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:

 

  • Market breadth remains improved globally (70% of stocks above 50-DMA) but still challenged in the bigger picture (34% of stocks above 200-DMA).
  • Breakout totals have still yet to pick up to any meaningful degree.
  • Global sector rotation is still squarely in favor of long-term leaders.
    • Technology, Health Care, Retail, and Consumer Staple at a distant fourth, while having paused in short-term upward relative momentum, have not given up any long-term gains.
    • Conversely, Cyclical, Capital Equipment, Transportation, and Financial have not begun to make a broad turn higher in the short term, let alone pick up long-term ground.
    • While set up for what could be a rotation, we’ll wait for a strong signal (shifting of sectors/industry groups and a broadening signal like increasing breakouts).
  • For now, there has been a slight broadening of strong groups (building products, trucks, solar, non-bank Financial, machinery/automation, leisure products) within the lagging sectors, from which we can pick out a handful of leaders.
  • Still, our favored globally actionable stocks remain heavily slanted towards only a handful of sectors/industry groups.
    • Most recent additions to our Focus Lists include Facebook (FB), Switch (SWCH), Neurocrine Biosciences (NBIX), POOL Corp (POOL), Simcorp (SIM.DK; SIM DC), Keyence (KEYE.JP; 6861 JP), Teleperformance (ROFR.FR; TEP FP), Mediatek (MDT.TW; 2454 TT), and BIM (BMI.TR; BIMAS TI).

Neoen

Posted on by Kenley Scott

Key points:

 

  • We recommend buying shares or adding to positions after a strong retake of the 50-DMA last Friday. The stock rose 7% after reporting a solid Q1 2020 revenue update and confirmation of 2022 capacity and EBITDA targets.
  • While shares are still 8% off highs, technical signs are solid. It has a 94 RS Rating, an A- A/D Rating, and a 1.6 Up/Down Volume Ratio.
  • EPS Rank is perfect at 99, while Composite Rating of 98 is also excellent.
  • Neoen has been a solid outperformer versus the local and global Alternative Energy Industry Groups and versus the local CAC 40 Index. This is true both over the trailing year and year-to-date. We think this will continue as investors flock to renewable and ESG investments and due to Neoen’s regional diversity and early entrance into the battery storage market.

Global Sector Commentary

Posted on by Kenley Scott

Key points:

 

  • Given that the entire 2020 selloff happened in just six weeks, the current market actually does not rank that favorably versus prior bulls if we track three months prior to bear market lows going forward.
  • As we can see from the second graph, excluding the selloff portion and starting from lows, the current bull market start (first 39 days) is one of the fastest ever.
  • Just three prior markets went lower over nine months versus the first 39 days. However, one (1931) was a spectacular failure, dropping 50% from this point.
  • The current 27% gain has already reached the median nine-month gain for nine months across all 21 prior examples.
  • The market seems to be in good company, with faster starts resulting in higher gains. Those with 10%+ gains over 39 days were up a median of 34% after nine months. Those with gains of less than 10% were up a median of 24%.

Global Sector Commentary

Posted on by Kenley Scott

Key points:

 

  • Style spreads continue to stretch further. Most notable is large-cap growth versus small-cap value, which reached >+40% this week.
  • We do not know when the reversions from extreme levels will occur, but we will likely need to see several (not just one to two) weeks of outperformance from these areas to be a decent signal.
  • Quality growth ideas are obviously plentiful within large growth, but looking at the lagging styles/regions (large value, small value, small growth, emerging, developed, Europe), there are still subsectors showing decent breadth of quality ideas.
  • Those with the best breadth include:
    • Discount Retail in large value
    • Super Markets in small value
    • Enterprise Sftwr in small growth
    • Semis in Japan/Taiwan
    • Gaming in Asia and EMEA
    • Medical Equipment/Svcs in Europe
    • Payments/Financial Svcs in Europe
    • Food/Retail in LatAm and Asia
    • Biotech/Drugs/Svcs in Hong Kong/China, Korea, and India
    • Alt Energy in Europe and Canada
    • Gold Miners in EMEA and Canada

Global Sector Commentary

Posted on by Kenley Scott

Key points:

 

  • A 30% rally from lows across major indices identifies a new bull market.
  • QQQ (Nasdaq 100) trend remains best situated (less overhead, more areas of support). The 20 largest stocks make up 70% of the index and are a median of 11% off highs.
  • Equal-weight S&P 500 is 22% off highs. The median across all stocks is 33% off highs.
  • Despite a recent reversion rally in small caps, there is much more overhead in these names, and less breadth in favorable individual ideas.
  • Not a high number of new highs/breakouts/stock approaching pivot in general, but favors cloud ideas and data center/gaming-related semis (NOW, TEAM, MSFT, COUP, AMD, NVDA), large-cap drug manufacturers (VRTX, BMY, ABT, DHR), internet/discount/takeout restaurant retailers (COST, DG, DPZ), food/cleaning supplies providers (CLX, FRPT), and stay-at-home beneficiaries (AMZN, NFLX).
  • Outside the spaces with better breadth, we favor more specific areas with less challenges irrespective of the timeline of a broad re-opening of the economy.
    • These include online-related payments providers (PYPL), market data/research providers (TW, MSCI), defense systems providers (MRCY), standout retail (LULU), building products (TREX, WMS), leisure products (POOL), trucking (ODFL), advertising (TTD), packaging (SLGN).

Global Sector Commentary

Posted on by Kenley Scott

Key points:

 

  • With substantial damage still remaining from March’s market collapse, the best-positioned markets (strong gains from March lows and closer to 52-week highs) are the U.S. (specifically the Nasdaq), Denmark, China, and Taiwan.
  • Stocks from these markets on our Focus Lists that are actionable currently are mostly from the Health Care, Technology, and Retail sectors.

Alternative Energy Producers

Posted on by Kenley Scott

Key points from this report:

 

  • Alternative energy producers have broadly resumed their outperformance after falling substantially from highs along with broader markets in March.
    • EMEA producers are up a median of 7% year-to-date, versus a median decline of 20% for all EMEA stocks.
    • Americas producers are down 3%, versus -23% for all stocks.
    • APAC producers are down 11%, versus -18% for all stocks.
  • We favor companies rapidly expanding capacity in wind, solar, and storage. The EMEA has the best breadth of names and also has the most support from local and regional governments.
  • Recent sector catalysts include the newest form of the European Green Deal, recent arguments/outlines from the International Renewable Energy Agency (IRENA), support from various government/industry groups to tie stimulus to renewables, and growing ESG favorability in the investment landscape.
  • The most recent information, from Orsted and NextEra for example, suggests expansion plans have not been affected by the recent shutdowns.
  • We removed two alt names from our Focus Lists in March (Terna Energy and Renova) but have seven remaining.
  • Our top picks are Neoen (NEOP.FR, NEOP.FP), Orsted (DEN.DK; ORSTED DC), NextEra Energy (NEE), and Solaria (SEM.ES; SLR SM). They are all within bases but can be bought on strong retakes of the 10-WMA. All have RS lines at or near all-time highs.

Global Sector Commentary

Posted on by Kenley Scott

Key points:

 

  • This week we’ll attempt to break down segments of the market into four groups: Secular Leaders, Early Cycle Recovery Candidates to Lead, Current Leaders But Likely Temporary, and Lagging Now With Significant Challenges Even During Recovery.
  • These segments are by no means exhaustive and can easily be debated, but we think now is a good time to think about the breakdowns in the U.S. and international markets.
  • An example of each:
    • Secular Leadership (cloud, gaming, drugs, market research)
    • Early Cycle/Cyclical Recovery (Advertising, logistics, staffing, building products)
    • Leading Now, Likely Temporary (cleaning products, wireless telecom)
    • Lagging Now, Less Likely to Recover Strongly (oil&gas, developed banks, autos, dine-in restaurants)
  • See the attached report for stocks in the U.S. and international markets that fit these four categories.

Franco Nevada Corporation

Posted on by Kenley Scott

Key points:

 

  • We recommend buying or adding to positions as shares have recently retaken their 50-DMA and moved back within 5% of all-time highs.
  • The stock’s RS line is in a long-term uptrend and its RS Rating is solid at 95 (96 for U.S.-listed shares). Moreover, its five-year performance versus the general market, its local industry group, and gold prices are stellar.
  • While volume trends are still mixed (A/D Rating of E but Up/Down Volume Ratio of 1.0), we were encouraged by the huge amount of demand post-selloff at the highs of the base from which the stock broke out in June 2019 (~CAD 85/share).
  • Industry Group Rank has risen 51 spots to 10 over the past four weeks.
  • Fundamental ratings are ideal, including a 99 EPS Rank, 99 Composite Rating, and A SMR Rating. FNV has five-year annual sales and EPS growth of 15% and 33%, respectively and 2016–2019 P/T margins of 29–48%, reaching an all-time high in 2019.

Global Sector Commentary

Posted on by Kenley Scott

Key points:

 

  • The last three rally legs more closely resemble those in bull markets than bear markets (see first table in document). Also, gains after the follow-through day are in line with successful cases thus far.
  • Small caps and value stocks hugely outperformed this week, while large growth/secular leaders underperformed. Also, there were very few breakouts and relatively few stocks near pivot.
  • While the small/value move could be indicative of a longer-term style change, it is too early to have confidence in such a shift.
  • In the coming weeks in the U.S. and other developed markets, we would be more encouraged to see either 1) a resumption of outperformance in the ideas flagged as strong leaders during the weeks prior to this week; or 2) new leadership, not just in terms of % from lows, but in terms of base building processes and eventual breakouts from established ranges.