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 Strategy

Posted on by Kenley Scott

Key Points:

  • In the US equal-weighted S&P 500 continues outperformance…testing 200-DMA.
  • Ex-US ETF (VXUS) outperforming sharply vs S&P 500 in short-term, although still well below 200-DMA and with long-term RS line in clear downtrend.
    • Last sustainable RS uptrend vs U.S. was 2002-2007. Has only been 1-3Q relative rallies since then.
  • Global rally intact with all but 9 of 49 global markets we track in Uptrend.
  • Relief from US dollar pressure which had been a drag of around 14% on average YTD against global currencies.
    • Leading USD denominated ETFs include Germany (EWG), Italy (EWI), France (EWP), Korea (EWY), Mexico (EWW), and South Africa (EZA).
    • Also watching Japan (EWJ, biggest currency benefit if $ falls) and India (INDA, long-term leading domestic market at 1% off highs), although both lagging short-term.
  • U.S. themes working well include Infrastructure (PAVE) which has been ongoing for 2 years+; and Solar, which is resuming long-term relative strength.
    • See attachment for ideas.
  • Global themes well represented by current leading markets include Industrials very broadly, EU Luxury, Japan/India Tech Service/Outsourcing, Japan/Korea Semis/Parts…among others.

O’Neil Energy/Material Weekly

Posted on by Kenley Scott

Centamin (CEY.GB) – $1.4B market cap – Technicals: The stock was under heavy selling pressure from late 2020 due to stability issues at its
flagship mine. It broke out of a stage-one flat base on strong volume and is trading 6% above the pivot. Fundamental profile: EPS Rank 90, Composite
Rating of 96, and SMR Rating of C. The company is debt free and offers a solid 4% dividend yield. Excellent technical profile with RS line near high
and an RS Rating of 90. High Up/Down Volume ratio of 1.7 and the best possible A/D Rating of A+ denote accumulation. Company Description:
Centamin is a mid-tier gold producer and operates the Sukari mine, the only commercial-scale gold mine in Egypt

O’Neil Energy/Material Weekly

Posted on by Kenley Scott

Array Technologies (ARRY; ARRY:US; +13.5%) – $2.9B market cap – Technicals: The stock retook its 50-DMA on above average volume this
current week after reporting a strong beat on EPS in its Q3 results. Next resistance is at $24 (+25%). It has a strong RS Rating of 98. A/D Rating has
improved to B from C- in the last week. It has EPS Rank 75 and Composite Rating of 93. Company description: Array Technologies designs and
manufactures ground-mounting systems used in solar energy projects. It offers solar tracking equipments to engineering, procurement, and
construction firms. It garners 97% of revenue from the U.S. Fundamentals: The company reported a strong Q3 FY22 print on Tuesday with EPS
beating estimates by 111%

Global Sector Strategy

Posted on by Kenley Scott

Key Points:

  • Key theme of 2022 has been outperformance for those stocks growing sales/EPS and expanding margins.
  • In Q3 (~85% complete), ~21% of stocks reported positive sales/EPS growth and after-tax margin expansion. This is well below the 40% total in Q1.
    • These stocks are down 3% on average this year, versus -16% for all stocks.
  • For the full-year 2022, ~23% of stocks expect positive sales/EPS growth and margin expansion. This is down from 32% in Q1.
    • These stocks are flat on average, YTD.
  • In terms of sales/EPS acceleration + margin expansion, just 6% of stocks met the criteria in Q3, down from 9% in Q1.
    • These stocks are up 5% YTD.
  • For the full year, only 3% expect sales/EPS growth acceleration + margin expansion.
    • These stocks are up 14% YTD.

O’Neil Energy/Material Weekly

Posted on by Kenley Scott

Shell (RDSA.NL; SHELL:NA; -0.12%) – $197B market cap – Technicals: The stock broke out of a stage-two 20-week cup-with-handle base and is
actionable. RS line rose to its 52-week high with an RS Rating of 93. Technical profile has witnessed a sharp improvement in the last three weeks –
A/D Rating improved to C- from E while Up/Down Volume ratio is at 1.2. It has a strong fundamental profile – EPS Rank 71, SMR Rating of B, and
Composite Rating of 99.

Global Sector Strategy

Posted on by Kenley Scott

Key Points:

  • Shift in leading indices, as Dow (DIA), Equal-weight S&P 500 (RSP), and Russell 2000 (IWM) indices sharply outperforming prior leader Nasdaq 100 (QQQ).
    • From 2008-2021, QQQs up 1,247% vs. 315%, 485%, and 350% for DIA, RSP, and IWM indices.
  • Since 1985, QQQs have led DIA and IWM in roughly two-thirds of all years.
  • Since 2009, QQQ have led DIA 10-13 and IWM 9 of 13 years. 2022 on pace for biggest underperformance since 2002.

Global Sector Strategy

Posted on by Kenley Scott

Key Points:

  • The seasonally strong Q4 period is off to an even better start in 2022. The S&P 500 and Dow Industrial Average have already outpaced their average Q4 gain, compared with all years as well as the second years of presidencies.
    • The Nasdaq has been the laggard index for some time, but is still easily on pace to beat its averages.

O’Neil Energy/Material Weekly

Posted on by Kenley Scott

Schlumberger (SLB; SLB:US; +4.8%) – $64.3B market cap – Technicals: The stock broke out of a stage-one 19-week cup-with-handle base and is actionable. RS line rose to its 52-week high with an RS Rating of 96. Technical profile has seen sharp improvement in the last three weeks – A/D Rating improved to A- from D+ and Up/Down Volume ratio to 1.3 from 0.9 three weeks ago. This is also supported by a strong fundamental profile – EPS Rank 79, SMR Rating of B, and Composite Rating of 98.

Global Sector Strategy

Posted on by Kenley Scott

Key Points:

  • Small growth (IWO) is best perf. style since mid-May, with only slight losses vs. -8-10% for other major indices. Megacap growth (QQQ) is worst at -11%.
  • Makeup of indices plays big role. IWO is 70% weighted to Material, Cap Equipment, Cyclical, Energy, Health Care, and Financial, vs. 48% for SPY and just 16% for QQQ.
  • But, IWO also has better metrics even for the worst performing sectors like Tech (see below).

O’Neil Energy/Material Weekly

Posted on by Kenley Scott

Marathon Petroleum (MPC, MPC:US) – $53.6B market cap – Technicals: The stock has broken out of a stage-two 16-week cup-with-handle base
and is actionable with immediate support along its rising 50-DMA (-8%). RS line is rising and is at a 52-week high with an RS Rating of 98. Up/Down
Volume ratio has improved to 1 from 0.8 three weeks ago. Company description: Marathon is engaged in refining, marketing, and transporting
petroleum products in the Midwest of the U.S. It owns and operates 94 terminals with a tank storage capacity of 37.5M barrels. 80% of the company’s
revenue is contributed by the mid-stream business and 20% by refining and marketing. Fundamentals: The company has seen a strong rebound in
throughput and refining & marketing margin in 2022. It reached a crude capacity utilization of ~100% in Q2 FY22 (94% in Q2 FY21) with a throughput of 3.1Mbpd (+7% y/y). R&M margin has grown ~3x y/y to $37.54 in Q2 FY22. Martinez renewable project: The company also recently announced closing its 50:50 JV with Neste for the Martinez renewables project. The first phase of the Martinez renewables project facility is currently targeted to be mechanically complete by the end of 2022. Initial production capacity is expected to be 260M gallons per year of renewable fuels. Pretreatment capabilities are expected to come online in the second half of 2023 and the facility is expected to produce 730M gallons per year by the end of 2023. The annual production output will be shared evenly between the JV partners, and each partner will be able to market its share of the products. This is expected to strengthen the company’s footprint in renewable fuels. Looking Forward: While high oil prices could lead to demand destruction, the rising crack spreads could offset this. The high oil and natural gas prices in Europe could result in cutbacks in regional refinery runs, resulting in tight product inventories. ?MPC has market exposure in California and also benefits from its large, high-efficiency USGC refineries at Garyville and Galveston Bay, which can take advantage of related export arbitrage opportunities.