Report
Dave Nicoski ...
  • Ross LaDuke
EUR 46.93 For Business Accounts Only

Vermilion Compass: Weekly Equity Strategy

Value Is Just Getting Going

The weight of the evidence remains mixed yet constructive overall and suggests pullbacks to the 4000-4040 range on the S&P 500 would be nothing more than a buying opportunity. Therefore, we continue to recommend adding exposure to cyclical value areas (Energy, Financials, Materials, Manufacturing, and Transportation) on pullbacks. Below we explain why we believe value's outperformance is in its early innings, and the basis for our overall constructive outlook.

S&P 500. The S&P 500 has succumbed to the seasonally weak period (for now), pulling back from resistance at the megaphone pattern. Still, it is hard to be too concerned while the S&P 500 remains above 4118 short-term support. Below 4118 we will be watching for support at 4040-4045 followed by 4000. We view pullbacks as buying opportunities as long as the S&P 500 is above major 4000 support... see page 3.
Value vs. Growth. Small- and mid-cap value vs. growth ratios display major 4.5-year bullish reversals. Reversals of long-term trends such as these are not to be ignored and we believe this is an important signal that outperformance from value is in the early innings. The Russell 1000 large-cap value vs. growth ratio has yet to make the long-term reversal, but we believe it is only a matter of time before it breaks out -- remain overweight value across all market capitalizations... see charts below and page 4.
Treasury Yields Stable, US Dollar Weakening. The 10-year US Treasury yield has stabilized in recent months, but the path of least resistance is still higher longer-term. In the short-term, 1.5% is support while resistance is at 1.77%. The US dollar (DXY) has weakened and is now below $90.50 short-term support. $89 is the important support level to watch now; a breakdown would be bullish for global equities, however the DXY is constructive for equities if it is below $93.50. These developments are consistent with a risk-on environment which is bullish for the broad market... see page 4.
Underlyings
Alliance Resource Partners L.P.

Alliance Resource Partners is a natural resource company. The company is a coal producer in the eastern United States. The company markets its coal production to main domestic and international utilities and industrial users. The company has two reportable segments: Illinois Basin, which comprises of multiple operating segments, including operating mining complexes Webster County Coal's Dotiki mining complex, Gibson County Coal's mining complex, River View's mining complex and the Hamilton mining complex; and Appalachia, which comprises of multiple operating segments, including the Mettiki mining complex, the Tunnel Ridge mining complex, the MC Mining mining complex and the Penn Ridge property.

ArcelorMittal

Arch Resources Inc. Class A

Arch Coal is a coal producer. The company's main business is the production of thermal and metallurgical coal from surface and underground mines located throughout the United Staets, for sale to utility, industrial and steel producers both in the United States and around the world. The company's segments are based on two lines of business, metallurgical coal and thermal coal, and may include a number of mine complexes. The company's segments are: the Powder River Basin, containing primary thermal operations in Wyoming; the Metallurgical, containing metallurgical operations in West Virginia; and the Other Thermal, containing supplementary thermal operations in Colorado and Illinois.

Centennial Resource Development Inc. Class A

Centennial Resource Development is an independent oil and natural gas company focused on the development of unconventional oil and associated natural gas reserves in the Permian Basin.

CNX Resources Corporation

CNX Resources is an independent oil and gas company focused on the exploration, development, production, gathering, processing and acquisition of natural gas properties primarily in the Appalachian Basin. The company's operations are centered on unconventional shale formations, primarily the Marcellus Shale and Utica Shale. The company operates, develops and explores for natural gas in Appalachia (Pennsylvania, West Virginia, Ohio, and Virginia).

Commercial Metals Company

Commercial Metals, together with its subsidiaries, manufactures, recycles and markets steel and metal products, related materials and services. The company has four reportable segments: Americas Recycling, which processes scrap metals for use as a raw material by the company and other manufacturers of new metal products; Americas Mills, which operates electric arc furnace (EAF) mini mills, EAF micro mills, rerolling mill, scrap metal shredders, and scrap metal processing facilities; Americas Fabrication, which includes warehouses that sell or rent products for the installation of concrete; and International Mill, which consists of an EAF mini mill, recycling and fabrication operations located in Poland.

Companhia Siderurgica Nacional ADS

Hallador Energy Co.

Hallador Energy is engaged in the production of steam coal from mines located in western Indiana. The company also owns a 50% interest in Sunrise Energy, LLC, a private gas exploration company with operations in Indiana. Additionally, the company owns 100% of Hourglass Sands, LLC, a frac sand mining company in the State of Colorado.

Natural Resource Partners L.P.

Natural Resource Partners owns, manages and leases a portfolio of mineral properties, including interests in coal, soda ash from trona and other natural resources. The company has two segments: coal royalty and other, which consists primarily of coal royalty properties and coal related transportation and processing assets; and soda ash, which, via Ciner Resources LP, the company's operating partner, mines trona, processes it into soda ash, and distributes the soda ash both domestically and internationally into the glass and chemicals industries. The company's operations are conducted through its NRP (Operating) LLC susbsidiary, and its operating assets are owned by its subsidiaries.

Nucor Corporation

Nucor manufactures steel and steel products. The company's operations include international trading and sales companies that buy and sell steel and steel products. The company's segments are: steel mills, which produces sheet steel, plate steel, structural steel, and bar steel; steel products, which produces hollow structural section steel tubing, electrical conduit, steel joists and joist girders, steel deck, cold finished steel, steel fasteners, metal building systems, and wire and wire mesh; and raw materials, which produces direct reduced iron (DRI), brokers ferrous and nonferrous metals, pig iron, hot briquetted iron and DRI, supplies ferro-alloys, and processes ferrous and nonferrous scrap metal.

Olympic Steel Inc.

Olympic Steel is a metals service center that operates in three segments; carbon flat products, specialty metals flat products, and tubular and pipe products. The company's carbon flat products segment's focus is on the direct sale and distribution of large volumes of processed carbon and coated flat-rolled sheet, coil and plate products and fabricated parts. The company's specialty metals flat products segment's focus is on the direct sale and distribution of processed aluminum and stainless flat-rolled sheet and coil products, flat bar products and fabricated parts. The company distributes metal tubing, pipe, bar, valves and fittings and fabricate pressure parts through its tubular and pipe products segment.

Peabody Energy Corporation

Peabody Energy is a coal company, engaged in the mining of thermal coal for sale primarily to electric utilities and metallurgical coal for sale to industrial customers. The company owns interests in several coal mining operations located in the U.S. and Australia. The company has a majority interest in several of those mining operations and an equity interest in Middlemount Coal Pty Ltd. (Middlemount), which owns the Middlemount Mine in Queensland, Australia. In addition to its mining operations, the company markets and brokers coal from other coal producers, both as principal and agent, and trade coal and freight-related contracts through trading and business offices in the U.S., Australia, China, and the U.K.

Penn Virginia Corporation

Penn Virginia is an independent oil and gas company engaged in the onshore exploration, development and production of crude oil, natural gas liquids (NGLs) and natural gas. The company's operations consist primarily of drilling unconventional horizontal development wells and operating its producing wells in the Eagle Ford Shale, in Gonzales, Lavaca, Fayette and DeWitt Counties in South Texas. The company operates in one segment, which is the exploration, development and production of crude oil, NGLs and natural gas. The company sells its oil, NGL and natural gas products using short-term floating price physical and spot market contracts.

Ramaco Resources

Ramaco Resources is a holding company. Through its subsidiaries, the company is an operator and developer of metallurgical coal in southern West Virginia, southwestern Virginia, and southwestern Pennsylvania. The company's near-term development portfolio includes four primary assets: Elk Creek, Berwind, RAM Mine and Knox Creek.

Reibel

Reibel SA. Reibel SA is a Belgium-based company that specializes in the international shipping and forwarding of freight. The Company offers services to the transport, logistics and public sectors. It offers a range of transport solutions, including the transport of freight by road, rail, air, sea and river. The Company supplies warehousing facilities, stock control, packing, administrative containers, transport insurance, express services and documentation assistance to the logistics sector. The Company also transports the personal effects of any person relocating with international companies, either door to door or from door to airport or port of destination. In addition, the Company charters different types of aircraft services, including the charter, rental and lease of helicopters, including the MI-26.

Reliance Steel & Aluminum Co.

Reliance Steel & Aluminum is a metals service center company. The company provides metals processing services and distributes a line of metal products, including alloy, aluminum, brass, copper, carbon steel, stainless steel, titanium and specialty steel products, to its customers in a range of industries, including general manufacturing, non-residential construction (including infrastructure), transportation (rail, truck trailer and shipbuilding), aerospace and defense, energy (oil and gas), electronics and semiconductor fabrication, and heavy industry (agricultural, construction and mining equipment). The company also services the auto industry, primarily through its toll processing operations.

Rio Tinto Limited

Rio Tinto is a mining group based in the United Kingdom and Australia. Co. is engaged in the business of finding, mining and processing mineral resources. Co.'s major products are iron ore, aluminium, copper, diamonds, coal, uranium, gold and industrial minerals (borax, titanium dioxide and salt). Co.'s activities span the world but are strongly represented in Australia and North America with significant businesses in South America, Asia, Europe and Africa. Co.'s operations comprise four principal product groups - Iron Ore, Aluminium, Copper and Diamonds, and Energy & Minerals.

Ryerson Holding Corporation

Ryerson Holding is a metals service center, a processor and distributor of industrial metals. The company provides flat and long metals products. The company also provides processing and fabrication services such as bending, beveling, blanking, blasting, burning, cutting-to-length, drilling, embossing, flattening, forming, grinding, laser cutting, machining, notching, painting, perforating, polishing, punching, rolling, sawing, scribing, shearing, slitting, stamping, tapping, threading, welding, or other techniques to process materials to a specified thickness, length, width, shape, and surface quality pursuant to specific customer orders. The company operates across North America and in China.

Schnitzer Steel Industries Inc. Class A

Schnitzer Steel Industries is engaged as a recycler of ferrous and nonferrous scrap metal, including end-of-life vehicles, and a manufacturer of finished steel products. The company has two segments: Auto and Metals Recycling, which acquires and recycles ferrous and nonferrous scrap metal for sale to foreign and domestic metal producers, processors and brokers, and procures salvaged vehicles and sells serviceable used auto parts from these vehicles through a network of self-service auto parts stores; and Cascade Steel and Scrap, which produces a range of finished steel long products using ferrous recycled scrap metal and other raw materials.

Silverbow Resources

SilverBow Resources is an independent oil and gas company engaged in the exploration, development, acquisition, and operation of oil and gas properties, with a focus on oil and natural gas reserves in the Eagle Ford trend in Texas.

Sims Metal Management Ltd. ADS

Steel Dynamics Inc.

Steel Dynamics is a steel producer and metal recycler. The company manufactures and sells steel products, processes and sells recycled ferrous and nonferrous metals, and fabricates and sells steel joists and deck products. The company's segments are: Steel, which produces steel from ferrous scrap and scrap substitutes, utilizing casting, automated rolling mills and several downstream steel coating and bar processing lines, and Iron Dynamics; metals recycling, which involves the purchase, processing, and resale of ferrous and nonferrous scrap metals into reusable forms and grades; and steel fabrication, which produces steel building components, including steel joists, girders, trusses, and steel deck.

SunCoke Energy Inc.

SunCoke Energy is an independent producer of coke. The company owns and operates a logistics business that provides handling and/or mixing services to steel, coke (including some of its domestic cokemaking facilities), electric utility, coal producing and other manufacturing based customers. The company's segments are: Domestic Coke, which consists of Jewell, Indiana Harbor, Haverhill, Granite City, and Middletown facilities; Brazil Coke, which operates the ArcelorMittal Brasil S.A. cokemaking facility; and Logistics, which consists of Convent Marine Terminal, Kanawha River Terminal, SunCoke Lake Terminal, and Dismal River Terminal.

Ternium S.A. Sponsored ADR

TimkenSteel Corp

TimkenSteel manufactures alloy steel, carbon and micro-alloy steel. The company's portfolio includes special bar quality (SBQ) bars, seamless mechanical tubing, solutions such as precision steel components, and billets. In addition, the company supplies machining and thermal treatment services, and the company manages raw material recycling programs. The company's products and services are used in the following market sectors: oil and gas; oil country tubular goods; automotive; industrial equipment; mining; construction; rail; aerospace and defense; heavy truck; agriculture; and power generation. The company's products include: SBQ Steel Bar, Seamless Mechanical Steel Tubes, and Billets; and Precision Products and Services.

United States Steel Corporation

United States Steel is a steel producer of flat-rolled and tubular products with production operations in the United States and Europe. The company is also engaged in railroad services and real estate operations. The company's segments are: North American Flat-Rolled, which produces slabs, strip mill plates, sheets and tin mill products; U. S. Steel Europe, which produces and sells slabs, strip mill plate, sheet, tin mill products and spiral welded pipe, as well as heating radiators and refractory ceramic materials; and Tubular Products, which produces and sells electric resistance welded steel casing and tubing (known as oil country tubular goods), and standard and line pipe and mechanical tubing.

Worthington Industries Inc.

Worthington Industries is a metals manufacturing company, focused on steel processing and manufactured metal products. The company operates three segments: Steel Processing, which buys coils of steel from integrated steel mills and mini-mills and processes them to customer specifications; Pressure Cylinders, which manufactures and sells filled and unfilled pressure cylinders, tanks, hand torches, well water and expansion tanks, and oil and gas equipment with accessories and related products for end-use market applications; and Engineered Cabs, which designs and manufactures custom-engineered open and enclosed cabs and operator stations and custom fabrications and packaging for mobile equipment.

Yanzhou Coal Mining Co. Ltd. ADS

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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