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Strong Growth To Continue For Teekay Tankers
- Teekay Tankers reported stellar 4Q14 results on the back of high spot market exposure for its marine oil tankers.
- Based on the spot booking trend for 1Q15, the company's current quarter results are likely to be better than 4Q14.
- I expect Teekay Tankers to trend higher over the next 3-4 months as lower oil prices keep spot market rates high on the back of demand from China.
The Fed's Stance Is Positive For Equities
- Yellen's comments before the congressional committee indicate that no interest rate hike is likely in June 2015.
- I expect interest rate hike only towards the end of 2015 or in early 2016. This will keep the momentum positive for equities.
- Inflation, not employment, remain the key concern for the Fed and I believe that a stronger dollar will also keep interest rates at artificially low levels.
Reaffirm Buy Rating For Ensco From Credit Perspective
- Ensco has a strong order backlog for 2015 that ensures majority funding of 2015 capital expenditure of $2 billion through operating cash flows.
- Ensco has a cash and undrawn credit facility buffer of $3.35 billion and this provides a strong buffer.
- With minimal debt maturity in 2015, Ensco's cost of debt is likely to remain the same and I expect debt reduction to come in 2016.
Buy Indian Markets For Coming Rally
- A potential 50 basis points interest rate cut over the next 2 months is the first upside trigger for the Indian markets.
- A likely transformational budget coming up on February 28, 2015 is the second upside trigger for the Indian markets.
- India's broad index can potentially deliver 10% to 15% returns over the next 2 months.
- India focused ETF's look attractive for near-term as well as long-term investing.
Avoid Hercules Offshore Through 2015
- Hercules Offshore is likely to underperform through 2015 given lower utilization and a lack of long-term contracts.
- The company's EBITDA margin has compressed significantly in Q4 2014, and I expect lower EBITDA margin through 2015, impacting the company's cash flow generation.
- A high leverage of 8.7 in depressed market conditions adds to the negatives for Hercules Offshore.
Buy Rating For Atwood Oceanics From A Credit Perspective
- Atwood Oceanics has a healthy credit metrics and I expect the stock to move higher on strong cash flows in 2015 and 2016.
- The company's capital expenditure for 2015 and 2016 is likely to be funded by internal cash flow and the company also has an additional cash buffer of $581 million.
- A contract for one new rig to be delivered in September 2015 can accelerate the company's current rally.
Maintaining My Bearish View On Patterson-UTI Energy
- Patterson-UTI Energy is likely to trend lower in 2015 as the challenging market condition for onshore drilling is likely to sustain through 2015.
- Sharp decline in term-contracts has continued in 2015 and this will impact the company's revenue and EBITDA margin (as rigs are stacked).
- Patterson-UTI remains uncertain on the outlook for 2015 and I believe that the bearish in terms of contract cancellations will extend to Q2 2015 and Q3 2015.
- A potential "U-shaped" oil price recovery will extend the pain for Patterson-UTI Energy.
Credit Analysis For Transocean And Conclusions
- Transocean's credit metrics are likely to worsen in FY15 and FY16.
- The company's debt is likely to increase in FY15 and FY16 due to high capital expenditure.
- A low contract coverage for FY15 in challenging market conditions will impact the EBITDA, EBITDA margin and operating cash flow.
- While Transocean is unlikely to default on debt, the likelihood of weak credit metrics backs my view to avoid the stock.
Reasons To Remain Bullish On U.S. Equities
- US economic resilience sustains as the divergence between US and other developed market economic activity widens.
- Low sovereign yields will attract investors to equities and US equities are the best among all developed market equities from a fundamental perspective.
- Global liquidity glut will help markets move higher backed by strong consumption driven growth in the US economy as consumer sentiment touches a 11-year high.
Reasons To Remain Bullish On Gold
- While demand for investments remained weak in FY14 as compared to FY13, Central Banks have accelerated the pace of buying gold as reserves.
- I remain bullish on a bounce back in gold prices in an environment of expansionary monetary policies and competitive currency devaluation.
- Physical gold remains the best investment option followed by gold ETFs and certain gold mining stocks.
Cenovus Energy: Revised Investment Plan Signals Bottom For The Stock
- Cenovus Energy has revised its capital budget plan for FY 2015, and the current guidance is at $50 per barrel oil assumption for cash flows.
- Even with the lowering of the capital budget, Cenovus Energy's production guidance for FY 2015 remains largely the same.
- A potential stake sale in the coming months can trigger upside for Cenovus Energy.
- After the release of revised investment guidance, Cenovus Energy has moved higher by 14.6% and I believe that the stock has bottomed out.
I Remain Bullish On DHT Holdings After Strong Results
- DHT Holdings reported robust 4Q14 results and I expect the stock to trend higher in the coming months.
- High exposure to the spot markets will ensure strong revenue and EBITDA growth in FY15.
- DHT Holdings debt coverage remains comfortable even after surge in debt in FY14.
- I expect the company's dividend to increase in the coming quarters as well after an increase from $0.02 per share to $0.05 per share in 4Q14.
Maintaining My Bearish View On Helmerich & Payne After Results
- Continued declines in term contracts and active rigs is negative for Helmerich & Payne's earnings in the coming quarters.
- If oil prices remain low for 1H15, I expect further cuts in oil and gas company investments. This will trigger further idle rigs and margin compression for the company.
- Even if Helmerich & Payne has limited downside from current levels, any upside over the next six months is unlikely.
MakeMyTrip: Strong Results To Take Stock Higher
- While MakeMyTrip reported losses for 3Q15, the overall results were strong and the stock is an attractive buy at current levels.
- Higher advertising cost and one time cost related to acquisition depressed the bottom-line. However, advertising has positively impacted the transactions growth.
- Company has provided a strong guidance of 30% to 31% growth for revenue less service cost for FY15 and this should take the stock higher.
Why U.S. GDP Growth Will Remain Robust
- US GDP growth was relatively lower in 4Q14 at 2.6% compared to 3Q14 growth of 5.0%. However, GDP growth is likely to remain robust in 2015.
- Personal consumption expenditure will continue to drive GDP growth with expectations of higher wages growth further triggering spending upside.
- US disposable income has been increasing while the savings rate is on a decline. This is a positive trend from a consumption growth perspective.
- Consumption based themes will continue to do well in 2015 and I remain bullish on US stocks.
GasLog Partners' Distribution Yield Increases To 7.4% On Strong Earnings
- GasLog Partners reported its 4Q14 results and announced a 16% increase in quarterly cash distribution.
- The LP's remaining contract coverage of 4.2 years with BG Group provides stable cash inflow and cash distribution visibility.
- I expect more drop-downs from GasLog in 2015 and this will further boost the company's cash distribution.
- GasLog Partners targets a cash distribution growth CAGR of 10% to 15% and this implies a potential forward (2016) distribution yield of 8.4%.
- The debt agreement with Citibank ensures an extended debt maturity profile and a prudent quarterly interest and debt payment.
Dollar Will Keep The Fed Very Patient
- The FOMC meeting press release still have no certain view on the timing of policy firming.
- The Fed has however indicated that it is flexible on either side in terms of the time for policy tightening.
- I believe that a strong dollar is the single biggest factor that will push policy firming towards 3Q15 or in 2016.
- US equities are likely to remain positive as the policy firming is delayed. Further, strong economic data and liquidity from euro zone QE backs upside view for US stocks.
Caterpillar: Maintaining My Bearish Outlook After Results
- Caterpillar will continue to move lower or sideways on bearish revenue and EPS guidance for 2015.
- If oil prices remain lower through 2015, Caterpillar is likely to revise its guidance on the downside and that can result in further stock decline.
- Besides the oil price factor, China's weak growth will continue in 2015 and will imply that equipment sales trends remain depressed.
- A strong dollar is also likely to impact Caterpillar's earnings in 2015.
I Prefer FedEx Over UPS For 2015
- UPS has reported that it anticipates lower than expected results for 4Q14 and the stock slumped on the news.
- I expect 2015 to remain challenging for UPS and management has indicated continued margin compression for the year.
- Operating margin for FedEx has been expanding and will continue to expand in 2015 on the back of a modern fleet.
Is $200 Oil Possible?
- OPEC’s secretary-general is of the opinion that oil can surge to $200 per barrel on lack of investment in the oil and gas sector.
- I believe that even if oil prices trend back to $80 to $100 per barrel, the sector will witness renewed strong investments.
- Oil can potentially go to $200 per barrel on geo-political tensions or currency devaluation. However, such an extreme scenario is unlikely in the foreseeable future.
- Oil can surge back to $100 per barrel once economic activity picks up globally. Low per capita consumption of oil in China and India will drive consumption growth.
- My opinion is to gradually accumulate quality oil and gas stocks for strong returns over a 3-5 year investment horizon.
Crescent Point Energy: A Sustainable 9.5% Dividend Yield For 2015
- Crescent Energy provides a dividend yield of 9.5% for 2015, which is sustainable even in the current energy price environment.
- The biggest producing assets for Crescent Energy have a low break-even and this makes the company profitable even without considering hedges.
- A drilling inventory of 7,650 locations provides long-term growth visibility.
- Internal cash flow can fund 2015 capital expenditures along with dividend payments.
- The stock bottomed out on December 15, 2014 and has been trending higher. I expect the upside to sustain.
Rexx Energy: Worth Considering At Current Levels
- Rexx Energy surged by 12.8% after the company provided an update on production, liquidity and hedging for 2015.
- I expect Rexx Energy to trend higher on a fully funded 2015 investment plan, 33% production growth estimate and a well managed balance sheet.
- Rexx Energy also has significant long-term potential based on the company's resource potential estimate and the fact that the company has one of the lowest F&D cost.
Antero Resources: Robust 2015 Guidance Will Take The Stock Higher
- Antero Resources has provided a production growth guidance of 40% for 2015 amidst a challenging environment in the energy sector.
- With 94% of estimated natural gas production hedged for 2015, Antero Resources expects an EBITDAX of $1.4 billion in 2015 as compared to an EBITDAX of $1.1 billion in 2014.
- The company's low-cost assets make the stock an attractive buy even from a long-term perspective.
- A 70% stake in Antero Midstream Partners is likely to be a long-term value creator. In 2015, Antero Resources is likely to have a cash flow of $100 million from AM.
Challenging Environment To Continue For McDonald's
- McDonald's will post its worst sales performance in 3 decades and the challenging environment is likely to continue for the company in 2015.
- While McDonald's has embarked on a "seven step plan" to turnaround sales, the impact of the new initiatives remains to be seen.
- McDonald's growth in other big markets like China remains a big challenge with local players making it big backed by PE funding.
- Investors can wait for a sustained turnaround in sales growth before considering exposure to the stock.
3 Promising India Focused ETFs
- India will overtake China's GDP growth rate in 201 according to IMF and I believe that Indian equities are positioned for a multi-year bull market.
- Infrastructure is India's biggest challenge as well as the biggest opportunity and I believe that the sector will perform well amidst lower interest rates in the foreseeable future.
- India's consumption story has just commenced and with very favorable demographics, India's consumption is likely to grow at a robust pace making the consumer related ETF attractive.
- While the focus has been on large companies in the recent rally in Indian markets, the small companies hold immense long-term potential and the small-cap ETF looks attractive.
Preferring Infosys Over Wipro For The Long-Term
- Infosys is likely to outperform Wipro over the next 2-3 years on a consistent basis.
- Inorganic growth and innovation will help Infosys gain an edge over Wipro and also best the industry growth rate.
- I also expect Infosys to see margin expansion in the next 2-3 years as the company pitches for more innovation driven projects.
- Investors can consider fresh exposure to Infosys at current levels with the company likely to grow at a robust pace of 15% to 20% in the coming years.
- Investors alsocan consider switching from Wipro to Infosys as the latter will outperform in terms of stock upside.
US And India Remain Bright Spots In IMF Growth Outlook
- IMF has cut global GDP growth forecast by 0.3% since its last outlook. However, the growth forecast for US remains robust amidst gloom for other developed markets.
- China's GDP growth is likely to trend lower in 2015 and 2016 while India's GDP growth will trend higher. India is likely to beat China's GDP growth by 2016.
- I remain positive on the US and Indian equity markets for 2015 and I am of the view that India can potentially be the best performing equity market in 2015.
Why Large Scale Bond Purchase By ECB Is Inevitable
- A large scale bond purchase program seems inevitable due to the big debt refinancing wall for PIIGS in 2015.
- The deflation and weak GDP growth factor also support the stimulus view. Chief Economist at Markit expects 4Q14 Euro-zone GDP growth at 0.1%.
- The dollar will continue to rally along with strength in US Treasuries. Among risky asset classes US equities will move higher back by liquidity support.
More Pain In Store For China Equities
- China's index has plunged after big trading firms were banned from margin-trading and I believe that this is a beginning of a renewed downside for China equities.
- The unintended consequences of easy money has been an abnormal rise in Chinese equities amidst negative economic sentiments and policymakers are looking to arrest this rise.
- Economic indicators point to continued gloom and equity markets are likely to correct based on the economic direction.
- My view is to avoid ETFs that have large exposure to the financial sector, industrial sector and the real-estate sector.
Diamond Offshore Fleet Status Report Has Significant Concerns
- Diamond Offshore's latest fleet status has some major concerns and I maintain my bearish view on the stock.
- Diamond Offshore's contracts with Petroleos Mexicanos have a high probability of cancellation as the latter embarks on cost cutting due to big losses.
- The company's North Sea rigs are also under threat of low utilization and potential contract cancellations as lower oil prices force significant cost cutting measures.
Implications Of Accelerating Decline In U.S. Rig Count
- US rig count slumped by 74 rigs for the week ended January 16, 2015 and I expect the decline in rig count to continue.
- While some US oil and gas companies will remain profitable at $50 per barrel oil, the incentive to increase production or investment is low from an EBITDA margin perspective.
- Onshore drilling rig suppliers will continue to suffer in the coming quarters due to lower rig utilization and lower day rates.
- US consumer sentiment has hit a 11-year high and robust economic resilience implies a strong dollar that is also negative for oil.
Barrick Gold: An Interesting Pick For The Second Half Of 2015
- Barrick Gold, with strong fundamentals, a prudent financial strategy and a low all-in sustaining cost, is an attractive stock to consider.
- A liquidity position of $6.7 billion gives the company strong financial flexibility for investment-driven growth when gold prices resume an uptrend.
- Barrick Gold is positioned to generate approximately $5 billion in annual operating cash flows if gold does move higher by 30% from current levels.
- The stock is worth accumulating at current levels, and accumulation can be accelerated toward the second half of 2015.