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Nicole Benjamin: Hey everybody. It's Nicole Benjamin, your host here at Seeking Alpha to bring to you another episode of The Weekly Grade with Steven Cress, where we’re going to be giving you market signals in minutes. Now, for a little bit of housekeeping.

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Steven Cress: Wow! I think that’s a record in time. Well done.

NB: Alright. Well, without further ado, Steven Cress, everyone. VP of Quantitative Strategy here at Seeking Alpha. He is a wonderful guy who is behind a lot of the amazing products you see on site, Alpha Picks, the PQP, and if any of that might be of interest to you, take a look. See if that might be right for your portfolio and the picks that we have in there. Now, Steve, before we jump in, can you give us a little bit about just your background?

SC: Yeah. No. Absolutely. I've been in the world of finance, both Wall Street and the City of London for over 30 years. Bulk of my career was spent at Morgan Stanley. I worked there for 13 years where I ran a proprietary trading desk, but I also was the founder of a hedge fund. And I was also the founder of a fintech company, which for lack of a better description was an automated analyst. Seeking Alpha liked that app so much that they bought the company. And that's what has brought me to Seeking Alpha today.

NB: Wonderful. Now, let's jump in here. My first question that I really want to ask you, Steve, is, we're seeing the biggest gas prices in like, the last 30 years. So, in your analysis, why is the Seeking Alpha Quant system pointing toward refiners as the primary play for investors right now?

SC: Yeah. So, we rate about 4,800 companies on a daily basis. And what I mean by rating them is, we actually take a look at each company's balance sheet, income statement, cash flow, and hundreds of financial metrics. And every day we score companies, especially when we take companies within a sector, and that helps us determine which companies are strong and which companies are weak when we look at that financial data. And what I have found over the last couple of weeks, going up to that screen, especially if you look within the energy sector, and the energy sector is made up of many different industries, but when we look just within the energy sector, some of the top stocks fall within this segment of refining. So, it is a very easy answer as to why we're looking at the refiners here. It's because they're coming at the top of the energy screen.

NB: Alright. Well, for my second question, I want to ask, I mean, we've seen that this current setup mirrors the late 2022 where refining margins stayed strong even as oil prices cooled. So, does the data suggest we're heading for that same sector rotation in the second half of this year?

SC: Yeah. I would say it's looking like that. Part of what we look at when we're assessing companies are five core investment characteristics. We look at value, growth, profitability, momentum, and analyst EPS revisions. So, in those analyst EPS revisions, we're actually looking at the quantity of analysts that are taking their estimates up or down. And what we're finding is that for the refining companies, a lot of analysts are taking their estimates up. None of them are taking them down, and they're doing it at a pace that outstrips the rest of the energy sector, but for that matter, just outstrips many stocks in general.

So, we're seeing a number of these refiners move to the top of the list, and a lot of that has to do with that core investment characteristic of EPS revisions. So, this is our analysts that are revising their estimates up, which means that they felt like their estimates were not high enough, and that's why they're taking them up further. So, there's a large quantity of analysts that are doing that for refiners.

NB: Alright. Well, I'm looking at this page. I see there's a few ticker symbols on it. What's important here in the data?

SC: Alright. So, the comments read here with these ticker symbols that these are all companies that are refiners. They're within the energy sector and particularly in the refining industry. And they all have Quant Strong Buys. That is the second common characteristic. I'd say, there's a third common characteristics. Our Quant system nailed it with these Strong Buys. You could see that these stocks are up significantly for the year-to-date period.

So, we have Marathon, which is up close to 58%. We have Valero up 54%. We have PSX up 39%, PBF up 68%, and PARR up 94%. So, these stocks have been skyrocketing, and it just tells you this is the right sector. They've had Strong Buys. And by looking at those analyst revisions that I mentioned before, analysts continue to take their earnings estimates up for these companies. So, it looks like we're in the right place at the right time with these stocks.

NB: Well, that's perfect. Now, you highlighted Valero.

SC: Yes.

NB: And you gave it a Strong Buy rating in your article. So, I guess, what is it in your analysis? I think you touched on it lightly, but what is really triggering that rating while we're still seeing that pain at the pump and just the global market volatility?

SC: Yeah. I would say really what we look for in our Quant system is diversification with those investment characteristics. And we're seeing this really across the board. So, as I mentioned before, collectively we want to see companies that are strong on value, growth, profitability, momentum, and revisions. And that is coming through here with Valero. You could see the value at C-. These factor grades are all sector relative. So, when you do look at those grades, it gives you an instant characterization of how they compare to the sector. So, you could see compared to the sector, it's a C- grade. It's average, but all the other grades are in the green territory.

So, you see the growth is a B+. You see profitability is A. Momentum is B+. And the analyst revisions that I was talking about, that's A+. That's as strong as you can get, obviously, with an A+. So, it's a very intuitive system. We use academic letter grades, so you instantly know how the company looks relative to its sector, but if you look to the right at those factor grades, one of the things that we also do is, you could see where that grade was six months ago, and it looks really good for Valero in particular.

You could see that the valuation is actually despite the stock moving up so much, it's actually a better value now than it was six months ago because you could see six months ago, it was a D-, and now it's a C-. The growth has improved to B+ from C. Profitability has improved to A from B+. Momentum is B+ versus about an A. So, that's fairly close, and the analyst revisions remain strong at A+. So, but importantly, I'd say the value grade is actually better than it was six months ago. So, you're getting better growth, better valuation, and that in my book is a Strong Buy.

NB: Alright. Well, we'll leave it right there, Steve. Thank you so much for joining us today. And for everybody listening in, check us out. Put those notifications on for The Weekly Grade with Steven, and we'll see you next time. Thank you so much.

Read Steven Cress' Article on Seeking Alpha

Explore Alpha Picks Today!

Join the Waitlist for the launch of the Quant Income Growth Portfolio!