Report
Dave Nicoski ...
  • Ross LaDuke
EUR 230.98 For Business Accounts Only

Vermilion Compass: Weekly Equity Strategy

Cautious outlook intact; Downgrading Manufacturing

Relatively solid earnings results have failed to support the market amid an ongoing host of concerns including, but not limited to, rising interest rates and a potential Fed policy mistake, and also a strong dollar and China-U.S. trade war fears. With the February low of ~2,532 only about 4% lower from current levels on the S&P 500 and seemingly no resolution in sight to the aforementioned concerns, we remain extremely cautious and expect consolidation, volatility, and lower prices to continue as the market searches for a bottom.

• Sector Relative Strength Rankings (RSRs) & Weighting Recommendations. Our equal-weighted Manufacturing Sector is breaking down to new lows in terms of price and RS as investors continue to prefer defensive and non-cyclical areas of the market. As a result, we are downgrading the Sector to underweight. Reduce exposure... see chart below and page 2.

• Market internals deteriorating. The percentage of stocks above their 50- and 200-day moving averages within the S&P 500 leads us to believe the market is oversold on a short-term basis. However, on a long-term basis we have not yet reached oversold levels, signaling the potential for lower prices over the next several weeks. Additionally, the advance-decline (A/D) line is breaking down, reminiscent of 2015, a rough year for stocks... see page 3.

• Growth vs. value breaking down. The nearly 2-year Russell 1000 Growth vs. Value ratio uptrend is breaking down and value is winning out relative to growth amid the market correction and backup in rates. We recommend a shift toward value, namely defensive areas including Staples, Utilities, Communications, and REITs... see page 4.

• USD remains strong and emerging markets (EEM) remain weak. Investors have sought safety in the dollar as it hovers near 52-week highs. A scenario we envision as providing relief for U.S. markets includes a weakening dollar leading to a bottom for EM equities which allows our markets to move higher. Until that happens we believe our markets will continue to struggle.

• In today's report we highlight attractive Groups within Services and Utilities: SV-16 Waste Services, Small-Cap, and UT-06 Electric, Midwest... see pages 9-17.
Underlyings
Advanced Disposal Services Inc.

Advanced Disposal Services is an environmental services company providing nonhazardous solid waste collection, transfer, recycling and disposal services for residential, commercial and industrial customers in the Southeast, Midwest and Eastern regions of the U.S., as well as in the Commonwealth of the Bahamas. The company's operations are managed through offices located in the South, Midwest and East regions of the U.S., which has a portfolio of collection, transfer, landfill and recycling operations. The company's environmental services operations is classified into three lines of business: collection services; disposal services, which include transfer stations and landfills; and recycling services.

AES Corporation

AES is a holding company. Through its subsidiaries, the company operates a portfolio of electricity generation and distribution businesses. The first business line is generation, where the company owns and/or operates power plants to generate and sell power to customers, such as utilities, industrial users, and other intermediaries. The second business line is utilities, where the company owns and/or operates utilities to generate or purchase, distribute, transmit and sell electricity to end-user customers in the residential, commercial, industrial and governmental sectors within a defined service area. In certain circumstances, the company's utilities also generates and sells electricity on the wholesale market.

Alliant Energy Corp

Alliant Energy is a public utility holding company, engaged in providing regulated electric and natural gas service. The company's subsidiaries are: Interstate Power and Light Company, which is engaged principally in the generation and distribution of electricity and the distribution and transportation of natural gas to retail customers in select markets in Iowa; Wisconsin Power and Light Company, which is engaged principally in the generation and distribution of electricity and the distribution and transportation of natural gas to retail customers in select markets in Wisconsin; and Alliant Energy Finance, LLC, which manages a portfolio of wholly-owned subsidiaries and additional holdings.

Ameren Corporation

Ameren is a public utility holding company. Through its subsidiary, Union Electric Company, the company operates a rate-regulated electric generation, transmission, and distribution business and a rate-regulated natural gas distribution business in Missouri. Through its subsidiary, Ameren Illinois Company, the company operates rate-regulated electric transmission, electric distribution, and natural gas distribution businesses in Illinois. Through its Ameren Transmission Company of Illinois subsidiary, the company operates a Federal Energy Regulatory Commission rate-regulated electric transmission business. The company also has other subsidiaries that conduct other activities, such as providing shared services.

American Electric Power Company Inc.

American Electric Power Company is a public utility holding company. The public utility subsidiaries of the company provide electric service, consisting of generation, transmission and distribution, on an integrated basis to their retail customers. The service areas of the company's public utility subsidiaries cover portions of the states of Arkansas, Indiana, Kentucky, Louisiana, Michigan, Ohio, Oklahoma, Tennessee, Texas, Virginia and West Virginia. Transmission networks are interconnected with distribution facilities in the territories served. The company's service company subsidiary provides accounting, administrative, information systems, engineering, financial, legal, maintenance and other services.

Atmos Energy Corporation

Atmos Energy is engaged in the regulated natural gas distribution and pipeline and storage businesses. The company delivers natural gas through regulated sales and transportation arrangements to residential, commercial, public-authority and industrial customers. The company's segments are: Distribution, which is comprised of its regulated natural gas distribution and related sales operations; and Pipeline and Storage, which consists of the pipeline and storage operations of its Atmos Pipeline-Texas Division (APT) and its natural gas transmission operations in Louisiana. APT has intrastate pipeline operations in Texas with a focus on the natural gas-producing areas of central, northern and eastern Texas.

Casella Waste Systems Inc. Class A

Casella Waste Systems is a solid waste services company. The company provides resource management and services to residential, commercial, municipal and industrial customers, primarily in the areas of solid waste collection and disposal, transfer, recycling and organics services. The company provides integrated solid waste services in Vermont, New Hampshire, New York, Massachusetts, Maine and Pennsylvania. The company manages its solid waste operations on a geographic basis through its regional operating segments, the Eastern and Western regions, each of which provides a range of solid waste services, and its recycling and commodity brokerage operations through its Recycling segment.

Clean Harbors Inc.

Clean Harbors is a provider of environmental, energy and industrial services throughout North America. The company collects, transports, treats and disposes of hazardous and non-hazardous waste, including resource recovery, physical treatment, fuel blending, incineration, landfill disposal, wastewater treatment, lab chemical disposal, explosives management and CleanPack? services. The company's Safety-Kleen business provides an array of environmental services and complementary products to a range of customers including automobile repair shops, car and truck dealers, metal fabricators, machine manufacturers, fleet maintenance shops and other automotive, industrial and retail customers.

CMS Energy Corporation

CMS Energy is a holding company. The company has several subsidiaries, including: Consumers Energy Company, an electric and gas utility that serves individuals and businesses operating in the alternative energy, automotive, chemical, food, and metal products industries, as well as a group of other industries; CMS Enterprises Company, through its subsidiaries and equity investments, is engaged in domestic independent power production, including the development and operation of renewable generation, and the marketing of independent power production; and EnerBank USA, an industrial bank located in Utah that provides unsecured consumer installment loans, primarily for financing home improvements.

DTE Energy Company

DTE Energy is a holding company. The company is engaged in the generation, purchase, distribution and sale of electricity to customers in southeastern Michigan through its DTE Electric Company subsidiary, as well as in the purchase, storage, transportation, distribution and sale of natural gas throughout Michigan and the sale of storage and transportation capacity through its DTE Gas Company subsidiary. The company's non-utility operations are: gas storage and pipelines, which consists of natural gas pipeline, gathering, transportation, and storage businesses; power and industrial projects; and energy trading, which consists of energy marketing and trading operations.

Exelon Corporation

Exelon is a utility services holding company engaged in the generation, delivery and marketing of energy through Exelon Generation Company, LLC and the energy distribution and transmission businesses through Commonwealth Edison Company, PECO Energy Company, Baltimore Gas and Electric Company, Potomac Electric Power Company, Delmarva Power & Light Company and Atlantic City Electric Company. Through its business services subsidiary Exelon Business Services Company, LLC, the company provides its subsidiaries with a variety of support services.

FirstEnergy Corp.

FirstEnergy is a public utility holding company. The company and its subsidiaries are principally involved in the transmission, distribution and generation of electricity. The company's reportable operating segments are comprised of: Regulated Distribution, which distributes electricity through the company's utility operating companies and also controls regulated electric generation capacity located primarily in West Virginia, Virginia and New Jersey; and Regulated Transmission, which provides transmission infrastructure owned and operated by the transmission companies and certain of the company's utilities to transmit electricity from generation sources to distribution facilities.

Spire Inc.

Spire is the holding company for Spire Missouri Inc. (Spire Missouri), Spire Alabama Inc. (Spire Alabama), other gas utilities, and gas-related businesses. The company's segments are: Gas Utility, which includes Spire Missouri, a natural gas distribution utility system in Missouri, and Spire Alabama, a public utility engaged in the purchase, retail distribution and sale of natural gas principally in central and northern Alabama; and Gas Marketing, which includes the company's subsidiary, Spire Marketing Inc. that is engaged in the marketing of natural gas and providing energy services to both on-system utility transportation customers and customers outside of the service areas.

Tetra Tech Inc.

Tetra Tech provides consulting and engineering services that focuses on water, environment, infrastructure, resource management, energy, and international development. The company's segments are: Government Services Group, which supports United States government civilian and defense agencies with services in water, environment, infrastructure, information technology, and emergency management services; and Commercial/International Services Group, which provides infrastructure and related environmental and geotechnical services, testing, engineering and project management services to commercial and local government clients in Canada, Asia Pacific, the United Kingdom, as well as Brazil and Chile.

WEC Energy Group Inc

WEC Energy Group is a holding company. Through its subsidiaries, the company provides regulated natural gas and electricity, and nonregulated renewable energy. The company's segments include: Wisconsin, which generates and distributes electric energy and provides retail natural gas distribution service; Illinois, which includes the natural gas utility operations; Electric Transmission, which owns, maintains, monitors, and operates electric transmission systems in Wisconsin, Michigan, Illinois, and Minnesota; and Non-Utility Energy Infrastructure, which owns and leases generating facilities to its Wisconsin Electric Power Company subsidiary and owns underground natural gas storage facilities in Michigan.

Xcel Energy Inc.

Xcel Energy is a regulated electric and natural gas delivery company which serves customers in mid-western and western states, including portions of Colorado, Michigan, Minnesota, New Mexico, North Dakota, South Dakota, Texas and Wisconsin. The company's reportable segments include: regulated electric utility, which generates, transmits and distributes electricity in Minnesota, Wisconsin, Michigan, North Dakota, South Dakota, Colorado, Texas and New Mexico; regulated natural gas utility, which transports, stores and distributes natural gas primarily in portions of Minnesota, Wisconsin, North Dakota, Michigan and Colorado; and other, which includes steam revenue and appliance repair services.

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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