- CR +8.2%, RMBS +6.8%, SWFT +5.8%, ORAN +5.1%, BHI +4.5%, CLGX+4.3%, RDY +3.7%, KKR +3.6%, BAX +3.2%, KEY +3.1%, VLO +2.9%, UTX+2.7%, ALSN +2.5%, PG +2.3%, UA +2.0%, MRK +1.6%, LMT +1.4%, GM+1.3%
- HMY +3.3%, CLF +3.2%, MUX +3.1%, GFI +2.7%, VALE +2.6%, RIO +2.4%,BHP +1.6%, GOLD +1.3%, ABX +1.3%, GDX +1.0%, AU +1.0%.
- SAEX +50.3% (received approx $24.4 mln of tax credit certificates from the state of Alaska's Department of Revenue; says received sooner than expected),
- GBT +18.3% (agrees w/ the FDA on the design of its pivotal trial for GBT440 in adults and adolescents with sickle cell disease; expected to begin screening patients by December; decides to discontinue its research and development activities related to GBT18713; Chief Medical Officer Dr. Eleanor Ramos retires),
- EYES +16.2% (announces the first successful implantation and activation of a wireless visual cortical stimulator in a human subject),
- PSTI +11.2% (to sell approx. 16.89 mln shares of common stock at $1.77/share to China-based Innovative Medical Management),
- CWEI +8.0% (Clayton Williams announces agreement to sell Giddings area assets for $400 million; names Patrick Cooke as COO),
- CANF +7.4% (announces agreement with Chong Kun Dang Pharma for the exclusive right to distribute CF102 for the treatment of liver cancer in South Korea for up to $3 mln in upfront/milestone payments, plus a % of royalties on net sales in the low twenties),
- WINT +7.4% (releases data from lung deposition study in non-human primates demonstrating uniform distribution of aerosolized KL4 surfactant in all regions of the lung),
- SYT +1.4% (modest relief following yesterday's weakness)
- BMY +1.3% (announces results from CheckMate-205; primary endpoint of objective response rate was 73% overall, which was consistent across patient subgroups)
What just happened? Separating sectors from factors
Since 10-year Bund yields bottomed on July 8, there has been a clear sector rotation in Europe, with Banks up c.24%, Basic Resources up c.17% and Autos up c.16%. Meanwhile, Healthcare, Utilities and Food and Beverages
are down c.7%, 3% and 2% respectively. In this note, we employ GS sectorneutral IP factors to distinguish between the recent rotation in sectors and that seen in factors. Since July 8, we find that sector-neutral Value is up >5% and Growth is up c.4%. Meanwhile, the Volatility and Size factors have underperformed, in each case reversing the performance trend seen in 1H.
A case study in 10-year Bund yields
In a bid to help investors position from here, we study the historical relationship between European factor performance and 10-year Bund yields. We find that when 10-year Bund yields rise (which our economists
believe is likely from here), there is a significant positive impact on the performance of our IP Value and IP Growth factors and a significant negative impact on the IP Returns, IP Volatility and IP Size factors.
Factors to focus on now
Our economists forecast further upside to 10-year yields on US Treasuries and German Bunds from here. On that basis, our 10-year case study suggests that stocks with High Growth, High Volatility and Low Returns (relative to
sector peers) should outperform. Conversely, stocks with Low Growth, Low Volatility and High Returns look vulnerable. In this context we also note that Low Growth and Low Vol factor ‘tails’ currently trade at stretched valuations.
Identifying ‘Rotation Catch-Up Candidates’
We present a list of 23 ‘Rotation Catch-Up Candidates’, including Buy rated Accor, Colonial, Fresenius Medical Care, Ingenico, Mediaset and Shire. These stocks all screen as having higher growth, higher volatility and lower returns than sector peers. Yet, despite exposure to these recently strong ‘factor tails’, they have not outperformed since the start of the bond sell-off in early July. We also present a list of stocks that appear particularly vulnerable on a sector-relative basis given their low growth, low volatility and high returns, exposures which have historically been negatively correlated with 10yr Bund yields. These include Sell-rated Endesa, Austrian Post, Atlas Copco, bpost and Sandvik.
- This leaves bolt-on acquisitions as only option for industry leaders Applied Materials, Lam Research and Tokyo Electron
- ASM international has its appeal as market share and technology leader in atomic layer deposition (ALD) equipment
- Adds that especially as all three deposition leaders have expressed their ambition to grow their ALD businesses
- ASM International’s shareholder structure, antitrust issues, Applied Materials’ right of first refusal, its stake in ASM Pacific Technology, and its foundation may complicate matters
- Buy rating confirmed, PT EU43.50