Report
Dave Nicoski ...
  • Ross LaDuke
EUR 47.11 For Business Accounts Only

Vermilion Compass: Weekly Equity Strategy

Healthy Sector Rotations Continue
Note: We have resumed production of the Russell 1000 & 2000 grids, which you can find at the end of the attached Compass PDF.
The rotation out of stay-at-home/COVID-19 beneficiary stocks and into reopening/economically sensitive stocks that we highlighted last week has continued, leading us to make several upgrades and one downgrade (see first bullet below). This broadening-out of participation and several other bullish developments highlighted below tells us the bulls have the upper hand.
• Sector Relative Strength Rankings & Weighting Recommendations. We are downgrading Health Care from overweight to market weight due to toppy RS and weakness from medical devices/equipment (IHI, XHE) and pharmaceuticals (PJP, XPH, PPH). Even biotech (IBB, BBH, XBI) exhibits early signs of a potential RS top. Additionally, we are upgrading Energy, Financials, Materials, Manufacturing, and Transportation from underweight to market weight due to bullish price and/or RS inflections for each of these Sectors. This type of rotation into economically sensitive Sectors is historically consistent with the early stages of bull markets... see pages 2-4.
• Higher Prices Ahead? Evidence suggests the S&P 500 is poised for higher prices after breaking above the 2955-2968 resistance zone. 3000 and the 200-day MA is resistance to watch, however as long as the S&P 500 is above 2934.49 (the 61.8% Fib retracement level) it is hard to be bearish. Price breakouts and/or bullish RS inflections in the Dow Jones Industrials, small-caps (Russell 2000), mid-caps (Russell Mid Cap, S&P 400), and the MSCI ACWI only add to our constructive outlook... see chart below and page 5.
• More Bullish Developments: High Yield Spreads, Semiconductors, Defensives Underperforming, Gold vs. S&P 500, 20+ Year Treasuries vs. S&P 500. High yield spreads have narrowed substantially and are below the April lows. Cap- and equal-weighted Semiconductors (SOXX, XSD) hit multi-month price and RS highs last week. Defensive Sectors Utilities (XLU) and Staples (RHS) remain in RS downtrends. Ratios such as gold (GLD) vs. S&P 500 and Treasuries (TLT) vs. S&P 500 are hitting lows not seen since March. All of these developments help paint a bullish picture... see pages 6-7.
• What Could Possibly Go Wrong? We are watching the Technology and Internet space (QQQ, FDN, XLK) closely for potential breakdowns. The market would likely have a hard time holding up if these mega-cap growth stocks falter considerably... see page 8.
In today's report we highlight attractive Groups and stocks within Discretionary, Transportation, and Manufacturing: CD-05 Auto Parts Retailers, TR-05 Large-Cap Air Freight & Logistics, TR-12 Large-Cap Trucking, and MF-31 Building Products and Fixtures... see pages 15-33.
Underlyings
Advance Auto Parts Inc.

Advance Auto Parts is an automotive aftermarket parts provider in North America, serving both professional installers (Professional), and do-it-yourself (DIY), customers as well as independently owned operators. The company's stores and branches provide a range selection of brand name, original equipment manufacturer and private label automotive replacement parts, accessories, batteries and maintenance items for domestic and imported cars, vans, sport utility vehicles and light and heavy duty trucks. Through its integrated operating approach, the company serves its Professional and DIY customers through a variety of channels ranging from brick and mortar store locations to self-service e-commerce sites.

American Woodmark Corporation

American Woodmark manufactures and distributes kitchen, bath and home organization products for the remodeling and new home construction markets. The company provides a variety of products that fall into product lines including kitchen cabinetry, bath cabinetry, office cabinetry, home organization and hardware. The company's cabinetry products are available in a variety of designs, finishes and finish colors and door styles. The company provides products in the following categories: made-to-order, which are special ordered and shipped directly to the home from the factory; and stock, which represents cash and carry products sold through home centers. The company's home organization products are stock products.

Armstrong Flooring Inc.

Armstrong Flooring is a producer of resilient flooring products for use primarily in the construction and renovation of commercial, residential and institutional buildings. The company designs, manufactures, sources and sells flooring products primarily in North America and the Pacific Rim.

AutoZone Inc.

AutoZone is a retailer and a distributor of automotive replacement parts and accessories. The company operates stores in the United States, including Puerto Rico and Saint Thomas, Mexico, and Brazil. Each store carries a product line for cars, sport utility vehicles, vans and light trucks, including new and remanufactured automotive hard parts, maintenance items, accessories and non-automotive products. In addition, the company has a commercial sales program that provides commercial credit and delivery of parts and other products to local, regional and national repair garages, dealers, service stations and public sector accounts. The company also sells the ALLDATA brand automotive diagnostic and repair software.

Beacon Roofing Supply Inc.

Beacon Roofing Supply is a distributor of roofing materials and complementary building products in the United States and Canada. The complementary building products the company distributes include siding, windows, insulation, waterproofing systems, wallboard, acoustical ceilings, and other exterior and interior building products. The company purchases products from manufacturers and then distributes these goods to a customer base consisting of contractors, and to a lesser extent, home builders, retailers, and other building materials suppliers. The company supports its customers with services such as advice and assistance on product identification, specification and technical support, and training services.

Builders FirstSource Inc.

Builders FirstSource, through its subsidiaries is a supplier and manufacturer of building materials, manufactured components and construction services to homebuilders, sub-contractors, remodelers and consumers. The company provides a solution to its customers providing manufacturing, supply and installation of structural and related building products. The company's manufactured products include factory-built roof and floor trusses, and wall panels and stairs. The company also assembles interior and exterior doors into pre-hung units. Additionally, the company supplies its customers with building products not manufactured by the company, such as dimensional lumber and lumber sheet goods and various window, door and millwork lines.

C.H. Robinson Worldwide Inc.

Robinson (C.H.) Worldwide is a third party logistics company. The company provides freight transportation services and logistics solutions to companies. The company's segments are: North American Surface Transportation, which provides freight transportation services across North America through a network of offices; and Global Forwarding, which provides global logistics services through an international network of offices and also contracts with independent agents; and All Other and Corporate, which includes Robinson Fresh? that provides sourcing services including the buying, selling, and marketing of fresh fruits, vegetables, and other perishable items, and managed services that provides Managed TMS?.

Expeditors International of Washington Inc.

Expeditors International of Washington provides global logistics services. As a third party logistics provider, the company purchases cargo space from carriers (such as airlines, ocean shipping lines, and trucking lines) on a volume basis and resells that space to its customers. The company provides a range of transportation services and customer solutions, such as customs brokerage, order management, transportation, warehousing and distribution, transit, cargo insurance, cargo monitoring and tracking, and other customized logistics and consulting solutions. The company's Project Cargo unit handles special project shipments that move via a single method or combination of air, ocean, and/or ground transportation.

FedEx Corporation

FedEx provides transportation, e-commerce and business services through companies under the FedEx brand. These companies are included in the following segments: Federal Express Corporation, including TNT Express B.V., is an express transportation company; FedEx Ground Package System, Inc., which is a provider of small-package ground delivery services; FedEx Freight Corporation, which is a provider of less-than-truckload freight services; and FedEx Corporate Services, Inc., which provides sales, marketing, information technology, communications, customer service, technical support, billing and collections services, and certain back-office functions.

Genuine Parts Company

Genuine Parts is engaged in the distribution of automotive replacement parts, industrial parts, and business products. The company's reportable business segments are: Automotive, which distributes automotive parts and accessory items and provides inventory, cataloging, marketing, training and other programs to the automotive aftermarket; Industrial, which distributes industrial replacement parts and related supplies such as bearings, mechanical and electrical power transmission products, industrial automation, and hose, among others; and Business Products, which is engaged in the wholesale distribution of a line of office and other business-related products through a customer base of resellers.

GMS Inc.

GMS is a holding company. Through its subsidiaries, the company is engaged as a building products including wallboard, suspended ceilings systems, or ceilings, steel framing and other complementary building products. The company's product offering are: wallboard for interior and exterior walls and ceilings in residential and commercial structures; ceilings, which consists of suspended mineral fiber, soft fiber and metal ceiling systems; Steel Framing, which consists of steel track, studs and the various other steel products; and Other Products, which includes complementary products such as insulation, lumber, ready-mix-joint compound and various other interior construction products and ancillary products.

Installed Building Products Inc.

Installed Building Products is a holding company. Through its subsidiaries, the company primarily install insulation, waterproofing, fire-stopping, fireproofing, garage doors, rain gutters, window blinds, shower doors, closet shelving and mirrors and other products for residential and commercial builders located in the continental U.S. The company provides its portfolio of services for new and existing single-family and multi-family residential and commercial building projects from its national network of branch locations. The company provides a range of insulation materials, including: fiberglass and cellulose insulation, and spray foam insulation.

J.B. Hunt Transport Services Inc.

J.B. Hunt Transport Services is a holding company. Through its subsidiaries, the company is a surface transportation, delivery, and logistics company. The company's service offerings include transportation of full-truckload containerized freight, which it directly transports utilizing its equipment and company drivers or independent contractors. The company also provides customized freight movement, revenue equipment, labor, systems, and delivery services. The company's local and home delivery services typically are provided through a network of cross-dock service centers throughout the continental United States. The company's segments include Intermodal, Dedicated Contract Services?, Integrated Capacity Solutions, and Truckload.

JELD-WEN Holding Inc.

JELD-WEN Holding is a holding company. Through its subsidiaries, the company is a door and window manufacturer. The company designs, produces, and distributes a range of interior and exterior doors, wood, vinyl, and aluminum windows, and related products for use in the construction and repair and remodel of residential homes and, to a lesser extent, non-residential buildings. The company markets its products under the JELD-WEN brand, along with several brands such as Swedoor and DANA in Europe and Corinthian, Stegbar, and Trend in Australia. The company's customers include wholesale distributors and retailers as well as individual contractors and consumers. The company has three segments: North America, Europe, and Australasia.

Knight-Swift Transportation Holdings Inc. Class A

Knight-Swift Transportation Holdings is a truckload carrier and a provider of transportation solutions. The company provides multiple truckload transportation, intermodal, and logistics services using a nationwide network of business units and terminals in the United States and Mexico. In addition to its truckload services, the company contracts with third-party capacity providers to provide a range of truckload services to its customers. The company operates company tractors, independent contractor tractors, and trailers within its Knight Trucking, Swift Truckload, Swift Dedicated, and Swift Refrigerated segments. Additionally, the company operates tractors and intermodal containers within its Swift Intermodal segment.

Landstar System Inc.

Landstar System is an asset-light provider of integrated transportation management solutions. The company provides services to its customers across transportation modes, throughout the U.S. and to a lesser extent in Canada and Mexico, and between the U.S. and Canada, Mexico and other countries around the world. The company has two segments: transportation logistics, which provides truck services, rail intermodal services, as well as air and ocean services; and insurance, which is comprised of Signature Insurance Company, an offshore insurance subsidiary, and Risk Management Claim Services, Inc. The company's insurance segment provides risk and claim management services to certain of its operating subsidiaries.

LKQ Corporation

LKQ is a holding company. Through its subsidiaries, the company provides alternative vehicle collision replacement products and alternative vehicle mechanical replacement products. The company is also a provider of alternative vehicle replacement and maintenance products in the United Kingdom, Germany, the Benelux region (Belgium, Netherlands, and Luxembourg), Italy, Czech Republic, Poland, Slovakia, Austria, and other European countries. In addition to its wholesale operations, the company operates self service retail facilities across the United States that sell recycled automotive products from end-of-life-vehicles. The company is also a distributor of specialty vehicle aftermarket equipment and accessories.

Masco Corporation

Masco designs, manufactures and distributes home improvement and building products. The company's Plumbing Products include faucets, showerheads, handheld showers, valves, bath hardware and accessories, bathing units, shower bases and enclosures and toilets. This segment also includes brass, copper and composite plumbing system components and other non-decorative plumbing products. The company's Decorative Architectural Products include cabinet and door hardware, functional hardware, wall plates, hook and hook rail products, and picture hanging accessories. This segment also includes decorative indoor and outdoor lighting fixtures, ceiling fans, landscape lighting and LED lighting systems.

Masonite International Corp.

Masonite International designs, manufactures and distributes interior and exterior doors for the new construction and repair, renovation and remodeling sectors of the residential and non-residential building construction markets. Co. manufactures a line of interior doors, including residential molded, flush, stile and rail, louver and commercial and architectural doors; door components for internal use and sale to other door manufacturers; and exterior residential steel, fiberglass and wood doors and entry systems. Co.'s portfolio of brands include Masonite®, Marshfield®, Premdor®, Mohawk®, Megantic®, Algoma®, Birchwood Best®, Lemieux®, Door-Stop™, Harring Doors™ and National Hickman™ .

Monro Inc

Monro is engaged principally in providing automotive undercar repair and tire sales and services. The company provides a range of services on passenger cars, light trucks and vans for brakes; mufflers and exhaust systems; and steering, drive train, suspension and wheel alignment. The company also provides other products and services, including tires and routine maintenance services, including state inspections. The company focuses on the repair and replacement of parts which periodically replaced as they wear out. The company does not perform under-the-hood repair services except for oil change services, various flush and fill services and some minor tune-up services.

Norbord Inc.

Norbord is a producer of wood-based panels with 17 plant locations in the U.S., Europe and Canada.

O'Reilly Automotive Inc.

O'Reilly Automotive is a retailer of automotive aftermarket parts, tools, supplies, equipment and accessories, selling its products to both do-it-yourself and service provider customers. The company's stores carry a product line, including: new and remanufactured automotive hard parts and maintenance items, such as alternators, batteries, brake system components, belts, chassis parts, driveline parts, engine parts, fuel pumps, hoses, starters, temperature control, water pumps, antifreeze, appearance products, engine additives, filters, fluids, lighting, oil and wiper blades; and accessories, such as floor mats, seat covers and truck accessories.

Old Dominion Freight Line Inc.

Old Dominion Freight Line is a less-than-truckload (LTL) motor carrier providing regional, inter-regional and national LTL services, which include expedited transportation. In addition to the company's primary LTL services, the company provides a range of services including container drayage, truckload brokerage and supply chain consulting. The company also provides access to its systems through multiple gateways that provide its customers and employees flexibility and access to information. The company employs vehicle safety systems, on-board and hand-held computer systems, freight handling systems and logistics technology to reduce costs and transit times.

OWENS CORNING INC

Owens Corning is engaged in manufacturing and delivering a range of insulation, roofing, and fiberglass composite materials. The company's Composites segment includes vertically integrated downstream activities. The company manufactures, fabricates and sells glass reinforcements in the form of fiber. The company's Insulation segment includes a portfolio of high, mid and low-temperature products with a geographic mix of United States, Canada, Europe, Asia-Pacific and Latin America, a market mix of residential, commercial, industrial and other markets, and a channel mix of retail, contractor and distribution. The company's products in the Roofing segment are laminate and strip asphalt roofing shingles.

Patrick Industries Inc.

Patrick Industries manufactures component products and distributes building products and materials serving original equipment manufacturers primarily in the recreational vehicle, manufactured housing and marine markets. The company's manufacturing segment includes the following products, among others: laminated products that are utilized to produce furniture, shelving, walls, countertops, and cabinet products, cabinet doors, fiberglass bath fixtures and tile systems. The company's distribution segment distributes, among others, pre-finished wall and ceiling panels, drywall and drywall finishing products, electronics and audio systems components, appliances, wiring, electrical and plumbing products.

Select Sector SPDR-Health Care

Simpson Manufacturing Co. Inc.

Simpson Manufacturing, through its subsidiary, designs, engineers and manufactures wood and concrete building construction products. The company's wood construction products are used in light-frame construction and include connectors, truss plates, fastening systems, fasteners and pre-fabricated lateral systems. The company's concrete construction products are used in concrete, masonry and steel construction and include adhesives, mechanical anchors, carbide drill bits, powder actuated tools, and fiber reinforced materials. The company also provides engineering services in support of some of its products and provides design and other software that facilitates the specification, selection and use of its products.

TopBuild Corp.

TopBuild is an installer and distributor of insulation and other building products to the construction industry. The company's products and services are primarily for residential new construction, commercial construction, and residential repair/remodel activity. The company operates in two segments: installation, which installs various insulation applications that include fiberglass batts and rolls, blown-in loose fill fiberglass, blown-in loose fill cellulose, and polyurethane spray foam; and distribution, which distributes insulation and other building products including rain gutters, fireplaces, closet shelving, and roofing materials through its Service Partners business.

Trex Company Inc.

Trex Company is a manufacturer of composite decking and railing products, which are marketed under the brand name Trex?. In addition, the company is a national provider of custom-engineered railing and staging, systems for the commercial and multi-family market, including sports stadiums and performing arts venues. The company operates in two reportable segments: Trex Residential Products, which provides a set of product offerings in the decking, railing, fencing, steel deck framing, and outdoor lighting categories; and Trex Commercial Products, which designs and engineers custom railing solutions, which are used in collegiate sports facilities, standardized architectural and aluminum railing systems.

UFP Industries, Inc.

US Auto Parts Network Inc

U.S. Auto Parts Network is an online provider of automotive aftermarket parts. The company's products are: collision parts serving the body repair segment, engine parts to serve the replacement/wear parts market and performance parts and accessories. The collision parts category is comprised of parts for the exterior of an automobile. The engine parts category is comprised of engine and chassis components as well as other mechanical and electrical parts. The company's performance parts and accessories consist of parts that improve the performance of the automobile, upgrade existing functionality of a specific part or improve the physical appearance or comfort of the automobile.

XPO Logistics Inc.

XPO Logistics is a global provider of supply chain solutions to various companies. The company has two reporting segments: Transportation and Logistics. The company's Transportation segment facilitates the movement of raw materials, parts and finished goods. The company's transportation services include truck brokerage, expedite, intermodal, drayage, last mile, less-than-truckload, full truckload, global forwarding and managed transportation. The company's Logistics segment services include warehousing, distribution and inventory management, omnichannel and e-commerce fulfillment, reverse logistics, cold chain solutions, packaging and labeling, factory support, aftermarket support and order personalization services.

ZTO Express (Cayman) Inc. Sponsored ADR Class A

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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