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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.
Transocean Fleet Update Has Nothing Exciting To Offer
- I expect downside for Transocean to continue with the latest fleet status update having no positives to offer.
- The latest fleet report shows an increasing number of rigs going idle, cold stacked or classified as "asset held for sale".
- I expect oil prices to remain around current levels in 1H15 and this will make re-contracting of several rigs in 1H15 difficult.
- I expect Transocean's credit metrics to worsen in the coming quarters on idle rigs, lower day rate, EBITDA margin compression, lower cash flows and a $1.3 billion 2015 Capex.
Tourmaline Oil: Strong Fundamentals And Growth Prospects
- Tourmaline Oil has been among the few stocks that have shown resilience amid the carnage in oil and gas stocks.
- The strong stock price resilience comes from strong fundamentals, strong outlook for 2015, and continued decline in operating and G&A cost.
- Even with any further decline in capital expenditure in 2015, Tourmaline Oil is well positioned to register 40% production growth as compared to 2015.
- Strong fundamentals and low debt gives Tourmaline Oil plenty of financial flexibility for big investments once energy prices post a sustained recovery.
Is Marc Faber Right On A 30% Rally For Gold?
- Gold is unlikely to rally in the first half of 2015 and the outlook for the second half of 2015 is still murky.
- Only QE4 can trigger a 30% or higher rally in gold and I don't see that coming in the next 2 quarters.
- The dollar will remain strong in the coming 2 quarters and this will keep gold sideways or lower.
- My view is to gradually accumulate gold towards the second half of 2015. Gold mining companies also look interesting for 2H15.
Surprise Interest Rate Cut To Take Indian Markets Higher
- The Indian central bank has cut the repo rate by 25 basis points and I believe that this is the beginning of a series of interest rate cuts for 2015.
- Lower oil prices, a weak global economy and the 2015-16 budget are triggers for a likely 75-100 basis points cut in interest rates before 2016.
- The financial sector stocks are likely to rally along with all interest rate sensitive sectors such as real estate and the infrastructure sector.
- Investors can consider the broad index even at current levels and I expect another 15% to 20% index returns in 2015.
Atwood Mako Contract Strengthens Atwood's 2015 Outlook
- Atwood Oceanics secured a contract for the Atwood Mako jack-up that boosts the company's FY15 contract coverage and revenue visibility.
- The contract is likely to add $11 million to the company's revenue for the firm period. On contract extension, the revenue contribution can be $30 to $35 million for FY15.
- I expect the company's 1H15 results to be largely in line with 2H14, and no significant decline in revenue makes Atwood Oceanics attractive.
- Contracts for Atwood Hunter and Atwood Admiral can trigger upside for the stock as they would change the FY15 and FY16 outlook.
- Even with the positives, investors need to consider small exposure to the stock as sustained lower oil prices can translate into potential offshore contract cancellations.
Three Reasons To Avoid Patterson-UTI Energy
- The rig count in US has just started to slump and the implications are negative for onshore drillers like Patterson-UTI Energy.
- Of 208 operating rigs as of December 2014, only 93 have term-contracts in 2015. The implication is idle time, low utilization and lower revenue.
- EBITDA compression started in the third quarter of 2014 and is likely to continue over the next 2-3 quarters.
- Goldman Sachs is forecasting $40 per barrel oil and there can be more bearish times ahead for the sector.
Treasuries Rally Backed By Global Economic Slowdown
- US Treasuries have rallied in the recent past and the rally will continue over the next 1-2 quarters.
- Global economic slowdown at a time when the US economy is showing strong resilience is driving liquidity into Treasuries.
- I also remain positive on US equities for the same reason and my view is to buy equities on any weakness in the markets.
Seaspan Corporation Is An Attractive Dividend Stock
- Seaspan Corporation has a current dividend payout of $1.38 and a dividend yield of 7.7%, which is sustainable in 2015.
- Seaspan Corporation has chartered out containerships on long-term contracts ensuring steady cash flow in the coming years.
- Delivery of 8 containerships in 2015 and 4 containerships in 2016 will add to the company's growth momentum and a likely dividend increase.
- Seaspan Corporation has strong credit metrics that would allow debt financing of the new vessels to be delivered in 2015 and 2016.
Innovation And Acquisitions Will Drive Growth For Infosys
- Infosys has reported strong 3Q15 results and my outlook on the stock remains positive.
- The company has expanded its "Innovation Fund" to $500 million. The objective is to acquire new technology companies.
- CEO Vishal Sikka will soon outline the $5.5 billion cash utilization road map and I expect acquisitions and special dividends.
- Euro-area growth is one concern over the next 1-2 quarters.
Encana: Expect 20% To 30% Downward Revision To 2015 Capex
- Encana has guided for $2.7 to $2.9 billion in capital investments in 2015. With lower oil prices, I expect a significant decline in spending.
- Encana is largely unhedged, but profitable at $50 per barrel oil. However, lower cash flows would mean lower investments as Encana plans no debt addition in 2015.
- I expect OCF in the range of $1.5 to $1.6 billion at $50 per barrel oil. The company's guidance of $2.5 to $2.7 billion OCF was at $70 oil.
Reasons To Avoid Gulfmark Offshore
- The break-even oil price for offshore drillers is significantly higher and I expect a very sluggish 2015 offshore activity as oil trades below $50 per barrel.
- Gulfmark Offshore derived 44% of TTM revenue from North Sea, one of the most expensive offshore basins. Lower oil prices will significantly high activity in North Sea.
- Gulfmark Offshore derived 42% of TTM revenue from US GOM where rig utilization is gradually declining and if oil price sustains at current levels, utilization will decline further.
- As of 3Q14, the company had an overall contract coverage of just 26% for 2015. I expect contract coverage to remain weak and significantly impact revenue and EBITDA.
Key Takeaways From The Employment Report
- Overall, the employment report for December 2014 remains positive, with few spots of concern.
- Decline in headline unemployment, coupled with a decline in the U6 rate is a positive, while wage growth remains the key concern, along with an increase in people not in the labor force.
- Healthcare sector jobs growth remains robust, and it is a good defensive sector for exposure in 2015.
- The impact of lower oil prices on resource industry employment needs to be closely watched in the coming months.
Helmerich & Payne: Good Stock, But Remain On Sidelines
- Helmerich & Payne is likely to trend lower as oil prices plunge below $50 per barrel, which increases the probability of accelerated rig count decline in US.
- Helmerich & Payne has 114 rigs in spot market and I expect lower day rates for these rigs along with lower utilization.
- The company has sound fundamentals, modern rig and a high dividend payout that makes it worth considering when onshore market conditions stabilize.
First Half Of 2015 Outlook For Oil And Investment Implications
- Crude oil is likely to remain at current levels in the first half of 2015 as global oil inventory surges.
- A sharp global economic slowdown can translate into extended gloom for oil prices.
- Investors can gradually accumulate attractive oil and gas stocks, as the sector is not surging higher anytime soon.
- Offshore drillers can be avoided in the first half of 2015 as offshore drilling activity will be very weak.
- Exposure to oil tanker companies can provide stellar returns over the next few quarters.
Caterpillar Has More Downside
- Caterpillar has declined by 12.5% since my bearish view on the stock on December 5, 2014 and I expect the downside to continue.
- Lower sales to the oil and gas sector will impact the company's outlook for 2015 and I expect the company to release a bearish guidance for the year.
- The China slowdown factor will continue to impact the resource industry sales for 2015 and it is likely that Caterpillar reports lower 2015 sales as compared to 2014.
- Expect the next significant downside when the company releases its 4Q14 results on January 27, 2015.
Cenovus Energy - Resilient Amid Carnage In Sector
- Cenovus Energy is worth accumulating at current levels with a 3- to 5-year investment horizon.
- The company's 2015 capital investment plan remains robust and the company also plans to maintain current levels of dividend.
- Capital investment and dividend payment through internal cash flows will ensure that leverage remains stable in difficult times.
- Considering internal cash flows and undrawn credit facility, Cenovus Energy is fully funded for the next three years.
- Big ticket projects will created sustained value once oil prices recover.