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:

 

  • Huge five-year spread for Global Technology versus Global Health Care and Global Industrials (EXI).
  • Some easing of the outperformance for Tech in the short term, and Health Care and Industrials are gaining some relative strength. Health Care is breaking into all-time highs this week.

Global Sector Commentary

Posted on by Kenley Scott

Key points from this report:

 

  • We looked at six factors: Market Cap, O’Neil EPS Rank, O’Neil EPS Stability, Last Quarter Sales Growth, Last Quarter EPS Growth, and Annualized Dividend Yield.
  • Two factors that show dominance in performance over both short- and long-term time periods: stocks with the highest sales growth and stocks that pay little or no dividend.
  • Otherwise, other factors like higher market cap, better EPS Rank, and higher EPS growth are better over long-term periods. Interestingly though, stocks with negative earnings are not as bad as those with negative growth. Also, EPS stability seems to have the least separation of any factor over the long-term time periods.

Xinyi Energy Holdings

Posted on by Kenley Scott

Key points from this report:

 

  • We are reiterating a buy recommendation on shares of Xinyi Energy Holdings. The stock broke out of a 16-week consolidation last week on above average volume and remains actionable in its pivot range of HKD 2.47–2.59.
  • Top fundamental ratings: Composite Rating of 91, SMR Rating of B, and EPS Rank of 94.
  • Technical ratings are strong with an RS Rating of 82, Up/Down Volume ratio of 1.4, and an A/D Rating of B.
  • It has a highly stable three-year sales and EPS CAGR of 13% and 6%, respectively.

Global Sector Commentary

Posted on by Kenley Scott

Key points from this report:

 

  • The first half of 2020 concluded with a huge Q2 for all indices/sectors. Indices gained 18-31%. Still, only NDQC closed the first half positive, holding a 16/22% lead on S&P 500/DJIA year-to-date.
  • Sector-wise, all gained in Q2, but only Technology, Retail, and Health Care were positive for the first half.
    • While the spreads were much wider than usual (Technology was +49% versus Energy), the sector ranking was actually very similar to past first halves of an election year — Technology, Retail, and Health Care are three of top four historically.
  • Looking forward, Q3 in an election year is up a bit on average (better than non-election years), but the NDQC has tended to lag. Q4 (usually the best quarter) is weaker in an election year, with NDQC having negative average performance.
  • The second half of an election year shows 3% average gains for the S&P and DJIA but just 1.6% for the NDQC.

Global Sector Commentary

Posted on by Kenley Scott

Key points from this report:

 

  • Several indicators in the U.S. seem to counter each other.
    • VIX is high, but ‘high-risk areas’ (small/micro and IPO) are working well. Last time the VIX stayed elevated but the market was fine was mid-1997 to 2000.
    • Defensives (Utility, Staple) are weak, even on down days/weeks.
    • Bullishness (0BULL) high but breadth (0NY30) is weak.
    • Extended leaders keep running but new breakouts are lackluster. The median extended stock is up 75% in Q2 alone, while the number of breakouts since the February top has only averaged 45/week, versus the long-term average of 104.
  • On the international side:
    • Developed, emerging, Asia, and Europe (EFA/EEM/IPAC/AAXJ/IEV) are all outperforming the U.S. (S&P 500) since late May. This time, their relative performance remains strong, even during the pullback. Meanwhile, other ‘rotating areas’ like U.S. cyclicals/industrials/financials/value have significantly weakened again.
    • Breakout totals are better internationally. Developed is averaging 65% of its long-term number per week (versus 43% in the U.S.), emerging is at 73%, and China is at 139%.
    • Breadth across countries/sectors is pretty solid. We added 21 developed stocks in June from 10 countries and nine sectors. We only added five emerging, but mainly because recent breakouts skewed toward small caps.

Global Sector Commentary

Posted on by Kenley Scott

Key points from this report:

 

  • Yet another push for an infrastructure bill in the U.S. after Congress, during the last three presidencies, has failed to push game-changing legislation through.
  • Beneficiaries would come in cement, heavy equipment, construction, rails, and other areas (ex-Utility).
  • A way to play the potential is through an ETF called Global X U.S. Infrastructure Development (PAVE).
  • We would rather look for ideas with growth and which is set up well technically.
    • A handful include James Hardie (JHX), United Rentals (URI), Advanced Drainage Systems (WMS), Arcosa (ACA), KBR (KBR), Sika (SIKA.CH), Ashtead Group (AHT.GB), Generac (GNRC), Rockwell Automation (ROK), Nordson (NDSN), Union Pacific (UNP), Fastenal (FAST), and Arconic (ARNC).

Global Sector Commentary

Posted on by Kenley Scott

Key points from this report:

 

  • Pullback to near support for many markets. U.S. pullback coincided with a peak in bullish sentiment, a spike in the VIX, and a peak in breadth of stocks above 30-WMA.
  • International investors should be encouraged given the relative outperformance of the all-world ex-U.S. (ACWX).
    • Outperforming markets include Denmark, Sweden, Japan, China, Taiwan, South Korea, the Philippines, Malaysia, Turkey.

Enn Energy

Posted on by Kenley Scott

Key points from this report:

 

  • We recommend adding to positions after the stock broke out of an 18-week consolidation this week on above average volume on Tuesday. It received solid support at May 2018 lows during the March selloff and has seen strong accumulation since. Actionable between HKD 95.06–99.81.
  • Top-notch fundamental ratings: Composite Rating of 95, SMR Rating of A, and EPS Rank of 93.
  • Technically strong with an RS Rating of 90, Up/Down Volume ratio of 1.6, and an A/D Rating of B-.
  • Three-year sales and EPS growth have both accelerated from five-year growth to 29% and 34%, respectively.
  • Institutional interest in the stock has risen continuously since mid-2016 to 780 funds by the end of 2019, up 123 funds y/y. 

Global Sector Commentary

Posted on by Kenley Scott

Key points from this report:

 

  • In an extremely strong week for prior lagging groups (small, value, industrial, international, etc), the long-term spread versus leadership style (U.S. large growth) has finally narrowed significantly.
    • U.S. large growth versus small value reached a peak of +45% the week ended May 15 and has since bounced by more than 10%.
    • International (all-world ex-U.S.) has also bounced by around 8% relative to the leading QQQ (Nasdaq 100) Index.
  • This is a sign of breadth developing and an opportunity to focus on those emerging outperformers within each group. Please see the attached report for recent breakouts across non-U.S. large-cap growth spaces.

Global Sector Commentary

Posted on by Kenley Scott

Key points from this report:

 

  • Global sectors (led by large U.S.-weighting) still not in full rotation mode.
  • A few countries where the long-term lagging sectors Consumer Cyclical, Capital Equipment, Transportation, and Financial are further along in rotation as a group include the U.K., France, Sweden, Japan, India, and South Korea.
  • Of those six, France, Sweden, and Japan have a particularly heavy reliance on the four sectors (really three as Transportation is not meaningful). The three make up 50% of total capitalization in those three markets (compared with 37% in the U.S.).
  • Sweden and Japan’s markets are strong performers, both recently retaking their 200-DMA. This is in part led by widening breadth in those sectors, which are now well positioned. France has lagged until this week, when it posted a 6%+ weekly gain.
  • Markets could withstand a pause (most are at some form of resistance) but will be leading indicators in a potential further cyclical recovery.
  • We have nine Focus List names from these countries and sectors. They include May additions Worldline (WLN.FR), Teleperformance (ROFR.FR), Nihon M&A Center (NMAC.JP), Keyence (KEYE.JP), Sweco (SWEB.SE), and Nibe Industrier (NIBE.SE). We also list a couple dozen more names with strong setups and fundamentals.