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:

  • Small/midcap indices picked up to end the week, particularly on the growth side. Mid growth with full breakout and small growth testing December peak.
  • After surging breakout totals in December, pause for a few weeks to start the year. Last week, totals jumped again, with ~2x the long-term average.
  • Incorporating the December period as well, about 27% of stocks above $500M market cap have broken out. Industrials, Technology, and Cyclicals have the best totals.
  • Of these, here are the percentages by sector of stocks that remain above their pivot.

O’Neil Energy/Material Weekly

Posted on by Kenley Scott

Union Pacific (UNP) – $152B market cap – Technical: The stock has cleared a four-week, tight area and is trading constructively
along its rising 10-WMA. Next resistance is near 2022 highs ($279; +12%). Moderate fundamental profile: EPS Rank 66, Composite
Rating of 79, SMR Rating of B and accelerating EPS growth estimates for FY24 and FY25. Strong technical profile: RS line has been
trending upward since June 2023 with a good RS Rating of 82. Up/Down Volume ratio of 1.2 and A/D Rating of B denote buying

O’Neil Energy/Material Weekly

Posted on by Kenley Scott

Scatec (SCAT.NO) – $1B market cap – Technicals: The stock is forming the right side of a stage-one cup-with-handle base.
Accumulate on a break above the pivot of NOK 83 (+5%). Fundamental profile: EPS Rank 41 and SMR Rating of C are expected to
improve, aided by a declining interest rate environment and prudent cost savings. Improving technical profile: RS line has recovered
sharply from its January lows. RS Rating improved to 78 from 49 in the past two weeks. Up/Down Volume ratio of 1.2 and A/D Rating
of B denote accumulation.

O’Neil Energy/Material Weekly

Posted on by Kenley Scott

Arabian Drilling (ARD.SA) – $5B market cap – Technical: The stock is breaking out of a stage-three cup-with-handle base on above
average volume. Pivot range of SAR 202.8–212.9. Solid fundamental ratings, with an EPS Rank of 85, a Composite Rating of 90, and
an SMR Rating of B. Excellent technical profile: RS Rating is high at 84, while RS line has been consolidating sideways for the past
three months. Up/Down Volume ratio has increased to 1.5 from 0.6 in the past month, coupled with an increasingly positive A/D
Rating, denoting accumulation. Company Description: Arabian Drilling is the largest oil and gas drilling company in the Kingdom of
Saudi Arabia (KSA). As of FY22, the company had a total fleet of 50 rigs, including 38 onshore and 12 offshore rigs. Following its IPO
in November 2022, ~36% of the company’s shares are held by TAQA, backed by PIF, and about 34% of the ownership is with
Schlumberger (SLB). Its clients include Saudi Aramco and Baker Hughes (BKR). It generates all its sales from the Middle East.
Fundamentals: Arabian Drilling is the market leader in the KSA, with a ~17% market share in terms of the total number of rigs. It is
the second-largest onshore player, with a ~19% market share, and the third-largest offshore company, with a ~12% share. The
company is a beneficiary of the Kingdom’s growing E&P capex at a CAGR of 13% through FY25 to support increased production in
the MENA region. The cost competitiveness of production in the Kingdom is likely to lead to increased drilling concentration in the
region by 2030. As of Q3 FY23, the company has a record order backlog of SAR 12.7B, equivalent to ~5x its FY22 sales, with an
average remaining contract tenure of 2.5 years per rig, providing multi-year revenue visibility. Good Q3 FY23 Results: Revenue grew
16% y/y to SAR 920M, beating estimates by 2%, led by increased rig activity and higher prices. Fleet utilization was 94% during the
quarter. EBIT rose 15% y/y to SAR 206M. EPS was flat y/y as operating income was offset by higher finance costs. Looking forward:
For FY23, the company has guided for revenue to be between SAR 3.3B and SAR 3.5B (+26% y/y). The street expects FY24 and
FY25 EPS to grow 37% and 19%, y/y, respectively.

Global Sector Strategy

Posted on by Kenley Scott

Key Points:

  • Fourth year of the presidential cycle is a decent one for stocks on average, although nothing close to the exceptional third year gains.
    • End of mid-terms, which typically result in losses for the party that holds the presidency, and tendency for lack of policy changes may be among reasons for a strong third year.
    • Election year brings some volatility with indices averaging minor gains for the first nine months of the year (mostly coming in Q2). Market tends to pick up in Q4 with outsized gains from smallcaps.

O’Neil Energy/Material Weekly

Posted on by Kenley Scott

Gtt (GTT.FR) – $5B market cap – Technical: The stock broke out of a stage-one cup-with-handle base in October 2023. It has emerged out of a
three-week, tight area, reclaiming its 21- and 50-DMA and has re-entered the pivot range. Excellent fundamental profile: EPS Rank 87,
Composite Rating of 99, and best-possible SMR Rating of A.

Global Sector Strategy

Posted on by Kenley Scott

Key Points:

 

  • Rare S&P 500 feat achieved to end last week. +15% gain over 8 weeks has only occurred in 33 prior weeks, or about 1% of all weeks since 1970.
  • Like the Russell 2000 >20% over seven weeks (see prior week commentary), forward returns are very strong in past instances.

 

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  • Most instances were bunched together in eight periods, Q2 2020, Q1 2009, Q4 1998, Q2 1997, Q1 1991, Q1 1987, Q4 1982, and Q1 1975.
    • Of these eight, only Q1 1987 had poor forward returns.
  • Individual cases included Q4 2002, Q4 2001, Q2 1980, Q1, 1976.
    • Of these Q4 2001 and Q1 1976 had poor forward returns.
  • Also last week, the S&P 500 closed 6% and 9% above 10/40-WMAs. This has occurred 65 prior times, or about 2% of all weeks.
    • Forward returns are more mixed here, but overall still fairly strong.
    • No surprise, but if the first four are positive, then the forward 26/52-week average is higher. If the first four are negative, the 26/52-week returns are lower.

O’Neil Energy/Material Weekly

Posted on by Kenley Scott

Weatherford International (WFRD) – $7B market cap – Technical: The stock is forming the right side of a stage-one cup base.
Aggressive entry can be taken at current levels as the stock is reclaiming its 50-DMA. An ideal entry point is on a break above the pivot
of $100.9 (+5%). Solid fundamental profile: EPS Rank of 83, Composite Rating of 97, and SMR Rating of B. Good technical profile:
RS line has started to trend upward, with a high RS Rating of 95. Up/Down Volume ratio of 1.3 and a positive turn in A/D Rating this
week denote buying interest

Global Sector Strategy

Posted on by Kenley Scott

Key Points:

 

  • Large-cap indices have clearly risen into 52-week highs, with the Dow at all-time highs. Small/midcaps are testing key resistance from prior peaks over the past 15 months.
  • Breadth (stocks above 30-WMA) has risen from below 20% to nearly 75% in seven weeks. Peak in breadth tends to come between 75–85%, with exceptional cases ~90%.
  • Russell 2000 joining in has been the largest factor in rising breadth. Looking at the Russell, it has risen ~20% in seven weeks.
    • Since 1987, a 20% rise over the trailing five-week (35 trailing days) period is rare, occurring less than 1% of the time. Also, many of the instances were bunched together (mostly in 1991, 2009, and 2020).
    • When this occurs, forward returns have been exceptional.