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 deteriorating technical action in leading ideas and the major averages alike.
Symbol: GRUB
US Focus Long
The U.S. market remains in a Confirmed Uptrend. The S&P 500 and Nasdaq did pick up a distribution day on Tuesday, however, the count still remains low at two and three days, respectively. Leadership also remains healthy with new breakouts across multiple sectors each week. We continue to recommend buying ideas as they begin to form the right side of their respective bases or as they emerge from consolidation.
US Focus Long
The U.S. market remains in a Confirmed Uptrend. The S&P 500 and Nasdaq continue to make new highs with a low number of distribution days. Leadership remains healthy with new breakouts across multiple sectors each week. We continue to recommend buying ideas as they begin to form the right side of their respective bases or as they emerge from consolidation. We would avoid chasing ideas that become too far extended as the major averages are now testing longer term upper channel lines and trading ~5% above their respective 50-DMAs.
Strategy View
Q4 2017 Earnings Preview
Similar sales and EPS growth expected in Q4 versus Q3 for the S&P 500 and most sectors. But, consistent upside EPS surprises over six years are likely to continue. Assuming normal beats (+3%), about 11-12% EPS growth expected, versus 9% in Q3.
Energy, Materials, Tech, and Retail have best sales/EPS growth estimates.
Jan/Q1 Market Seasonality
Typical January pause or weakness following strong prior year has been absent thus far. Tax reform is likely offsetting this historical pattern, p.6
Overall, Q1 is usually good following a strong prior year, but investors should note that the first quarter of the second year of a presidential cycle normally has muted returns.
2018 Outlook, YTD Performance/Current Trend
From 2010–2018, Energy and Materials have drastically underperformed versus their own longer-term averages and versus all other sectors. We think this has a good chance to change in 2018, especially given the positive earnings outlook for the two sectors and recent relative price improvement.
Our picks from the two sectors are FANG, CDEV, JAG, COG, NBLX, NEP, EXP, USCR.
All major indices are at 52-week and/or all-time highs. The Nasdaq has resumed outperformance. On a style basis, large growth has also resumed outperformance.
There has been a sharp increase in the number of actionable names on our U.S. Focus List in the first two weeks of 2018. Buyable names include ATVI, PYPL, NFLX, CDEV, RNG, VRTX, ZION, WAL, BABA.
U.S. Focus List Earnings
Financials will kick off earnings season next week (MS, SCHW, GPN). The heaviest earnings weeks are the second and third weeks in February.
Especially favorable companies on our list are those that expect sales/EPS growth acceleration. These include NFLX, EXP, SIVB, ILMN, AMZN, TYL, GRUB, NBLX, AMAT, PRAH, COG, RP, USCR, AVGO, RHT, JAG.
US Focus Long
The U.S. market remains in a Confirmed Uptrend. The S&P 500 and Nasdaq continue to make new highs with a low number of distribution days. Multiple sectors are participating in the rally, with the sharpest gains this week coming from Basic Material, Energy, and Technology. Leadership remains healthy with numerous breakouts each session. We maintain our positive view until we see a pickup in distribution that leads to deteriorating technical action in leading ideas and the major averages alike.
US Focus Long
The U.S. market remains in a Confirmed Uptrend to close out 2017. The S&P 500 and Nasdaq closed the year near all-time highs with little to no distribution. Eight of 11 O’Neil sectors closed the year less than 1% off all-time highs, not including Energy, which rallied nearly 5% over the last four weeks. Though most Technology ideas remain in consolidation, multiple leadership ideas across other sectors continue to act well heading into the New Year. The U.S. Focus List stands at 74 ideas, just off three-and-a-half year highs. We maintain our positive view until we see a pickup in distribution that leads to deteriorating technical action in leading ideas and the major averages alike.
US Focus Long
The U.S. market remains in a Confirmed Uptrend. Several distribution days have expired as rotation into new leadership continues. Energy and Basic Material broke into two-month highs this week, while seven other sectors remain at or near new highs. We maintain our positive view until we see further technical deterioration in leading ideas and the major averages alike. The S&P 500 and Nasdaq are still trading ~3% above their respective 50- DMAs.
US Focus Long
The U.S. market remains in a Confirmed Uptrend. The S&P 500 and Nasdaq moved back into all-time highs this week as distribution fell. There are now three distribution days on the S&P 500 and four on the Nasdaq. All three distribution days on the S&P 500 expire next week, while the Nasdaq loses one. The market continues to be led higher by value-oriented sectors, though Technology did retrace the majority of its pullback this week. We remain patient on new buys as quality leadership continues to consolidate. Most will enter their fourth week of consolidation next week.
US Focus Long
The U.S. market remains in a Confirmed Uptrend. The Nasdaq held its 50-DMA this week, while the S&P 500 remained at all-time highs. Distribution stands at five days on the S&P 500 and four on the Nasdaq with expiration beginning next week. Multiple sectors, including Financial, Retail, and Transportation, continue to act well, all trading at all-time highs. Technology did find support over the last three sessions, but the majority of ideas are still forming new bases. We continue to recommend a patient approach to Technology until we see more ideal entry points in individual ideas.
Global Consumer/Internet/ Media Sector
U.S. Consumer/Internet/Media Sector
Casinos: Shrug Off Hurricanes, Consolidation in the Sector to
Come
Over the past 13 weeks, the five major U.S. casinos that primarily operate outside of downtown Las Vegas have gained 35.7% on average. Currently, these five stocks have an average RS of 95 and an A/D Rating of B+ or higher. This performance has been driven by a strong earnings season and an accelerationin market consolidation.
• The majority of U.S. Casino operators have beat consensus expectations for margin growth in Q3 2017, and three out of five have improved on EBIT margins this year.
The market consolidation is likely to persist. On November 30, PENN confirmed that it was in talks to acquire Pinnacle Entertainment (PNK). The combined entity would bring together PENN’s 27 casinos with PNK’s 16. At this point, almost all the regional casinos are looking to acquire additional properties as confirmed recently by Boyd and RRR. Both companies are looking to acquire more properties and prioritizing “larger assets that make a difference.” Stock of interest:
• Boyd Gaming Boyd Gaming reported a 112bps y/y improvement in EBITDA margins last quarter, mainly driven by the Las Vegas Locals segment (35% of Q3 2017 revenues), where margins improved 277bps y/y. The topline growth in the Las Vegas Locals segment was driven by strong same-store sales. Within the segment, management attributed margin improvements to healthy economic conditions, operational efficiencies, and refinements in marketing expenditure. Boyd also acquired additional properties in the Las Vegas Locals segment in the second half of 2016. The strong performance of these segments offset the negative impact of hurricanes in the South and Midwest segments. Management reiterated its FY 2018 guidance for EBITDA of $585M–605M (+28–30% y/y), with further margin improvements coming from rationalizing the promotional expenditure. Shares have been trading constructively along their 10-WMA, but are too extended from a proper entry point.
