AztraZeneca ( AZN.GB ) was recently added to our European Focus List. We recommend building a position in this name.

In Staples, we reiterate our bullish call on Davide Campari ( CPR.IT ), recently added to the EFL.  

Yihai International Holding Update

Posted on by Tristan d'Aboville

Key points:

Shares recently broke out of a nine-week consolidation on above average volume to an all-time high. The stock has a robust RS Rating of 99 and its RS line is heading north to an all-time high, in line with the market’s shift to a Confirmed Uptrend.

Increasing accumulation of shares is reflected by an improving A/D Rating of B+. Overall, consensus expects the Company’s top and bottom lines to have a ~40% CAGR from FY 2017 to FY 2020, translating to a >~1B operating profit by 2020, doubled from 2017.

Growth has been driven by the Company’s strong leadership in the growing hot pot segment, new product launches, and ecommerce expansion.

Consensus sees FY 2019 EPS growing 33%. Shares are trading at a PE forward 2019 of 32x.

European Weekly Summary

Posted on by Tristan d'Aboville

Key Points

  • The Stoxx 600 was moved to a Confirmed Uptrend along with France, the U.K., Denmark, Italy, Spain, Belgium, and the Netherlands as each staged a follow-through day yesterday.
  • We are now recommending that investors gradually begin allocating capital to actionable growth ideas as they break out of sound bases.
  • In this report (see attachment), we provide a list of stocks that are actionable and a list of names to watch; these are names with great fundamental growth characteristics, trading near a pivot.

European Weekly Summary

Posted on by Tristan d'Aboville

 European Equities: Long-Term Trend Broken

The iShares DJ Stoxx 600 is trading 8% from its 200-DMA, at a new year-low. For the first time since February 2008, its 10-WMA has crossed below its 40-WMA. Along with a majority of countries in Europe, the index remains in a Downtrend.

Defensive sectors like Staple and Utility continue to relatively outperform. Technology, Cyclical, and Capital Equipment have continued to deteriorate further in the recent selloff.   

On average, European equities are down 24.7% from their 52-week highs and 76% of stocks are trading below their 200-DMA. Basically, a majority of stocks have broken their long-term trends.

Although we recommend moving into cash, in this report, we are providing a list of stocks that have proven to be more resilient in this environment (see page 3). These stocks share the following characteristics: RS line at new high, RS Rating improving, and positive A/D Rating (money inflow).

II – Short-Term Rebound?

Although we remain negative on European equities, as reflected by the historically low number of stocks on our Focus List, investors may wonder whether the market could bounce back from this recent selloff.

The index is following a pattern similar to February 2018, and among other indicators (MACD, A/D, RSI), the abnormally low number of stocks Breaking Out and Near Pivot suggests a short-term rebound (see page 5, 6, and 7).

By screening for names that display the best fundamental profile with the poorest performance, we came up with a list of stocks (see page 4) that may rebound significantly in the short term if history were to repeat itself.

Global Cyclical Sector—Luxury

Posted on by Tristan d'Aboville

Some highlights from the report:

The global luxury sector is highly reliant on China with more than one-third of global luxury goods purchased by Chinese customers. Since equities in the sector have lost 17% of their value on average on concerns of a slowdown in China, we would not recommend building positions in the luxury sector at this time.

In light of the slowing demand, we expect corporate earnings, in general, to fall short of expectations and forecasts to be slashed. This will further exert pressure on valuation multiples.

From a historical point of view, the global luxury index is following its typical two-year cycle and we expect 25-30% downside from its June peak. At the current level, the sector has the potential for an additional 10% downside.

Despite the short-term turmoil, we maintain a positive bias toward the sector. Secular growth themes ( ecommerce, DTC, Gen X & Y ) shaping the future of the luxury sector will re-emerge as soon as the upward cycle resumes. As opportunities will rise from this recent selloff, we would encourage investors to watch stocks that are expected to perform well over the long term, such as Canada Goose ( GOOS.CA ), Prada ( PRAD.HK ), Moncler ( MONC.IT ), and SMCP ( SMCP.FR ).

European Weekly Summary

Posted on by Tristan d'Aboville

The Stoxx 600 failed its attempted rally after closing below its September 7 low. The index is in a Downtrend. We see the next support for the Ishares Dj Stoxx 600 ( EXSA.DE ) at 35.69, i.e. 3% below the index’s current level.

We remain bearish on European equities and do not recommend bottom-fishing until new leadership emerges. The small number of breakouts across sectors highlights the broad-based weakness. There is no place to hide, although Energy and Healthcare have been relative outperformers since the index was moved to a Downtrend on June 21.

Similarly, stocks with Relative Strength lines reaching new highs, i.e. outperforming in a weak environment, remain very concentrated in insurance groups, but these stocks have below average fundamental profiles: Unipol ( UNI.IT ), Scor Se  ( SCO.FR ), Asr Nederland ( ASRN.NL ), and Hannover Re ( HNR1X,DE ). 

Damage has been particularly visible among extended growth stocks. Although still outperforming the Ishares Dj Stoxx 600 YTD ( EFL +4.05%, versus -2.98% for the EXSA.DE ), our Focus list lost 403bps last week, versus 188bps for the index.

The best ideas from our Focus List to hold are those that still have top Relative Strength Ratings along with positive accumulation (money inflow).