The U.S. market remains in a Confirmed Uptrend. The S&P 500 and Nasdaq continue to hold above the February 14th follow-through day (FTD) with one distribution day each. A handful of leading ideas have been able to push into higher highs ( PLNT, MB, TAL, OLLI, NOW, PSTG, RHT, GRUB, RNG, etc. ), though most ideas continue to build new bases. Following our discipline, we continue to recommend a slow approach, gradually committing capital to actionable ideas with the Confirmed Uptrend remaining intact.
Symbol: GRUB
Strategy View
Earnings continued to surprise positively, coming in 3.9% better than expectations (versus a 3.3% beat in Q3). Even though the U.S. economy has had a long economic expansion, both revenues and earnings accelerated sequentially in Q4 2017 versus Q3 2017. Revenues rose 8% versus 6% in the previous quarter and earnings rose 15% versus 9% in the previous quarter.
- All sectors showed median sales growth acceleration from Q3, and all but Health Care showed better EPS growth.
- Aided by an improving global macro economy, a weak dollar, and a lower forward 2018 corporate tax rate, 2018 S&P 500 earnings estimates have been revised higher by 5.1% and now call for 17% earnings growth for the year.
- Sectors with the biggest upward revisions were Transports, Financials, and Energy.
- The highlighted theme is the impact of the weakening U.S. dollar, especially against the Euro and other European currencies. Companies with high revenue exposure to Europe continue to outperform the S&P 500.
- Fundamentally, we particularly like the companies that are forecast to have high 2018 EPS growth combined with the potential to lower their 2018 tax rate and/or benefit from the weak U.S. dollar. Of these, currently actionable U.S. Focus List names include: EW, FLT, IDXX, MS, and TEAM. Other names that fit the trends but are not currently actionable include FLIR, GOOGL, ILMN, and PRAH. We would encourage investors to explore these names as they are currently in the sweet spot of these three trends.
US Focus Long
The U.S. market was upgraded to a Confirmed Uptrend on Wednesday. The market staged a Day 4 follow-through and continued higher to close the week. We now view the 50- DMA as short-term support on both the S&P 500 and Nasdaq. Multiple risk-on ideas are again making new highs, while new ideas are emerging from consolidation. We continue to recommend gradually buying high-quality growth ideas with sound technical patterns now that the market is back in a Confirmed Uptrend. Signs of a failing follow-through day include a clustering of distribution shortly following the move, coupled with failed breakouts in individual ideas.
Global Consumer/Internet/ Media Sector
U.S.
Apparel/Shoes Mfg – Outperforming over 26 weeks, the Apparel/Shoes Manufacturing industry group has seen its momentum accelerating over four weeks, supported by strong earnings momentum. The rise of athleisure and consumers’ shift toward ecommerce will continue to drive industry growth.
- Top pick: SKX
- Stock of interest: NKE
U.S. Lodging – Performance of the Leisure-Lodging group has been very impressive in the second half of 2017 on the back of higher RevPAR expectations in 2018 due to an improved macroeconomic environment.
- Stock of interest: MAR
Old Media vs. New Media
- Most Old Media groups are still lagging relatively, except for Media-Radio/TV.
- NXST on our Focus List is still constructive.
- Out of New Media we still pick NFLX, but shares are currently extended from an entry point.
- Still Bearish on Theaters: AMC, IMAX, CNK
Q4 updates on Internet stocks: GRUB, FB, GOOGL
- Keep TWTR and SNAP on radar
In Autos, few manufacturers fit our profile.
- Keep an eye on suppliers: MOD, DAN, BWA, LEA, MTOR, GNTX, DLPH
- We removed REVG from our Focus List.
EMEA
Apparel – Clothing Mfg – our bullish view of European luxury was a bit more mitigated as we entered 2018 due to difficult comparisons and FX likely to become a headwind. We wouldn’t expect further rerating of the sector on multiple expansion but rather on earnings growth (acceleration) of individual stocks on the back of operating leverage.
Leisure-Products – Holding Well in a Weak Market.: European Players with a focus on niche markets continue to be source of great performance for our Focus List.
Leisure Service – Focus on Rental Car Companies: The fragmented European Car Rental market vs. its U.S. peer, display growth characteristics driven by new mobility segments.
- Top Pick: SIX2.DE
Just Eat ( JE.GB ) is actionable after strong GRUB results.
Our three auto suppliers on our list are constructive.
- CIE Automotive ( AFR.ES ) is Actionable on a retest of new highs,
- Stabilus ( STMX.DE ) and Plastic Omnium ( POM.FR ) are in consolidation
APAC
Gaming Industry – Rise of the Mass Segment: We hold a bullish view on Macau’s gaming industry due to the low penetration of gambling among residents in mainland China and increasing flow of tourists thanks to the upcoming infrastructures in the region. The mass market is likely to be the growth driver in 2018.
Apparel – Clothing Mfg – Under Market Pressure: The group has been witnessing heavy selling pressure since October, accentuated by global weakness across equity markets. With deteriorating O’Neil Ratings and Rankings, we removed Li-Ning ( LNIN.HK ), Samsonite ( SAM.HK ), and Taiwan Paiho ( TPA.TW ) from our Focus List on technical weakness.
- Top pick: PI1.IN
Internet
- LOEN’s ( YBM.KR ) is the most profitable digital music streaming company. We continue to like the stock as it consolidates near highs and would aggressively buy on a rise above the 50-DMA.
- Weibo ( WB ) recently reported strong Q4 2017 results. The stock is trading at all-time highs. Look for near-term consolidation to add to positions.
China’s education market has a lot of potential for further growth especially kindergarten and preschool.
- We like Maple Leaf ( MAPZ.HK ) among K-12 private schools.
Autos are under pressure but holding support thus far. This includes:
Market View
Market Overview
The U.S. market was downgraded to Downtrend on Monday. The S&P 500 and Nasdaq broke below their re-spective 50- and 100-DMAs on heavy volume this week. The 200-DMA is now acting as support for both indi-ces. We will move the market into a Rally Attempt should the S&P 500 and Nasdaq hold above Friday’s lows for a minimum of two days. From there, we will be looking for a follow-through day (as early as Wednesday) before moving the market back into a Confirmed Uptrend. We continue to recommend a patient approach, waiting for the follow-through day and for more ideal technical set-ups in individual ideas before buying.
Stocks on our U.S. Focus List: Current Sentiment
Our USFL of 67 ideas (eight removals) lost 5.4% on average this week, underperforming the S&P 500 (-5.2%) and the Nasdaq (-5.1%).
By Sector
All 11 O’Neil sectors are below their respective 50-DMAs, with four trading below their 200-DMAs. Over the last five sessions, all sectors expect Utility are down more than 5%. On a relative basis, Utility, Consumer Staple, and Consumer Cyclical are improving on a short-term relative basis, while Energy and Transportation are weaken-ing.
US Focus Long
The U.S. market was downgraded to Downtrend on Monday. The S&P 500 and Nasdaq broke below their respective 50- and 100-DMAs on heavy volume this week. The 200-DMA is now acting as support for both indices. We will move the market into a Rally Attempt should the S&P 500 and Nasdaq hold above Friday’s lows for a minimum of two days. From there, we will be looking for a follow-through day (as early as Wednesday) before moving the market back into a Confirmed Uptrend. We continue to recommend a patient approach, waiting for the follow-through day and for more ideal technical set-ups in individual ideas before buying.
Market View
Market Overview
The U.S. market has been downgraded to Uptrend Under Pressure. This week, the S&P 500 and Nasdaq broke below their respective 21-DMAs as distribution increased. The majority of leading ideas have pulled back off ex-tended highs and a handful have broken below their respective 50-DMAs. We recommend lightening up in both extended ideas and ideas that have broken below short-term levels of support. Going forward, we will be look-ing for the market to stabilize and bounce from key moving average and/or price support before we recom-mend buying. The next level of support is the rising 50-DMA, which is 2-3% below current levels.
Stocks on our U.S. Focus List: Current Sentiment
Our USFL of 75 ideas (five removals) lost 3.8% on average this week, in-line with the S&P 500 (-3.8%), but un-derperforming the Nasdaq (-3.5%).
By Sector
Over the last five sessions, all sectors have declined at least 2%. Retail, Financial, and Consumer ideas have held up the best, while Energy ideas have come under pressure. Retail outperformance has come largely from AMZN, while Consumer Cyclical has been aided by NFLX. EL, MNST, and BUFF are holding up well within Con-sumer Staple. Within Financial, Banks and Brokers continue to act well. ZION, WAL, SIVB, MS, and SCHW con-tinue to show constructive technical action. Conversely, Energy ideas COG and CDEV broke short-term individu-al support levels.
US Focus Long
The U.S. market has been downgraded to Uptrend Under Pressure. This week, the S&P 500 and Nasdaq broke below their respective 21-DMAs as distribution increased. The majority of leading ideas have pulled back off extended highs and a handful have broken below their respective 50-DMAs. We recommend lightening up in both extended ideas and ideas that have broken below short-term levels of support. Going forward, we will be looking for the market to stabilize and bounce from key moving average and/or price support before we recommend buying. The next level of support is the rising 50-DMA, which is ~3% below current levels.
Grubhub Reiteration
Grubhub Inc. (
) shares are currently actionable, trading within an upward channel. The Company will report Q4 2017 results on February 8. In Q3 2017, it reported record revenue and double-digit growth in daily average orders and gross food sales serving 9.8M diners. A/D Rating B-. RS Rating 95. 1.5x Up/Down volume ratio.
Market View
Market Overview
The U.S. market remains in a Confirmed Uptrend. The S&P 500 and Nasdaq continue to trade at all-time highs with a low number of distribution days. The majority of leading ideas are acting well, with many now extended from ideal pivot points. We maintain our positive view until we see a pickup in distribution that leads to deterio-rating technical action in leading ideas and the major averages alike.
Stocks on our U.S. Focus List: Current Sentiment
Our USFL of 80 ideas (one addition) gained 2.1% on average this week, slightly underperforming the S&P 500 (2.2%) and the Nasdaq (2.3%).
By Sector
Over the last five sessions, Health Care, Retail, and Consumer Cyclical are leading, while Transportation has slowed. Within Health Care, ALGN and VRTX are trading at pivot points, but both report earnings next week. Retail-Internet ideas, BABA and AMZN, are leading the Retail sector higher, while blowout earnings from NFLX resulted in strong gains for the Consumer Cyclical sector. Technology is mixed. OLED, COHR, and AVGO are currently under pressure with all three testing individual support levels, while other ideas including NVDA, NOW, and WB continue to make new highs. GRUB and RHT are two other USFL ideas breaking out from new bases.
