The U.S. market is in a Confirmed Uptrend. The S&P 500 and Nasdaq continue to consolidate gains, pulling back yesterday but again closing off intraday lows and avoiding distribution. Though there has been some near-term rotation, all 11 sectors are up over the last five sessions, with nine of 11 remaining at or above their respective 200-DMA. Leading ideas also continue to display positive technical action, digesting gains constructively. We remain positive on the general market as we have yet to see technical damage at the index, sector, or stock level despite what has been an above average rally without a 5% pullback. See last week’s strategy view here.
Symbol: DISH
Global Laggards
This report has been curated by our sector analysts to find stocks showing technical weakness. We believe these stocks are laggards relative to their own domestic markets. We recommend that they be underweighted as they may be vulnerable to further downside risk and underperformance.
Highlighted Charts
U.S.: Teck Resources (
), Proto Labs (
), Dish Network (
), Constellation Brands (
), Marathon Petroleum (
), Rayonier Reit (
), Teva Pharmaceuticals (
), Urban outfitters (
), Juniper Networks (
), Bottomline Technologies (
), American Airlines (
).
Developed: Kuraray (RK@N.JP; 3405 JP), Siemens (SIEX.DE; SIE GR), ITV (ITV.GB; ITV LN), Imperial Oil (IMO.CA; IMO CN), Resona (DBHI.JP; 8308 JP), Hisamitsu Pharmaceutical (HSMP.JP,4530 JP), Ain (DCL.JP; 9627 JP), Hitachi Metals (HM@N.JP; 5486 JP), NTT Data (COMM.JP; 9613 JP), Swedbank SA (SWED.SA).
Emerging: Hyundai Motor (HDR.KR; 005380 KS).
Stocks worth focusing on in this week’s Global Laggards:
Swedbank SA (SWED.SE) – Swedbank offers financial services in Sweden, Estonia, Latvia, and Lithuania. Its main offerings are mortgages, asset management, and card services.
O’Neil Methodology
- The shares are reacting negatively over the last two sessions and are clearly trading below key support levels.
- Poor fundamental ratings: EPS Rank of 68, Composite Rating of 42, SMR Rating of B.
- Technical ratings: RS Rating of 35 (near all-time low), A/D Rating of B-.
- The Bank-Money Center Industry Group of Sweden has sharply declined in rank over the last few weeks. The group is now ranked 75, down from 37 eight weeks ago.
Commentary
- In the Danske Bank scandal, Swedbank is the latest Nordic bank to be linked to alleged money laundering.
- Per Bloomberg, Nordic and Baltic banks were helping the former Soviet Union channel illegal funds to the West.
- On Wednesday, Swedbank’s CEO said she couldn’t deny allegations from a Swedish media report that claimed Swedbank handled approximately $4B linked to Danske Bank’s suspicious activities.
- The Estonian Financial Supervisory Authorities (FSA) announced it would start investigating immediately, with the Swedish FSA joining efforts. The Bank of Lithuania will also support the investigation.
- Bill Browder, a London-based investor, said he intends to file criminal complaints against Swedbank over the allegations.
- Browder claims he has sufficient evidence to show that Russian money launderers used the Nordic banking system to move funds illegally.
- We believe the latest reports will bring continuous selling pressure to the stock, which will remain under pressure.
There may be downside support at the SEK 153 level, about 8% downside. But given how Danske Bank shares are trading, Swedbank shares may trend below this support level. We advise covering the short at the 200-DMA as a stop-loss.
WON Global View
An 18% rally on the DJIA since December lows, with no 5% pullback, is higher than the 14% average (11% median) leg in a bull market, dating back to 1900. One leg is a 5%+ move in either direction.
A leg of 15% gain immediately following a 15% loss is very rare, occurring only four times prior to the current leg. A ~6% pullback is typical following these v-shaped recoveries.
Earnings estimates continue to come down, with GAAP S&P 500 earnings now expected to decline 2% in Q1 2019.
While the seasonal setup remains strong (Q1 in the third year of a presidency and strong January gains), macro uncertainty combined with the above average rally from lows could soon test our current bullish stance.
Global Laggards
Highlighted Charts
U.S.: Bunge ( BG ), Dish Network ( DISH ), Hsbro ( HAS ), Delek US Holdings Inc ( DK ), Markel ( MKL ), Healthcare Svcs ( HCSG ), Central Garden Pet ( CENTA ), Penske Automotive Group ( PAG ), Netgear ( NTGR ), Amdocs ( DOX ).
Developed: Henkel ( HEN3X.DE; HEN3 GR ), Mitsubishi Chemical ( MCHC.JP; 4188 JP ), NGK Insulators ( KI@N.JP; 5333 JP ), Calbee ( CALB.JP; 2229 JP ), Subsea 7 ( SUBC.NO; SUBC NO ), Hargreaves Lansdown ( HL.GB; HL/LN ), Daiichi Sankyo ( D@SA.JP; 4568 JP ), Ain Holdings ( DCL.JP; 9627:JP ), Isetan Mitsukoshi Holdings ( ZW@N.JP; 3099:JP ), Hitachi Metals (HM@N.JP; 5486 JP), Nomura Research (NMRS.JP; 4307 JP), Nippon Yusen KK (NY@N.JP; 9101 JP).
Emerging: Sociedad Quimica y Minera De Chile ( SQB.CL; SQM/B CI ), Maruti Suzuki India ( MUD.IN; MSIL IN ).
Stocks worth focusing on in this week’s Global Laggards:
U.S.
Markel Corp ( MKL ) – Insurance-Property/Casualty/
O’Neil Methodology
- The stock is facing strong resistance along its declining 50-DMA.
- Poor fundamental ratings: EPS Rank of 26, Composite Rating of 20, SMR Rating of D.
- Technical ratings: RS Rating of 27 (near all-time low), A/D Rating of D-.
- Pretax margin and ROE have deteriorated over the last four years, and currently stand at 0% and -1%, respectively.
- The Insurance-Property/Casualty/
Title industry group has sharply declined in rank over the last few weeks. The group is now ranked 97, down from 26 eight weeks ago.
Worsening Combined Ratio During the Last Two Years
- The combined ratio of the Company has significantly deteriorated over the last few years. In 2018, it managed to improve, but it remains higher than the industry median of 92%.
Global Laggards
Highlighted Charts
U.S.: Lyondellbasell Ind ( LYB ), Berry Global Group ( BERY ), Aptiv Plc ( APTV ), Edgewell Personal Care ( EPC ), Enbridge Energy Partners ( EEP ), Bank of Nova Scotia ( BNS ), United Therapeutics ( UTHR ), AutoNation ( AN ), Penske Automotive Group ( PAG ), PTC ( PTC ), Allegiant Travel Company ( ALGT )
Developed: Nine Dragons Paper ( NDRA.HK; 2689 HK ), Cyberagent ( CYBA.JP; 4751 JP ), Just Eat ( JE.GB; JE/LN ), Ezaki Glico ( BQ@N.JP; 2206 JP ), Subsea 7 ( SUBC.NO; SUBC NO ), RSA Insurance Group,( RSA.GB; RSA LN ), William Demant Holding ( WDH.DK; WDH DC ), K’s Holdings ( GIKS.JP; 8282:JP ), SAP ( SAPX.DE; SAP GR ), Deutsche Post ( DPWX.DE; DPW GR )
Emerging: Mondi ( MNDJ.ZA; MND SJ ), Godrej Consumer Products ( GCD.IN; GCPL IN ), Zhen Ding Technology ( ZHE.TW; 4958 TT )
Stocks worth focusing on in this week’s Global Laggards:
Penske Automotive Group ( PAG ) – Retail ( $4B market cap ) – operates automotive and commercial truck dealerships principally in the U.S., Canada, and Western Europe.
Shares of PAG are 20% off 52-week highs and facing resistance at their downward sloping 10- and 40-WMA. The stock has poor RS and A/D Ratings of 35 and D, respectively. We see support for the stock at ~$42, followed by ~$38.
For Q3 2018, total revenue was $5.7B, increasing 2.4% y/y and missing consensus of 5.5% y/y. The miss was due to lower-than-expected sales growth of 1.2% in its Retail Automotive segment.
Same-store sales of new cars declined 4.2% y/y compared with consensus of 6% y/y growth, as revenue from new car sales in the U.K. decreased 10.5% y/y in Q3 and 20.5% y/y in September. The implementation of the new U.K. emission standard “Worldwide Harmonised Light Vehicle Testing Procedure” delayed the delivery of new cars to dealerships.
PAG expects the availability of new cars from OEM to normalize by the end of Q1 2019.
In 2019, revenue and EPS growth are expected to decelerate to 2%, as the Company is expected to be impacted by FX headwinds because of Brexit. The U.K. market accounted for 36% of the Company’s revenue in 9M 2018.
Further, commercial truck sales growth in the U.S. is expected to slow in 2019. In its trucks segment, which contributed to 5.9% of sales in 9M 2018, the Company expects volume growth to moderate from 28% in 2018 to 1.6-4.8% in 2019.
Global Technology/Cyclical Sector–Internet and Media
Some highlights from the report:
Consumer demand for online food delivery is growing. The Gross Merchandise Value (GMV) for online food delivery is expected to reach $147B, an 11% 2018–2022 CAGR.
There are two types of delivery models: aggregators and new delivery, both of which are expected to grow through 2022. Recently, aggregators have begun offering delivery services to complement their marketplace but at a higher cost to revenue.
As of June 2018, China contributes the most GMV for online food delivery globally, followed by the U.S., India, the U.K., and Germany.
China’s online food delivery market is almost twice the size of the U.S. market. Meituan holds the largest share.
The U.S. core addressable food delivery market is expected to reach +$200B by 2020, or 40% of total restaurant sales. Pizza delivery accounts for the majority of the TAM and nearly 50% are from phone orders, leaving plenty of room for online food delivery penetration.
In the U.S., Grubhub ( GRUB ), on our Focus List, is the leader with a market share of 34% in food delivery services as of July 2018.
Other publicly traded food delivery companies include Just Eat ( JE.GB ), Delivery Hero ( DHERX.DE ), Takeaway.com ( TKWY.NL ), and Meituan ( MEDI.HK ).
Lastly, given the current weak market conditions going into earnings season, we have provided annotated Datagraphs for several other U.S. ideas in the report, including support and resistance levels to keep in mind.
Global Technology/Cyclical Sector
Some highlights from the report:
U.S.
Still Bearish on most Old Media groups, neutral on U.S. Media-Diversified
More on Disney’s OTT strategy, Hulu
NFLX removal – Rising Competition in 2019
Revisiting FB Removal and Timeline
Prefer GOOGL over FB
Thoughts on SNAP and TWTR
GRUB leading U.S. market share
New FL addition: MTCH
Stocks of Interest: YELP and ROKU
EMEA
APAC
Chinese internet stocks far from actionable
Removed from FL: WUBA, ENJP.JP, and WB
Global Laggards
Attached is the latest Global Laggards report from our analysts.
This report has been curated by our sector analysts to find stocks showing technical weakness. We believe these stocks are laggards relative to their own domestic markets. We recommend that they be underweighted as they may be vulnerable to further downside risk and underperformance.
Highlighted Charts
U.S.: Axalta Coating Systems (
), Mastec (
), Caterpillar ( CAT ), Goodyear Tire & Rubber ( GT ), Hain Celestial Group ( HAIN ), Core Laboratories ( CLB ), Umpqua Holdings Corp ( UMPQ ), Tivity Health ( TVTY ), Cars.com ( CARS ), JD.com ( JD ), Infinera ( INFN ), Zynga Inc ( ZNGA ), Jetblue Airways ( JBLU ).
Developed: South32 (S32.AU; S32 AU), Nidec ( NDEN.JP; 6594 JP ), Horiba ( HORI.JP; 6856 JP ), Nissan Motor ( NR@N.JP, 7201 JP ), Ontex Group ( ONTE.BE; ONTEX BB ), Pjsc Gazprom ( OGZD.GB; OGZD LI ), Unicredit ( UCG.IT; UCG IM ), Otsuka Holdings ( OTHD.JP; 4578 JP ), Metcash ( MTS.AU; MTS AU ), Siltronic ( WAFX.DE; WAF GR ), Adecco ( ADEN.CH; ADEN SW ), Royal Mail ( RMG.GB; RMG LN ).
Emerging: Posco ( PIS.KR; 005490 KS ), Hero Motocorp ( HER.IN; HMCL IN ), LG Household & Healthcare ( LHH.KR; 051900 KS ), Bradespar Pn ( R4P.BR; BRAP BZ ), Lojas Americanas ( LM4.BR; LAME4 BZ ), Quanta computer ( QUM.TW; 2382 TT ), Korean Air Lines ( KAA.KR; 003490 KS ).
Old Media vs. New Media
- A majority of old media groups continue to rank among the lowest out of our 197 Industry Groups. The Media-Radio/TV group, which is holding up relatively better, has been the only exception.
- TV subscribers continue to ‘cut the cord’ with subscriber losses accelerating year-over-year for major pay TV companies. Although the rolling back of net neutrality rules could improve monetization for these companies, we do not believe it will reverse this secular trend.
- We see more M&A for local TV broadcasters. We added Nexstar to our Focus List in January 2018. We believe the company has the best O’Neil Ratings and Rankings in the group. We recommend continuing to hold positions as shares consolidate.
- Competition is heating up as Disney joins the OTT space. This confirms a pivotal change for the media video landscape. Since this is a major strategic shift for Disney, it will take time to play out, which is why we are neutral on DIS shares. We think the Company must still execute and prove it can grow after its stock peaked in 2015.
- We continue to like Netflix, which we added to our Focus List in January 2017. It is the leading innovator in the group, but shares are currently extended from an entry point. We recommend trimming profits from core positions and waiting for share consolidation.
Old Media vs. New Media
* We remain bearish on Old Media groups, including pay TV, cable, and content makers. Group Ranks for these industries have remained near the worst among our 197 industry groups.
* The writing is on the wall: U.S. paid TV subscribers are dropping at a faster pace due to cord-cutting and a shift online.
* And the proof is in the Datagraph: Comcast remains on our Laggard List with further downside. We would continue to avoid the name.
* On the opposite end, we continue to like Netflix on our Focus List, which continues to see strong subscriber growth.
* Ad dollars are shifting away from old media and Facebook and Alphabet will continue to benefit in our view. Both are also currently actionable on our Focus List.
* Content producers are not immune to the downtrend, Discovery is an example.
* Disney shares could fall further and despite recent rumors, questions are still unanswered.
* We view shares lagging going forward and possibly retesting October 2016 lows (~$90). The Company reports Q4 FY17 results tomorrow (November 9) after market.
