Report
Dave Nicoski ...
  • Ross LaDuke
EUR 46.20 For Business Accounts Only

Vermilion Compass: Weekly Equity Strategy

Value Overtaking Growth; Treasury Yields and Commodities Bottoming

New and ongoing developments continue to support our bullish outlook. In the “new” column, we have bullish inflections in Treasury yields, the value vs. growth ratio, and broad commodities (Bloomberg Commodity index). These are classic signs that the economy is improving and is historically consistent with prior equity bull markets. Another new development is the market becoming increasingly overbought. As we outline below, being “overbought” is far from a sell signal.

· Sector Relative Strength Rankings & Weighting Recommendations. Rising consumption expectations and a weaker dollar has provided a tailwind to commodity prices. In turn, this has benefitted the commodity Sectors, Energy and Materials... see page 2.

· Value Is Overtaking Growth. For the past three weeks we have referenced the healthy rotation into cyclical value as a big reason for our shifting to a bullish outlook for the broad market. Despite the shift starting three weeks ago, it was not until last week that the Russell 1000 Value vs. Growth ratio made a bullish inflection. This bullish reversal in favor of value suggests value's outperformance may just be getting going, as it would take another 8-10% of outperformance from value just to get to the 3.5-year downtrend... see chart below. Additionally, it is worth noting that the value vs. growth ratios for small- and mid-caps look virtually identical to the large-cap ratio below.

· Treasury Yields And Commodities Bottoming. Bullish inflections in Treasury yields and commodities are classic signs of an improving economy. Additionally, flows out of Treasuries and into equities will provide another tailwind for equity markets... see page 3.

· Overbought Conditions Are... Bullish? Often, Yes. The S&P 500 shows short-term overbought readings on metrics such as daily RSI and the % of S&P 500 stocks above their 50-day MAs. But overbought does not mean bearish. To the contrary, history tells us that these overbought readings have often been bullish signals for the broad market as it indicates healthy breadth and an insatiable demand for stocks... see page 4.
Underlyings
Antero Resources Corporation

Antero Resources is an oil and natural gas company engaged in the exploration, development and production of natural gas, natural gas liquids (NGLs), and oil properties. The company focuses on unconventional reservoirs, which can generally be characterized as fractured shale formations. The company's drilling operations are focused in the Marcellus Shale and Utica Shale of the Appalachian Basin. The company's industry segments are: the exploration, development, and production of natural gas, NGLs, and oil; marketing of excess firm transportation capacity; and the gathering and processing of natural gas. All of the company's operations are conducted in the United States.

APA Corp.

Apache is an independent energy company that explores for, develops, and produces natural gas, crude oil, and natural gas liquids. The company had exploration and production operations in United States, Egypt, and offshore United Kingdom in the North Sea. The company also has exploration interests in Suriname. The company markets its United States crude oil production to main oil companies, marketing, and transportation companies, and refiners based on a West Texas Intermediate price or other regional pricing indices. The company has two international regions: The Egypt includes onshore conventional assets in Egypt's Western Desert. The North Sea region includes offshore assets based in United Kingdom.

BASF SE ADS

Black Stone Minerals LP

Cabot Corporation

Cabot is a specialty chemicals and performance materials company. The company's principal products are rubber and specialty grade carbon blacks, specialty compounds, fumed metal oxides, activated carbons, inkjet colorants, and aerogel. The company's segments are: Reinforcement Materials, which combines the rubber blacks and elastomer composites product lines; Performance Chemicals, which combines its specialty grades of carbon black, fumed metal oxides and aerogel product lines in its Performance Additives business, and combines its specialty compounds and inkjet product lines in its Formulated Solutions business; and Purification Solutions, which represents the company's activated carbon business.

Cabot Oil & Gas Corporation

Cabot Oil & Gas is an independent oil and gas company engaged in the development, exploitation, exploration and production of oil and gas properties. The company operates in one segment, natural gas and oil development, exploitation, exploration and production, in the continental United States. The company's operations are primarily concentrated in one unconventional play—the Marcellus Shale in northeast Pennsylvania.

Celanese Corporation

Celanese is a holding company. Through its subsidiaries, the company is a chemical and specialty materials company. The company is a producer of engineered polymers and a producer of acetyl products, which are intermediate chemicals. The company's segments are: Engineered Materials, which develops, produces and supplies a portfolio of specialty polymers for automotive and medical applications, as well as industrial products and consumer electronics; Acetate Tow, which is a producer and supplier of acetate tow and acetate flake, primarily used in filter products applications; and Acetyl Chain, which includes the chain of intermediate chemistry, emulsion polymers and ethylene vinyl acetate polymers businesses.

Clearwater Seafoods Inc.

Clearwater Seafoods is engaged in the ownership and operation of assets and property in connection with the harvesting, processing, distribution and marketing of seafood.

Concho Resources Inc.

Concho Resources is an independent oil and natural gas company engaged in the acquisition, development, exploration and production of oil and natural gas properties. The company's operations are primarily focused in the Permian Basin of West Texas and Southeast New Mexico.

CONOCOPHILLIPS

ConocoPhillips is an exploration and production company engaged in exploring for, producing, transporting and marketing crude oil, bitumen, natural gas, liquefied natural gas and natural gas liquids. The company's segments include: Alaska, which operates in Alaska; Lower 48, which operates in the United States and the Gulf of Mexico; Canada, which operates in Alberta and British Columbia; Europe and North Africa, which consists of operations and exploration activities in Norway, the United Kingdom and Libya; Asia Pacific and Middle East, which operates in China, Indonesia, Malaysia, Australia, Qatar, and Timor-Leste; and Other International, which operates in Colombia, Chile and Argentina.

Diamondback Energy Inc.

Diamondback Energy is an independent oil and natural gas company focused on the acquisition, development, exploration and exploitation of unconventional, onshore oil and natural gas reserves in the Permian Basin in West Texas. The company's activities are primarily focused on horizontal development of the Spraberry and Wolfcamp formations of the Midland Basin and the Wolfcamp and Bone Spring formations of the Delaware Basin, both of which are part of the larger Permian Basin in West Texas and New Mexico.

Dow Inc.

Dow is a holding company. Through its subsidiaries, the company delivers science-based products and solutions for its customers. The company's segments are: Packaging and Specialty Plastics, which focuses on polyolefin product portfolio to deliver plastics to customers; Industrial Intermediates and Infrastructure, which produces and markets ethylene oxide and propylene oxide derivatives that are aligned to market segments as appliances, coatings, infrastructure and oil and gas; and Performance Materials and Coatings, which utilizes the company's acrylics-, cellulosics- and silicone-based technology platforms to serve the needs of the architectural and industrial coatings, home care and personal care end-markets.

DuPont de Nemours Inc.

DuPont de Nemours provides technology-based materials, ingredients and solutions in key markets including electronics, transportation, building and construction, health and wellness, food and worker safety. The company has five segments: Electronics & Imaging, which is a supplier of materials and systems for a range of consumer electronics ; Nutrition & Biosciences, which provides solutions for the global food and beverage markets; Transportation & Industrial, which delivers polymer-based high-performance materials; Safety & Construction, which provides engineered products and integrated systems; and Non-Core, a supplier of key materials for the manufacturing of photovoltaic cells and panels.

Eastman Chemical Company

Eastman Chemical is a global advanced materials and specialty additives company. The company's segments are: Additives and Functional Products, which manufactures chemicals for products in the transportation, consumables, building and construction, and other markets; Advanced Materials, which produces and markets polymers, films, and plastics in transportation, consumables, building and construction, durable goods, and health and wellness markets; Chemical Intermediates, which utilizes integration from the cellulose and acetyl, olefins, and alkylamines streams; and Fibers, which manufactures and sells Estron? acetate tow and Estrobond? triacetin plasticizers for use in filtration media.

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.

FMC Corporation

FMC is an agricultural sciences company. The company provides solutions to growers around the world with a product portfolio fueled by a discovery and development pipeline in crop protection, plant health, and personnel pest and turf management. This combination of technologies includes insect control products based on Rynaxypyr? and Cyazypyr? active ingredients; Authority?, Boral?, Centium?, Command? and Gamit? branded herbicides; Talstar? and Hero? insecticides; and flutriafol-based fungicides. The company's products are used in agriculture to improve crop yield and quality by controlling a range of insects, weeds and disease, as well as in non-agricultural markets for pest control.

Hess Corporation

Hess is a global exploration and production company engaged in exploration, development, production, transportation, purchase and sale of crude oil, natural gas liquid (NGL), and natural gas with production operations located primarily in the United States, Guyana, the Malaysia/Thailand Joint Development Area, Malaysia and Denmark. The company's Midstream operating segment provides fee-based services, including gathering, compressing and processing natural gas and fractionating NGL; gathering, terminaling, loading and transporting crude oil and NGL; storing and terminaling propane, and water handling services primarily in the Bakken shale play in the Williston Basin area of North Dakota.

Koppers Holdings Inc.

Koppers Holdings is a holding company. Through its subsidiaries, the company is a provider of treated wood products, wood treatment chemicals, and carbon compounds. The company operates three principal business segments: Railroad and Utility Products and Services, which supplies railroad crossties to the North American railroads; Performance Chemicals, which manufactures and supplies water-based wood preservatives and wood specialty additives to treaters who supply the residential, agricultural and industrial pressure-treated wood markets; and Carbon Materials and Chemicals, which processes coal tar into a variety of products, including creosote and other related railroad products.

LyondellBasell Industries NV

LyondellBasell Industries is a chemical company. Co.'s chemicals businesses consist of processing plants that convert liquid and gaseous hydrocarbon feedstocks into plastic resins and other chemicals, and used by its customers to manufacture a range of products including food packaging, home furnishings, automotive components, paints and coatings. Co.'s refining business consists of its Houston refinery, which processes crude oil into products such as gasoline, diesel and jet fuel. Co. manages its operations through five operating segments: Olefins and Polyolefins - Americas; Olefins and Polyolefins - Europe, Asia, International; Intermediates and Derivatives; Refining; and Technology.

Marathon Oil Corporation

Marathon Oil is an independent exploration and production company focused on the United States resource plays. The company also has international operations in Equatorial Guinea (E.G.). The company's segments are: United States, which explores for, produces and markets crude oil and condensate, natural gas liquids (NGLs) and natural gas in the United States; and International, which explores for, produces and markets crude oil and condensate, NGLs and natural gas outside of the United States as well as produces and markets products manufactured from natural gas, such as liquefied natural gas and methanol, in E.G.

Methanex Corporation

Methanex is a producer and supplier of methanol to the international markets of Asia Pacific, North America, Europe and South America. Co.'s operations consist of the production and sale of methanol, a commodity chemical.

Occidental Petroleum Corporation

Occidental Petroleum has three reporting segments: oil and gas, which explores for, develops and produces oil and condensate, natural gas liquids (NGL) and natural gas; chemical, which mainly manufactures and markets basic chemicals (chlorine, caustic soda, chlorinated organics, potassium chemicals, ethylene dichloride, chlorinated isocyanurates, sodium silicates and calcium chloride) and vinyls (vinyl chloride monomer, polyvinyl chloride and ethylene); and marketing and midstream, which purchases, markets, gathers, processes, transports and stores oil, condensate, NGL, natural gas, carbon dioxide and power.

Orion Engineered Carbons SA

Parsley Energy Inc. Class A

Parsley Energy is a holding company. Through its subsidiaries, the company is an independent oil and natural gas company focused on the acquisition, development, exploration and production of unconventional oil and natural gas properties in the Permian Basin. The Permian Basin is located in West Texas and southeastern New Mexico. The company's properties are located in two sub areas of the Permian Basin, the Midland and Delaware Basins, where the company focuses on horizontal development drilling.

PDC Energy Inc.

PDC Energy is an independent exploration and production company that acquires, explores and develops properties for the production of crude oil, natural gas, and natural gas liquids with operations in the Wattenberg Field in Colorado and the Delaware Basin in Texas. The company's operations in the Wattenberg Field are focused in the horizontal Niobrara and Codell plays and its Delaware Basin operations are primarily focused in the Wolfcamp zones. The company is engaged in two operating segments: its oil and gas exploration and production segment and its gas marketing segment.

Pioneer Natural Resources Company

Pioneer Natural Resources is a holding company. Through its subsidiaries, the company is engaged in oil and gas exploration and production. The company explores for, develops and produces oil, Natural Gas Liquids and gas within the United States, with operations in the Permian Basin in West Texas. The company's portfolio of resources are located in the Spraberry/Wolfcamp oil field.

Range Resources Corporation

Range Resources is a holding company. Through its subsidiaries, the company is an independent natural gas, natural gas liquids and oil company, engaged in the exploration, development and acquisition of natural gas and oil properties, located in the Appalachian and North Louisiana regions of the United States, primarily in the Marcellus Shale in Pennsylvania and the Lower Cotton Valley formation in Louisiana.

SM Energy Company

SM Energy is an independent energy company engaged in the acquisition, exploration, development, and production of oil, gas, and natural gas liquids in the state of Texas. The company's operations are concentrated in the Midland Basin and South Texas.

Southwestern Energy Company

Southwestern Energy is a holding company. Through its subsidiaries, the company is an independent energy company engaged in exploration, development and production activities, including the related marketing of natural gas, oil and natural gas liquids (NGLs) produced in its operations. The company's primary business is the exploration for, and production of, natural gas, oil and NGLs. The company's operations in northeast Pennsylvania are primarily focused on the unconventional natural gas reservoir known as the Marcellus Shale, and its operations in West Virginia and southwest Pennsylvania are focused on the Marcellus Shale, the Utica and the Upper Devonian unconventional natural gas, oil and NGL reservoirs.

Viper Energy Partners LP

W&T Offshore Inc.

W&T Offshore is an independent oil and natural gas producer with substantially all of its operations in the Gulf of Mexico. The company is active in the exploration, development and acquisition of oil and natural gas properties. The company's interest in fields, leases, structures and equipment are primarily owned by the parent company, W&T Offshore, Inc. and its subsidiary, W & T Energy VI, LLC and through its proportionately consolidated interest in Monza Energy, LLC.

Westlake Chemical Corporation

Westlake Chemical operates as a manufacturer and marketer of basic chemicals, vinyls, polymers and building products. The company operates in two operating segments: Olefins, which manufactures and markets polyethylene, styrene monomer and various ethylene co-products; and Vinyls, which manufactures and markets polyvinyl chloride (PVC), vinyl chloride monomer, ethylene dichloride, chlor-alkali (chlorine and caustic soda), chlorinated derivative products and ethylene, as well as manufactures and sells building products fabricated from PVC, including residential siding, trim and mouldings, pipe and fittings for various water, sewer and industrial applications, and profiles for windows and doors.

WPX Energy Inc.

WPX Energy is an independent oil and natural gas exploration and production company engaged in the exploitation and development of long-life unconventional properties. The company is focused on exploiting, developing and growing its oil positions in the Delaware Basin (a subset of the Permian Basin) in Texas and New Mexico and the Williston Basin in North Dakota.

Xemplar Energy Corp.

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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