Global Focus Emerging
Symbol: MAM.IN
Market View
The U.S. market remains in a Confirmed Uptrend. The S&P 500 and Nasdaq rallied strongly for a second straight week, clearing above 4,100 and 200-DMA resistance, respectively. Near-term support is now the sharply rising 10-DMA (S&P 500: 4,076; Nasdaq: 11,645). The distribution day count stands at four and two, respectively, with two days expiring on the S&P 500 and one on the Nasdaq next week.
Global Focus Emerging
Global Focus Emerging
February 2, 2023 – Weekly Best Ideas (AXON, FOXF, VC)
Join our analysts for our Weekly Best Ideas webinar, where they discuss the current outlook for global markets from an O’Neil perspective and delve into the best actionable stock ideas of the week.
Won Global View
The U.S. market remains in a Confirmed Uptrend. The S&P 500 and Nasdaq are consolidating last week’s sharp gains, holding 10-
DMA (S&P 500: 4,019; Nasdaq: 11,335) support yesterday. The next level of resistance on the S&P 500 is 4,100 to 4,119, while the
Nasdaq’s next level is its September high of 12,270. The distribution day count remains at four and two, respectively, with two days
expiring on the S&P 500 and one on the Nasdaq next week.
APAC Weekly Summary
Key points from this week’s report:
Please refer to the attached PDF for the full report.
• The MSCI Asia ex. Japan index (AAXJ) pulled back to its 21-DMA and remains constructive. Thus far, most indices continue to
trade above logical support and remain constructive. India is the only weak outlier. We recommend a gradual and selective
approach to increasing risk. Focus on quality ideas with high relative strength as they break out of sound bases.
• Eight of 13 markets, including Hong Kong, Japan, Australia, China and Taiwan, are in a Confirmed Uptrend. New Zealand is in
an Uptrend Under Pressure. Four markets, including South Korea and India, are in a Rally Attempt.
• In India, the average number of breakouts is at a 52-week low. We want to see a spike in breakouts to turn constructive. Refer
to page 10 for list of stocks holding up well in India.
• The government of India announced a $550B union budget today for FY24 (ending March 2024), which is growth of 8% from the
revised budget estimates for FY23. The Capital Equipment, Financial, Consumer Cyclical and Consumer Staple sectors are the
key beneficiaries of the budget. Refer to pages 4-6 for highlights for different sectors.
• Highlighted Focus List Idea: Mahindra & Mahindra (MAM.IN; MM IN).
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.: 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
ighlighted Charts
U.S.: Wabco
oldings (
),
yatt
otels (
), Penske Automotive (
), Lithia Motors (
), Cypress Semiconductor (
), United Parcel Service (
)
Developed: Solvay SA (SOL.BE; SOLB BB), Sandvik (SAND.SE; SAND SS), Cyberagent (
BA.JP; 4751:JP), Greencore Group (GNC.GB; GNC LN), Finecobank Spa (FCBK.IT; FBK:IM), Canadian Tire (CTC/A.CA; CTC CN), Morrison(
)spmkts. (MRW.GB; MRW LN), Fujifilm
oldings (FP@N.JP; 4901 JP)
Emerging: Nan Ya Plastics (NYP.TW; 1303 TT), Cathay Financial
oldings (CFC.TW; 2882:TT)
Stocks worth focusing on in this week’s Global Laggards:
U.S.
yatt
otels (
) — Consumer Cyclical; $7.5B market cap — manages owned and franchised
yatt Branded properties across the world.
Revenues have been declining for the last three quarters and are expected to continue to do so in the upcoming quarter.
Institutional fund ownership has been steadily declining the past year.
The Company operates in the upscale segment. Amidst slowing occupancy growth, in line with our call in August, the Company is far more exposed to a downturn than its peers. Also, its business model is overly dependent on owned and leased properties, with more than 70% of revenues coming from the such properties, giving
yatt little flexibility.
The Company has one of the lowest adjusted EBITDA margins in the industry, which adds to its lack of resilience in a downturn.
The stock’s A/D and RS Ratings have been steadily declining and are currently at E and 38, respectively, indicating increased selling pressure.
APAC Weekly Summary
The majority of APAC market conditions are tilted bullish, but 60% are trading below the 40-WMA. This gives us reason to remain a bit cautious as many are testing shorter-term (10-WMA) resistance levels. In our view, it would not be surprising to see markets pause and for volatility to pick up again. What is important is how indices handle resistance in the near term. An example is Mainland China, which we are watching closely.
In this week’s note, we explain what we are looking for in China’s market to remain constructive. We also review India. The SENSEX is at 52-week highs but is driven by only a handful of stocks. Since large-cap ideas are currently working in India, we have provide names on and off our Focus List that are screening well from an O’Neil perspective. Lastly, we highlight recent Focus List addition Yes Bank ( YEB.IN; YES: IN ).
