Software (IGV): The software benchmark declined for the fifth consecutive week, through the March support level ($300)
and closed at a new year-to-date low. The index has an RS Rating of 28 and an A/D Rating of D-. Next level of price
support is at ~$267, which coincides with the COVID-19 breakout level in June 2020. Although multiple oversold ideas
(including SHOP, BILL, and RPD) continue to gap down on disappointing earnings/outlook, high-quality large cap names, including CRWD, FTNT, NOW, QLYS, and ZI, remain most vulnerable. Despite multiple headwinds (including rising rates and inflation), tough earnings comps are driving a weak earnings season for software constituents. Halfway through the reporting season, the median IGV revenue and EPS growth (y/y) is 19% and 2%, respectively. Earnings growth has decelerated to 19% after peaking in Q1 2021 (35%). However, growth is expected to emerge in the second half of 2022. For now, avoid/reduce exposure in ideas breaking below their long-term support as we maintain a cautious outlook on the IGV.
Symbol: DLB
Global Laggards
Highlighted Charts
U.S.: Ashland Global (ASH), Stericycle (SRCL), Grubhub (GRUB), Cannae (CNNE), Zimmer Biomet (ZBH), Dolby Laboratories (DLB), Ceridian HCM (CDAY).
Developed: Tosoh (TSHC.JP; 4042 JP), Makita (ML@N.JP; 6586 JP), SGS (SGSN.CH; SGSN SW), Sega Sammy (SESA.JP; 6460 JP), Saputo (SAP.CA; SAP CN), Barry Callebaut (BARN.CH; BARN SW), Partners (PGHN.CH; PGHN SW), Mani (MAII.JP; 7730:JP), Canon Marketing Japan (CS@N.JP; 8060 JP), Mtr (MTRC.HK; 66 HK).
Emerging: Uni President (PRE.TW; 1216TT), Sm (SNV.PH; SM PM), Win Semiconductor (WSN.TW; 3105 TT), Tata Consultancy Services (TSE.IN; TCS IN).
Global Laggards
Highlighted Charts
U.S.: Mosaic Company ( MOS ), Aramark ( ARMK ), Sabre Corporation ( SABR ), Murphy Oil Corporation ( MUR ), Brighthouse Financial ( BHF ), Patterson Companies ( PDCO ), Walgreens Boots Alliance ( WBA ), Cracker Barrel ( CBRL ), Dolby Laboratories ( DLB ), Yelp ( YELP ), Hub Group Incorporation ( HUBG )
Developed: Svenska Cellulosa Aktiebolaget Sca ( SW@G.SE; SCAB SS ), Taisei ( TC@N.JP; 1801 JP ), Nikon ( OU@N.JP; 7731 JP ), Suncor Energy ( SU.CA; SU CN ), Caixabank ( CABK.ES; CABK SM ), Sumitomo Dainippon Pharma ( DPPH.JP;4506:JP ), Seven and I ( SEVI.JP; 3382 JP ), Aeon ( JT@N.JP; 8267 JP ), Marubeni ( MRBU.JP; 8002 JP ), Spark New Zealand ( SPKZ.NZ; SPK NZ ), Dena ( DENA.JP; 2432 JP ), Yamato Holdings Corporation ( OJ@N.JP; 9064 JP )
Emerging: Koza Altin Isletmeleri ( KAI.TR; KOZAL TI ), Tenaga Nasional ( TENN.MY; TNB MK ), Discovery ( DSYJ.ZA; DSY SJ ), Lojas Americanas Pn ( LM4.BR; LAME4 BZ )
Stocks worth focusing on in this week’s Global Laggards:
Yelp ( YELP ) – Technology; $2.9B market cap – provides an online platform that allows users to find and review local businesses via Yelp.com and the Yelp mobile app.
O’Neil Methodology
- We see resistance at the 10- and 40-WMA and immediate support near November 2018 lows of ~$29, which provides downside of about 22%.
- Poor O’Neil Ratings and Rankings: Composite Rating of 43, SMR Rating of D, RS Rating 22, and A/D Rating C+.
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: Bunge ( BG ), Embraer ( ERJ ), Proto Labs ( PRLB ), Gentex ( GNTX ), Archer Daniels Midland ( ADM ), Delek US ( DK ), T Rowe Price ( TROW ), Gilead Sciences ( GILD ), Caleres ( CAL ), Evolent Health ( EVH ), Hawaiian Holdings ( HA )
Developed: Sumitomo Chemical ( SC@N.JP; 4005 JP ), Siemens ( SIEX.DE; SIE GR ), Honda Motor ( HO@N.JP; 7267 JP ), Nichirei Corporations ( RZ@N.JP; 2871 JP ), Subsea 7 ( SUBC.NO; SUBC NO ), Sumitomo Mitsui Financial ( SMFI.JP; 8316 JP ), Santen Pharma ( XY@N.JP; 4536 JP ), Isetan Mitsukoshi ( ZW@N.JP; 3099 JP ), Hitachi Metals ( HM@N.JP; 5486 JP ), Nomura Research ( NMRS.JP; 4307 JP )
Emerging: Vale ( VA3.BR; VALE3 BZ ), Fubon Financial ( FUB.TW; 2881 TT )
Stocks worth focusing on in this week’s Global Laggards:
Proto Labs ( PRLB ) – Capital Equipment; $2.8B market cap – develops and manufactures custom prototypes and short-run production parts through advanced 3D printing, computer numerical control ( CNC ) machining, sheet metal fabrication, and injection molding processes. 80% of revenues are derived from the U.S., while the remainder primarily come from Europe.
PRLB gapped down substantially on February 7 after reporting disappointing Q418 results and issuing below-consensus Q119 guidance. The stock is now sitting below its trailing twelve-month low of $101, while it’s A/D Rating has declined to D-.
Sales of $113M were near the low end of management’s previous guidance of $112M–117M, while EPS of $0.74 was below guidance of $0.77–0.83.
More importantly, the company provided guidance for Q119 that was far below consensus expectations and raised concerns about the growth trajectory of a company that has long been expected to post mid-teens sales and EPS growth from 2019–2020. Revenue guidance of $113M–119M was below consensus of $120M, and the midpoint of this range represents 7.5% y/y growth. EPS guidance of $0.65–0.73 was below consensus of $0.80, and the midpoint of this range represents a 2% y/y decline.
Management noted that the company’s recently acquired sheet metal business had underperformed expectations and was the primary driver of the weak quarter.
Global Laggards
Highlighted Charts
U.S.: AAR ( AIR ), Unifirst ( UNF ), Boston Beer Company ( SAM ), T Rowe Price ( TROW ), Henry Schein ( HSIC ), Party City Holdco ( PRTY ), Carmax ( KMX ), Juniper Networks ( JNPR ), Autohome ( ATHM ), Hawaiian Holdings ( HA ).
Developed: Henkel AG ( HEN3X.DE; HEN3 GR ), Suez ( SEV.FR; SEV FP ), Nissan Motor ( NR@N.JP; 7201 JP ), Beiersdorf ( BEIX.DE; BEI GR ), Nintendo ( NNDO.JP; 7974 JP ), Park24 ( PARR.JP; 4666 JP ), Morphosys ( MORX.DE ), Isetan Mitsukoshi Holdings ( ZW@N.JP; 3099 JP ).
Emerging: Petronas Chemicals (PCHE.MY; PCHEM MK ), Bajaj Auto ( BHG.IN; BJAUT IN ), Tenaga Nasional ( TENN.MY; TNB MK ), L&T Finance ( LFH.IN; LTFH IN ).
Stocks worth focusing on in this week’s Global Laggards:
U.S.
Autohome ( ATHM ) — Technology;($8B market cap)— is the leading platform in China providing automobile listing information to consumers. In 2017, 101 automakers used the company’s platform for advertising and 27,167 dealers used the platform’s lead generation service. The website’s user forum had more than 58.6M registered users, the number of average daily unique visitors to the website from mobile was 13.7M, and the number of mobile app daily unique users was 8.8M. The company also provides loans, leasing, insurance, and used car transactions through its website.
Global Laggards
Highlighted Charts
U.S.: Eagle Materials Inc ( EXP ), GATX Corp ( GATX ), Liberty Media Corporation ( LSXMA ), Marathon Oil Corp ( MRO ), H&R Block ( HRB ), Bio Rad Labs ( BIO ), Mylan ( MYL ), Nordstrom ( JWN ), Cirrus Logic ( CRUS ), Evolent Health ( EVH ), Saia Inc ( SAIA )
Developed: Daicel ( DC@N.JP; 4202 JP ), Siemens AG ( SIEX.DE; SIE GR ), ITV Plc ( ITV.GB; ITV LN ), Beiersdorf ( BEIX.DE, BEI GR ), Omv ( OMV.AT; OMV AV ), Japan Post Bank ( JBPC.JP; 7182 JP ), Isetan Mitsukoshi Holdings ( ZW@N.JP; 3099 JP ), Hitachi Metal ( HM@N.JP; 5486 JP ), Amadeus ( AMS.ES; AMS:SM )
Emerging: Fubon Financial Holdings ( FUB.TW; 2881 TT ), Lotte Shopping ( LTE.KR; 023530 KS )
Stocks worth focusing on in this week’s Global Laggards:
U.S.
Cirrus Logic ( CRUS ) — (Technology; $2B) — is a leading provider of low-power integrated circuits (IC) for audio and voice signal processing applications. Its products are used in smartphones, tablets, wearables, and emerging smart home applications. Apple is its key customer with 82% revenue contribution in the latest quarter.
- Given the 82% exposure to Apple, we believe the company may miss estimates in the coming quarter. Also, guidance for March 2019 could be lower than expected due to Apple’s recent production cut for the March quarter.
- On January 2, Apple revised its December quarter revenues to $84B (-5% y/y) versus $89B to $93B previously, mainly due to the lower than anticipated iPhone sales in China.
- On January 9, Nikkei Asian Review reported that Apple is planning to cut its March quarter production by 10%. Overall planned production of both old and new iPhones is likely to be in the range of 40–43M units for the March quarter (previously it was 47–48M units).
- In December, the Company lowered its December quarter revenue guidance to $300–340M (previously it was $360–400M), due to weakness in the smartphone market.
Global Laggards
Highlighted Charts
U.S.: Servicemaster ( SERV ), Liberty Media ( LSXMA ), Booking ( BKNG ), Marathon Oil ( MRO ), CyrusOne ( CONE ), Trustmark ( TRMK ), Realogy ( RLGY ), Insulet ( PODD ), Autonation ( AN ), Jabil ( JBL ), Unifirst ( UNF ), Saia Inc ( SAIA )
Developed: Akzo Nobel ( AKZA.NL; AKZA NA ), Nippon Telegraph and Telephone ( NTT.JP; 9432:JP ), Aeroports de Paris FA ( ADP.FR; ADP FP ), Lundin Petroleum ( LUPE.SE; LUPE SS ), Merlin Properties ( MRLN.ES; MRLM SM ), Diasorin ( DIA.IT; DIA IM ), Domino’s Pizza ( DMP.AU; DMP:AU ), Fujifilm Holdings ( FP@N.JP; 4901 JP ), Amadeus ( AMS.ES; AMS SM )
Emerging: Berli Jucker ( BJCT.TH; BJC TB ), Shinhan Financial ( SHB.KR; 055550 KS )
Stocks worth focusing on in this week’s Global Laggards:
U.S.
Realogy ( RLGY ) – Financial; $2B market cap— is the largest owner and operator of residential real estate brokerages in the U.S. The company franchises its brands to residential and commercial real estate brokerages in the U.S. and internationally, with more than 16,000 affiliated offices (~5% company owned) across 116 countries and territories.
Two key fundamental drivers underpin our negative view on the name:
- Slowing housing sales. The company missed Q3 estimates and lowered guidance after transaction volume growth came in at only +1% y/y (versus 3-6% guidance).
- Rising commission rates paid to agents. The hiring environment for real estate agents is becoming increasingly competitive, causing brokerages to receive a lower fee split from agents. Websites like Zillow and Trulia and social media platforms like Facebook and Instagram have given agents a greater ability to promote their own brands and attract clients; this dynamic has reduced the appeal to agents of working with large brokerages, which take a larger fee cut from agents than smaller/independent brokerages.
The stock continues to be in a long downtrend, having closed above its 50-DMA only a handful of times over the past eight months. Technical/quantitative ratings are poor, with an RS Rating of 17, an A/D Rating of D, and a Composite Rating of 20. While the stock trades at only 10x 2019 EPS, we believe the its profitability will continue to deteriorate due to secular headwinds.
Global Laggards
Our Global Laggards list comprises stocks that have poor O’Neil Ratings and Rankings. This list 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.
Global Laggards
Our Global Laggards list comprises stocks that have poor O’Neil Ratings and Rankings. This list 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.
