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

Posted on by Kenley Scott

Key points from this report:

 

  • In the leadup to the U.S. elections, October is typically not a strong month, with a negative 1% overall average since 1970 on the S&P.
  • Once we get this close (about two weeks out), however, the market actually has a positive 1% average up until Election Day.
    • There is still typically volatility as you can see from each chart example in the attached report.
  • After Election Day and up until the end of November, the overall average is flat, but there is high variance from one cycle to the next.
  • Interestingly, if you look at markets that were already in an uptrend through mid-October (2012, 1996, 1988, 1984, 1980), the averages flip to negative in the runup but are positive for the rest of November. Sideways markets (2016, 2004, 1992, 1976, 1972) and those in a downtrend through mid-October (2008, 2000) have strong average gains just before the election but turn back to negative thereafter.

O’Neil Energy/Material/Transport/Utility Weekly

Posted on by Kenley Scott

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.

Global Sector Commentary

Posted on by Kenley Scott

Key points from this report:

 

  • Small-cap Russell 2000 (IWM) with strong break above September peak. Next resistance January highs.
    • Small growth (IWO) with a huge breakout to all-time highs, above January/September peaks.
    • Small Value (IWN) with good move back above 40-WMA but significant overhead remains from March breakdown and up through January highs.
  • Unlike S&P 500 and Nasdaq, small-cap not weighted to a few stocks. No stocks make up >1% of either growth/value index.
    • Large sector variation. Growth is 49% Health Care/Tech, versus 21% for value. Growth is 19% Financial/Energy/Material/Utility, versus 44% for value.
  • The 15 most heavily weighted growth names are up a median of 78% year-to-date, versus a median decline of 7% for the 15 most heavily weighted value names.
  • Plenty of small-cap growth names to work from. See attachment for 70 names not overly extended and with strong fundamental/technical strengths. On Focus List: YETI, LGIH, FRPT, CWEN, KNSL, NEO, STMP, BL, SPSC. And includes Friday addition ELF.

Global Sector Commentary

Posted on by Kenley Scott

Key points from this report:

 

  • There are large performance spreads in the first nine months this year.
    • The U.S. (NDQC), Denmark, and China have 20%+ gains; no other country has greater than 6%. Other positives include New Zealand, Taiwan, South Korea, Japan, Finland, and Sweden.
    • The worst off are Hong Kong, the U.K., Spain, the Philippines, Greece, and Mexico.
  • U.S. Major Industry Groups best positioned now include Software, Retail-Specialty, Restaurants, Retail-Major Chains, Retail-Discount, Ag Machinery, Railroad, Mining, Insurance Brokers, Housing, Housing-Related, Health Care Instrument.

O’Neil Energy/Material/Transport/Utility Weekly

Posted on by Kenley Scott

Currently, Transportation is the only sector with favorable short-term and long-term trends (trailing four weeks
and trailing six months). Utility has seen a small bounce in relative terms over the short term but remains a
long-term laggard. Basic Material has given back nearly all of its sharp relative gains from March to July in the
past eight weeks. Energy remains clearly the worst global sector, with a relative strength line hitting another
decade-low recently

Global Sector Commentary

Posted on by Kenley Scott

Key points from this report:

  • There has been huge outperformance for IPOs this year.
  • Technology and Health Care were the biggest contributors, with ~40% median gains post-IPO issue price.
  • Sales growth is a strong contributor to performance. Stocks with 20%+ sales growth estimates this year are up much more at the median.
  • See the full report for a list of the top performers over the last five years.

Global Sector Commentary

Posted on by Kenley Scott

Key points from this report:

 

  • The S&P 500 and Nasdaq are below their 50-DMA and 8% and 11% off highs, respectively, deeper than the June pullback for each.
  • In June, six of 11 O’Neil sectors fell at least 9%. This consolidation, only three sectors are down more than 5%.
  • The equal-weight S&P 500 is outperforming during a pullback for the first time since November 2018. In the time prior to that (early 2016), the relative strength during the end of market weakness led to sustained RSP relative gains through 2016.
  • It’s still too early to know if the rotation will be short lived or not, but the key difference is that market breadth is actually fine right now versus mega-cap weakness for the first time in a long while.

Neste

Posted on by Kenley Scott

Attached is an update on Neste (NEST.FI) from Director, Research Analyst Kenley Scott and William O’Neil India Analyst Palavali Nithin.

 

  • While shares of Neste are at a typical profit-taking area (>+20% from a flat base breakout in mid-July, from €37.20), we recommend holding shares given a very constructive trend along the rising 21-DMA.
  • In looking for a place to buy or add to positions, we would wait for a base to form (five to seven weeks or more) before doing so. Excellent technical ratings including an RS Rating of 93, A/D Rating of B+, and an all-time high number of fund owners.
  • The company announced a restructuring of its Finland-based oil refining segment.
    • It is looking at shutting the smaller of two plants in favor of port/terminal operations.
    • The larger plant will be transformed to co-process renewable and raw materials.
    • Cost savings of €50M annually.
    • Likely to accelerate shift to renewables. Already in Q2, renewable revenues are up to 35% of total revenues from 20% the prior year; oil products down to 41% from 60% the prior year.
    • Already expanding renewable diesel capacity by 40% by 2023. Neste has low leverage and access to $2B in liquidity; cost savings should allow further renewable CapEx.

Global Sector Commentary

Posted on by Kenley Scott

Key points from this report:

 

  • Double-digit pullback for U.S. Tech/Nasdaq, but more shallow drop for other indices/countries.
    • Tech sector is down the most, followed by Retail, but several sectors are down less than 4% through selloff.
    • Strong Industry Group Rank + Group Rank Improvement include Homebuilders, Building Products, Restaurants, Rails, Casinos, Paints, Home Furnishings.
  • Countries holding up very well include Europe (France, Sweden, Switzerland, Finland, Denmark), APAC (India, Taiwan, South Korea), and EMEA (Saudi Arabia, Qatar).
  • See the full report for stocks with strong relative characteristics in both U.S. and international markets.