Author: Kenley Scott
Kenley Scott is a senior equity analyst and sector strategist covering the APAC region and the Energy sector. He is a member of the Global Focus List Committee, which approves all equity recommendations for developed, emerging, and frontier markets. Kenley also writes the Global Sector Summary, part of the Sector Strategy service, which identifies emerging sector strength and weakness across 46 countries every week. After working as a commodities broker, Kenley joined the firm in July 2006. He has a B.S. in Statistics from the University of California, Riverside and also holds a Series 65 securities license.
Global Sector Commentary
Key points from this report:
- Eight international markets with breakouts this week.
- Five broke to all-time highs as well: Sweden, New Zealand, India, Taiwan, Turkey.
- Three markets to 52-week or multi-year highs: Japan, South Korea, Hong Kong (Hang Seng Composite not Hang Seng Index).
- The most common Industry Groups driving strength that have solid Group Ranks and Industry Group Rank improvement over four weeks include Apparel, Auto Parts, Banks, Building Products, Chemicals, Commercial Services, Semis/Parts, Alt Energy, Machinery/Metal/Steel, Base Metal Mining, Airlines/Air Freight, Ships.
- Fourteen Focus List stocks from these countries/groups:
U.S. Market Commentary
Attached is a U.S. Market Commentary from Director, Research Analyst Kenley Scott.
Key points:
- Huge outperformance of value and small cap versus large growth over past two days.
- This week, small value (Russell 2000 Value) and large value (Russell 1000 Value) have gained around 12% and 8% alpha, respectively, versus large growth (Russell 1000 Growth) in just two days.
- Small growth (Russell 2000 Growth) has gained about 4% alpha versus large growth this week, but 12% alpha since the beginning of September.
- Still just a small dent into the lead of large growth over the past year. Most notably large growth versus small value.
Global Sector Commentary
Attached is the latest Global Sector Commentary from Director, Research Analyst Kenley Scott.
Key points from this report:
- The U.S. market has had similar timing in 2016/2020 elections: selloff for a couple of weeks into, but rally two days before election and immediately after.
- Another similarity is that Semiconductors have done well both into and after both elections.
- Differences are mainly at the group level.
- 2016: Big leaders out of the election were Financials, small cap, Industrials/Transports, and Energy. Spreads were huge as regional banks gained 26% through end of December but software lost 3%.
- 2020: While early, the first three days is very different than 2016 so far. Big gainers (IPOs, software, international markets) have gained heavily versus laggards (banks, energy, industrials). The most extreme, IPOs versus regional banks, was +15% in just three days.
- Semis were the main subsector strong in both 2016/2020. They also have the highest number of names that are actionable now: AMD, NVDA, LRCX, AVGO, MTSI, POWI, SGY.TW, SEV.CN.
O’Neil Energy/Material/Transport/Utility Weekly
O’Neil Energy/Material/+ Weekly
Global Sector Commentary
Key points from this report:
- Across the ~330 S&P 500 stocks which have reported, the median earnings reaction is -1.1%.
- High revenue growth has not been rewarded.
- High EPS growth, high revenue beats, and high earnings beats have been better.
- Tech/Retail have among worst reactions.
- Even for those that reacted well initially, the clear majority (~80%) fell from there.
PI Industries
Key points from this report:
- We are re-iterating a buy recommendation for shares of PI Industries as the stock recently broke out of a second-stage consolidation. After the breakout on October 21, shares then pulled in to find support at the rising 21-DMA before moving back into the pivot zone following Q2 FY21 earnings announced yesterday.
- It reported better-than-expected Q2 FY21 results yesterday after market close. Revenue of INR 11.6B rose 28% y/y, high-single digits ahead of consensus. EBITDA of INR 2.8B rose 46%, well ahead of consensus, while EBITDA margins reached an all-time high of 24%. Adjusted net income of INR 2.2B was up 77% y/y, around 40% ahead of consensus.
- Excellent fundamental ratings: Composite Rating of 94, SMR Rating of A aided by strong sales growth, P/T margins, and ROE. EPS Rank of 89 is expected to increase, aided by 30% and 31% expected EPS growth in FY21 and FY22.
- Solid technical profile: RS Rating of 79, A/D Rating of B+, Up/Down Volume Ratio of 1.5. RS line has been in an uptrend since late 2018 and reached a new all-time high this week. Institutional fund ownership increased 60% y/y to 273 as of the September quarter.
Global Sector Commentary
Key points from this report:
- It was a slightly down week for the major U.S. indices, but there were wide performance spreads.
- The top 30 Industry Groups were up 5.4% on average, and the bottom 30 were down 3.6% on average.
- The top 30 include many prior laggards and nine Financial and eight Consumer Cyclical groups. And a couple long-term leaders like Internet-Content.
- The bottom 30 include several key long-term leading groups like Enterprise Software, Solar, Payments, Autos, Homebuilders/Building Products.
- This week featured solid outperformance for Asia (AAXJ) and Emerging (EEM) categories, which are now at or testing multi-year highs.
- See the attached note for a few ideas from the prior laggard groups, leaders to watch closely while they are basing/coming off highs, and actionable international names.
O’Neil Energy/Material/Transport/Utility Sector Weekly
Currently, the only sector with favorable short-term (trailing four weeks) and long-term (trailing six months) trends
remains Transportation. Utility has seen its relative improvement continue in the short term, although it still has
significant overhead. Basic Material has not changed much this week, with relative strength still near 52-week lows.
Energy remains clearly the worst global sector, despite a very small bounce from decade lows in relative terms.
