Report
Dave Nicoski ...
  • Ross LaDuke
EUR 235.08 For Business Accounts Only

Vermilion Macro Vision: U.S. Equity Strategy

The last several months have been that of digestion and consolidation. While Sector and group leadership have taken a back seat to stock selection, rotations still seem to be the norm. We have on a number of occasions indicated that the current rotations are reminiscent of the rotations of 1994. Bill Clinton was President and in that year the Republicans had swept the house under their “Contract with America”. Clinton had imposed tariffs on steel imports late in 1993 and with the onslaught of foreign competition, the administration also pushed for punitive tariffs on Japanese autos and auto parts. Investors were reticent on how to respond to such actions. That was also the year that the term “growth recession” was coined as the economy was still growing, but not at the expected rates investors had hoped to expect. In addition to similarities to the 1994 timeframe, emerging markets have recently suffered a blow due to a risk off approach as U.S. interest rates approach multi-year highs. The strong U.S. dollar over the past few months may have led to mitigating any inflationary pressures and at the same time pressured emerging market currencies and soft grains. We have stated many times over the course of the year a growth recession certainly appears upon us.

In the remainder of our July Strategy we highlight opportunities within the following Sectors:

• Technology: Overweight. This remains a leadership Sector, however as we have stated in our May strategy, most of the strength can be found in the software related groups as 14 of the 25 groups in the top 33% of RS are software related.

• Healthcare: Overweight. This is our latest addition of Sector over weights. The recent reversal of the XLV and breakouts among the Pharmaceuticals and the Biotechs suggest further upside.

• Financials: Overweight. If this market does mimic the 1994 period, we would expect that sectors that are oversold are likely to bounce, and sectors that are overbought are likely to suffer pullbacks. We have stayed the course on the financials realizing that many of them are residing at major support levels and are likely to stage a reversal.

• Energy: Overweight. Our main concern in this Sector is the inability for the emerging markets to stage a reversal. Energy consumption, as evidenced by the price of crude, is often indicative of global trade and economic expansion. Any further weakness may likely end up indicating less consumption of energy globally. There continues to be major bases in this Sector and we believe if global markets do stage price and RS reversals, the Energy Sector should benefit.

Open the attachment to find our complete U.S. equity strategy document, as well as links to our respective sector commentaries.
Underlyings
A10 Networks Inc.

A10 Networks is a provider of secure application solutions and services. The company's customers include cloud providers, web-scale businesses, and service providers. The company's product portfolio consists of six secure application solutions, which includes Thunder Application Delivery Controllers (ADC), Lightning ADC, Thunder Carrier Grade Networking, Thunder Threat Protection System, Thunder SSL Insight, and Thunder Convergent Firewall, and two intelligent management and automation tools, which includes Harmony Controller and aGalaxy. The company's solutions are available in a variety of form factors, such as optimized hardware appliances, bare metal software, virtual appliances and cloud-native software.

Anadarko Petroleum Corporation

Anadarko Petroleum is an independent exploration and production company. The company also participates in the hard-minerals business through royalty arrangements. The company's reporting segments are as follows: Exploration and Production, which is engaged in the exploration, development, production, and sale of oil, natural gas, and natural-gas liquids (NGLs) and in advancing its Mozambique liquefied natural gas project toward final investment decision; and WES Midstream and Other Midstream, in which these two segments engage in gathering, processing, treating, and transporting the company and third-party oil, natural-gas, and NGL production as well as gathering and disposal of produced water.

Apptio Inc. Class A

Apptio develops and sells Technology Business Management (TBM) solutions. The company's TBM solutions consist of a cloud-based platform and a suite of SaaS applications: Cost Transparency, Information Technology (IT) Benchmarking, Business Insights, Bill of IT and IT Planning. The company's data and analytics platform utilize proprietary modeling capabilities, self-service analytics and planning workflows to enable customers to make actionable, data-driven strategic and operational decisions. The company provides its solutions on a subscription basis. The company operates in the U.S., the U.K., Germany, Denmark, the Netherlands, Australia, Canada, France, Singapore and Italy.

BofI Holding Inc.

Bofl Holding is a holding company for BofI Federal Bank (Bank), a financial services company that provides consumer and business banking products. The company distributes its deposit products through a range of retail distributions channels, and its deposits consist of demand, savings and time deposits accounts. The company distributes its loan products through its retail, correspondent and wholesale channels, and the loans the company retains are primarily first mortgages secured by single family real property and by multifamily real property as well as commercial and industrial loans to businesses. As of June 30 2017, the company had total assets of $8.50 billion and total deposits of $6.90 billion.

Codexis

Codexis discovers, develops and sells proteins to its clients. The company has two segments: Performance Enzymes, which uses its technology to develop enzymes for customers using next generation sequencing and polymerase chain reaction for in vitro molecular diagnostic and molecular biology research applications; and Novel Biotherapeutics, in which it has announced a global development, option and license agreement with Societe des Produits Nestle S.A. to develop CDX-6114, its own orally administrable enzyme therapeutic candidate for the potential treatment of phenylketonuria. The company's products include protein catalysts, chemical intermediates and Codex? biocatalyst panels and kits.

CyberArk Software Ltd.

Diamond Offshore Drilling Inc.

Diamond Offshore Drilling provides contract drilling services to the energy industry around the globe. The company's fleet enables it to provide services in the floater market on a worldwide basis. The company's contracts to provide offshore drilling services vary in their terms and provisions. The principal markets for the company's offshore contract drilling services are: the Gulf of Mexico, including the U.S., and Mexico; South America, principally offshore Brazil, and Trinidad and Tobago; Australia and Southeast Asia, including Malaysia, Indonesia, Myanmar and Vietnam; Europe, principally offshore the U.K., and Norway; East and West Africa; and the Mediterranean.

EOG Resources Inc.

EOG Resources, together with its subsidiaries, explores for, develops, produces and markets crude oil, natural gas liquids and natural gas primarily in main producing basins in the United States, The Republic of Trinidad and Tobago, The People's Republic of China, Canada and, from time to time, select other international areas.

First Financial Northwest Inc.

First Financial Northwest is a bank holding company. Through its First Financial Northwest Bank subsidiary, the company is a commercial bank that focuses on accepting deposits from the public and utilizing these deposits to originate one-to-four family residential, multifamily, commercial real estate, construction/land, business and consumer loans. The company focuses primarily on loans secured by commercial real estate, construction/land, first mortgages on one-to-four family residences, multifamily, and business lending. The company's deposit products include noninterest bearing accounts, interest-bearing demand accounts, money market deposit accounts, statement savings accounts, and and certificates of deposit.

First Merchants Corporation

First Merchants is a financial holding company. Through its subsidiary, First Merchants Bank (the Bank), the company provides a range of financial services, including accepting time, savings and demand deposits; making consumer, commercial, agri-business and real estate mortgage loans; providing personal and corporate trust services; providing brokerage and private wealth management; and providing letters of credit, repurchase agreements and other services. The Bank also operates First Merchants Private Wealth Advisors (a division of the Bank). The Bank includes banking locations in Indiana, Illinois, Ohio and Michigan counties. The company provides electronic and mobile delivery channels to its customers.

GUIDEWIRE SOFTWARE INC

Guidewire Software provides a technology platform, composed of software, services, and a partner ecosystem, for the property and casualty insurance industry. Guidewire InsurancePlatform? consists of cloud and on-premise applications to support core operations, data management and analytics, and digital engagement and is connected to various data sources and third party applications. The company's operational platforms include: Guidewire InsuranceSuite, which comprises of PolicyCenter, BillingCenter, and ClaimCenter applications; and Guidewire InsuranceNow, which provides policy, billing and claims management functionality to insurers that prefer to subscribe to a cloud-based, all-in-one solution.

Immunomedics Inc.

Immunomedics is a clinical-stage biopharmaceutical company developing monoclonal antibody-based products for the targeted treatment of cancer. The company's product candidate is sacituzumab govitecan (IMMU-132), an antibody-drug conjugate for the treatment of patients with metastatic triple-negative breast cancer who previously received at least two prior therapies for metastatic disease. The company also has other product candidates, which target solid tumors and hematologic malignancies in various stages of clinical and preclinical development, such as labetuzumab govitecan that binds the CEACAM5 antigen expressed on CRC and other solid cancers, and IMMU-140 for the treatment of hematologic malignancies.

Ligand Pharmaceuticals Incorporated

Ligand Pharmaceuticals is a biopharmaceutical company focused on developing and acquiring technologies that help pharmaceutical companies discover and develop medicines. The company employs research technologies such as antibody discovery technologies, structure-based drug design, formulation science and liver targeted pro-drug technologies to assist companies in their work toward securing prescription drug and biologic approvals. The company's collaboration partners and licensees have programs in clinical development targeting cancer, seizure, diabetes, cardiovascular disease, muscle wasting, liver disease, and kidney disease, among others.

NetScout Systems Inc.

NetScout Systems provides service assurance and security solutions that are used by customers to assure their digital business services against disruption. Using its Adaptive Service Intelligence technology, the company's solutions convert network traffic data, often referred to as wire data, into metadata, or smart data, the company's offerings can help customers identify and troubleshoot network and application performance issues, defend their networks from distributed denial of service attacks, and find and isolate network threats. The company's products are categorized as service assurance solutions for network and application performance, and business intelligence analytics and cybersecurity solutions.

Old National Bancorp

Old National Bancorp is a financial holding company that operates primarily in Indiana, Kentucky, Michigan, Wisconsin, and Minnesota. Through its wholly owned banking subsidiary, Old National Bank, the company provides a range of services, including commercial and consumer loan and depository services, private banking, brokerage, trust, investment advisory, and other banking services. In addition to the community banking services of lending and providing deposit services, the company provides wealth management, investment, and foreign currency services. For businesses, the company provides treasury management, merchant, health savings, and capital markets services, among others.

Palo Alto Networks Inc.

Palo Alto Networks provides a platform that allows enterprises, service providers, and government entities to secure their organizations. The company's platform uses a traffic classification engine that identifies network traffic by application, user, and content and provides security across the network, endpoint, and cloud. The company's product, subscription, and support offerings include: firewall appliances and software; and Panorama, which is a centralized security management solution for global control of various firewall appliances and software deployed on an end-customer's network as well as in their instances in public or private cloud environments as a virtual appliance or a physical appliance.

QAD Class A

QAD is a provider of cloud-based enterprise software solutions for manufacturing companies across the automotive, life sciences, consumer products, food and beverage, technology and industrial products industries. The company's solutions, called QAD Enterprise Applications, enable measurement and control of primary business processes that support operational requirements, including financials, manufacturing, demand and supply chain planning, customer management, business intelligence and business process management. The company also provides services including consulting, deployment, training, technical, development and integration to facilitate adoption of its cloud Enterprise Applications solution.

Qualys Inc.

Qualys provides cloud-based platform delivering information technology (IT), security and compliance solutions. The company's cloud platform consists of IT security, compliance monitoring, web application security, global IT asset management and cloud and container security solutions, which it refers to as the Qualys Cloud Apps, that utilizes its shared and extensible primary services and its multi-tenant cloud infrastructure. The company also provides open application program interfaces and other developer tools that allow third parties to embed its technology into their solutions and build applications on its cloud platform. The company's cloud platform utilizes physical and virtual sensors, and cloud agents.

SPDR S&P 500 ETF

Spectrum Pharmaceuticals Inc.

Spectrum Pharmaceuticals is a biopharma company. The company's product portfolio consists of in-development drug products for the treatment of cancer patients. The company has three drugs in development: ROLONTIS, which is a long-acting granulocyte colony-stimulating for chemotherapy-induced neutropenia; Poziotinib, which is an irreversible tyrosine kinase inhibitor under investigation for non-small cell lung cancer tumors with various mutations; and Anti-CD20-IFNa, an antibody-interferon fusion molecule directed against CD20 that is in development for treating relapsed or refractory non-Hodgkin's lymphoma patients (including diffuse large B-cell lymphoma).

Supernus Pharmaceuticals Inc.

Supernus Pharmaceuticals is a pharmaceutical company focused on developing and commercializing products for the treatment of central nervous system diseases. The company has launched Oxtellar XR and Trokendi XR, its two treatments for epilepsy. In addition, the company has launched Trokendi XR for the prophylaxis of migraine headache in adults and adolescents. The company's product candidates for the treatment of psychiatric disorders include: SPN-810 to treat impulsive aggression in children and adolescents who have attention deficit hyperactivity disorder (ADHD); SPN-812, a non-stimulant candidate to treat patients who have ADHD; SPN-809 for the treatment of depression; and SPN-604 for the treatment of bipolar.

Transocean Ltd.

Provider
Vermilion Research
Vermilion Research

Vermilion Research delivers timely, actionable, and unique research inputs to professional investors. Our research strategists highlight securities which we believe are at major inflection points, based on our various proprietary technical indicators, and offer asymmetric risk/return profiles. We believe our research methodology, which is not limited by industry sector or market capitalization, enables us to deliver superior investment recommendations.

Our process begins by organizing all actively traded stocks into coherent sectors, then into logical industry groups. We then apply our proprietary relative strength tools to identify developing price trends. Once attractive trends are identified within a selected sectors or groups, we screen for individual stocks which we believe offer the best risk/reward profile. Vermilion offers U.S. and global equity market research products. Vermilion’s research team, which has received numerous awards and accolades, has a combined 70 year of experience in the analysis of investment securities.

Analysts
Dave Nicoski

Ross LaDuke

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