Pidilite Industries (PID.IN) – $18B market cap – Technicals: The stock is trading in the actionable range after breaking out of a stage-one flat
base. Solid fundamental profile: EPS Rank 87, Composite Rating of 85, SMR Rating of B, and double-digit EPS growth estimates for FY24 and
FY25. Improving technical profile: RS line has emerged out of a 14-month downtrend. RS Rating improved to 47 from 16 over the past month.
Up/Down Volume ratio of 1.2 and A/D Rating of A- denote good money flows. Company description: Pidilite leads India’s adhesives and
sealants market.
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
Key points:
- Global index (VT) rallied 17% over 19 weeks from March to July 2023 before pulling back 12% from July to October 2023. It has most recently enjoyed another 19-week rally, this one larger in proportion, +24% to recent highs.
- U.S. and Technology leadership has wavered just slightly. Leading Nasdaq 100 is actually down over the trailing five weeks. In that period, ACWX, IWM, EEM, and EFA have all picked up a bit of relative ground (versus the S&P 500).
- As the U.S./Tech dominance has unfolded, it has created a rare imbalance, as seen in the O’Neil Sector Rotation graph. On a global basis, Tech and Retail are outperforming, Financials are midrange, and all other sectors are underperforming over the long term (defined as trailing six months in this graphic).
O’Neil Energy/Material Weekly
Copper prices broke clearly above the $4.00 level and to 11-month highs this week on talks of potential output cuts from major Chinese smelting
operations. Prices had already broken above a downtrend from 2022 and 2023 peaks, and were hovering around the 200-DMA before surging
higher this week.
Global Sector Strategy
Key Points:
- It may come as a surprise, but the current bull market is actually off to a slow start relative to history, even for the leading Nasdaq Composite. After 17 months-in, the median % gain for the DJIA is 40% vs 32% currently, and 72% for the Nasdaq vs 51% currently (using daily closing low price). The start lines up most closely to the 2002 bull market.
O’Neil Energy/Material Weekly
Spot gold prices finally cleared the $2,100/oz hurdle in clear fashion this week. The very long-term quarterly chart below shows that while it took
quite a while to break through highs, the consolidation of the past three years was actually extremely constructive. After doubling from December
2015 lows to August 2020 highs (+50% gain after breaking out of range in June 2019), it stayed within a ~20% range for three years before this
week’s breakout.
Global Sector Strategy
Key Points:
- Median Q4 2023 S&P 500 sales/EPS growth of 4% and 7%. Sales/EPS beats of 1% and 4% in-line with history. +3% median reaction since day of earnings.
- Cyclical, Tech, Cap, Util best EPS growth. Cyclical, Financial best beats.
- Materials, Cap, Retail best reactions.
- In terms of 2024 EPS revisions, slightly more (53%) positive, but overall median 0% revision.
- Cyclical, Staple, Retail, Utility most positives. Transport, Health Care most negatives.
- Cyclical best magnitude of positive revisions. Energy worst of negatives.
- Filtering through the Q in two ways:
1) Those with exceptional current growth and strong reactions to results versus those with weak growth and weak reactions.
-
- >10% Q4 sales/EPS growth, beats on both, positive reactions=38 stocks. Most extended. Still near pivots incl. GRMN, CME, SNPS, FTNT, QRVO.
- <0% Q4 sales/EPS growth, misses on both, negative reactions=14 stocks. Incl AFL, ZION, BIIB, D.
2) Those with significantly positive or negative 2024 EPS estimates revisions and outsized reactions to earnings (not incl in #1).
-
- >5% 2024 EPS revision and >5% positive reaction. Still near pivots incl. NUE, STLD, GM, DIS, QCOM, AAL.
- <5% 2024 EPS revision and negative reaction. Below but within 7% of 50-DMA incl. RHI, GNRC, SWK, APA, PYPL, PAYC, INTC, UPS.
O’Neil Energy/Material Weekly
JSW Infrastructure Limited (JS5.IN) – $6B market cap – Technicals: The stock broke out of a stage-one 10-week cup base on above average volume and is actionable in the pivot range of INR 247–260. Good fundamental profile: EPS Rank 69, Composite Rating of 85, and SMR Rating of B. EPS Rank is expected to improve going forward due to solid forward earnings growth estimates for FY23 and FY24. Technical profile: RS line is recovering from its February 2024 lows, with a moderate RS Rating of 62. Up/Down Volume ratio of 1.5 and a strong A/D Rating of A- denote strong accumulation.
O’Neil Energy/Material Weekly
Range Resources (RRC) – $8B market cap – Technical: The stock reclaimed its 100- and 200-DMA on high volume. Aggressive entry can be
considered as it has cleared resistance near the middle of the base at $31.6. An ideal entry point is on a break above the pivot of the consolidation base ($37.9, +13). Fundamental profile: EPS Rank is weak at 8 due to lower price realizations in FY23. SMR Rating is solid at B, with strong growth estimates for FY25. Improving technical profile: RS line has sharply improved in the past two weeks, with RS Rating improving to 65 from 24 in the same period. A positive turn in A/D Rating and a solid Up/Down Volume ratio of 1.2 denote the return of buying interest. Company Description: Range Resources is among the top 10 producers of natural gas and natural gas liquids (NGLs) in the U.S. The company’s operations are focused on stacked-pay projects in the Appalachian basin, particularly in the Marcellus Shale in Pennsylvania. Recent Natural Gas Market Update: Natural gas prices appear to be bottoming out after declining to a three-and-a-half-year low on concerns about warmer-than-expected weather and increasing production. Prices surged more than 10% yesterday after producers like Antero Resources (AR) and Chesapeake Energy (CHK) announced scaling back on their FY24 production. Fundamentals: RRC has a huge reserve base, translating to more than 22 years of production life at the FY22 run rate. Undeveloped reserves make up ~40% of the total reserves. It has ~520K net acres in the Marcellus region, providing 30+ years of drilling inventory. The company possesses peer-leading capital efficiency, maintaining the lowest maintenance capex per unit of production in the country. This is due to its large contiguous acreage, which provides operational advantages. Beat Q4 FY23 results: Revenue declined 28% y/y to $715M, beating estimates by 6%. Average oil production was up 7% y/y, beating estimates by 1%, while gas price realization was lower than consensus. Adjusted EPS of $0.63 (-52% y/y) beat estimates by 31%. Looking forward: For FY24, the company targets to hold production flat for the year at 2.1–2.2 Bcfe per day.
Global Sector Strategy
Key Points:
- Over the trailing one year, Technology holds a commanding lead over all other sectors. Retail is the closest, but still trails by 20%. The lead over the remaining nine sectors is 30–60%.
- Given the outsized Tech weighting of the S&P 500, nearly all sectors are lagging by historical extremes over one year.
- Basic Material: 21% lag, has been worse in 6% of all weeks. Negative in 2024.
- Capital Equipment: 7% lag, has been worse in 8% of all weeks. Neutral in 2024.
- Consumer Cyclical: 15% lag, has been worse in 7% of all weeks. Negative in 2024.
- Consumer Staple: 27% lag, has been worse in 2% of all weeks. Negative in 2024.
- Energy: 25% lag, has been worse in 9% of all weeks. Negative in 2024.
- Financial: 15% lag, has been worse in 7% of all weeks. Neutral in 2024.
- Health Care: 14% lag, has been worse in 9% of all weeks. Positive in 2024.
- Transportation: 16% lag, has been worse in 7% of all weeks. Negative in 2024.
- Utility: 36% lag, has been worse in <1% of all weeks. Negative in 2024.
O’Neil Energy/Material Weekly
Diamondback Energy (FANG) announced that it would acquire privately-held Endeavor Energy Partners for $26B in cash and stock. The deal includes $8B in cash and about 117M shares of Diamondback, which would retain ~60% ownership in the combined entity. The deal comes with approximately $550M in annual synergies and ~10% cash flow accretion by 2025. Combined 2024 production is expected at 808-831 MBOE/d. Diamondback will change it expected return of cash to shareholders from 75% prior, to 50%. It also raised its base dividend by 7% for Q4 2023, to $3.60/share. The stock has posted a huge breakout on the weekly chart following the announcement, as the market likes the combined potential. It will be the third-largest producer in the Permian region behind Exxon Mobil (XOM) and Chevron (CVX). See weekly chart below.
