Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

Technology Select Sector SPDR / Technical Analysis

<ul>
<li>Our outlook remains bearish at the index level considering we have yet to see any developments that suggest a bottom is in. </li>
<li>The S&amp;P 500, Nasdaq 100 (QQQ), Russell 2000 (IWM), and Russell Micro Cap (IWC) indexes remain in downtrends.</li>
<li>In today’s report we highlight attractive Groups and stocks within Materials, Manufacturing,  Services, and Utilities: MA-14 Fertilizer, MF-15 Railroad Equipment &amp; Products, SV-13 Construction &amp; Engineering, Large-Cap, UT-04 Electric, Mid-Atlantic</li>
</ul>


Our outlook remains bearish at the index level considering we have yet to see any developments that suggest a bottom is in. 
The S&amp;P 500, Nasdaq 100 (QQQ), Russell 2000 (IWM), and Russell Micro Cap (IWC) indexes remain in downtrends.
In today’s report we highlight attractive Groups and stocks within Materials, Manufacturing,  Services, and Utilities: MA-14 Fertilizer, MF-15 Railroad Equipment &amp; Products, SV-13 Construction &amp; Engineering, Large-Cap, UT-04 Electric, Mid-Atlantic


<ul>
<li>Indexes continue to violate our key supports as the Russell 2000 (IWM) broke below $208, the S&amp;P 500 broke below 4495, and the equal-weighted Nasdaq 100 (QQEW) broke below $109.</li>
<li>This type of damage paints a bearish picture at the index level, and will take some time to repair.</li>
<li>Now that key supports have been violated, we are monitoring for oversold conditions that could mark a bottom, and it is possible that was yesterday (Jan. 24).</li>
</ul>


Indexes continue to violate our key supports as the Russell 2000 (IWM) broke below $208, the S&amp;P 500 broke below 4495, and the equal-weighted Nasdaq 100 (QQEW) broke below $109.
This type of damage paints a bearish picture at the index level, and will take some time to repair.
Now that key supports have been violated, we are monitoring for oversold conditions that could mark a bottom, and it is possible that was yesterday (Jan. 24).


U.S. Equity Strategy: Index Supports Breaking; Upgrading and Buying Utilities

Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. We offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. 

Morningstar provides data on more than 500,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 16 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $180 billion in assets under advisement or management as of June 30, 2015. We have operations in 27 countries.

Download the Morningstar Fact Sheet : http://corporate.morningstar.com/US/documents/MarketingFactSheets/AboutMorningstarFactsheet.pdf

Thematic (Sector/Industry)

<div class="content-highlight"><h2>Growth is hip, but valuations are a drag.</h2></div><hr><h2>Utilities Fundamentally Attractive, but Valuations Still Rich</h2><p>Halfway through 2019, utilities continue to impress with good growth prospects, secure dividends, and sound balance sheets. That's good for investors, who could realize 5%-7% annual dividend and earnings growth from many high-quality utilities with narrow moats and 3% yields.</p><p>But those strong fundamentals come at a high price. U.S. utilities in our coverage universe trade at a 14% premium to our fair value estimates on a median basis as of mid-June. That means investors' long-term capital gains are at risk even if utilities make good on their earnings and dividend growth potential.</p><p>Utilities' rich valuations also lessen their attractiveness as defensive investments in a market downturn. During the last two major U.S. bear markets—2007-09 and 2000-02—utilities' valuations going into the downturn had a big impact on the sector's outperformance relative to the market.</p><p>Investors should be selective as they pick utilities in this market, focusing on those with the best growth plans or cheap relative valuations to offset a valuation pullback we think is coming.</p><hr><h2>Key Takeaways</h2><ul>
<li>Utilities' long-term growth opportunities are abundant based on our discussions with utilities executives at the recent American Gas Association Financial Forum. We think renewable energy and distribution growth projects are the most attractive. Our May 20 report, <a href="https://www.smartkarma.com/insights/capital-investment-drives-utilities-growth-but-valuations-are-rich" target="_blank" data-smartkarma-citation="insights:29917">Capital Investment Drives Utilities' Growth, but Valuations Are Rich</a>, has more detail on utilities' growth plans.</li>
<li>Utilities are 14% overvalued as of mid-June based on our fair value estimates, the richest they have been since 2017. Regulated utilities are particularly expensive with median 22 P/E and 2.1 P/B—both multi-decade highs.</li>
<li>Utilities with large, attractive investment plans include <a href="https://www.smartkarma.com/entities/nextera-energy-inc" target="_blank" data-smartkarma-citation="entities:7402:1">Nextera Energy (NEE US)</a>, <a href="https://www.smartkarma.com/entities/edison-international" target="_blank" data-smartkarma-citation="entities:16455:1">Edison International (EIX US)</a>, <a href="https://www.smartkarma.com/entities/dominion-energy-inc" target="_blank" data-smartkarma-citation="entities:5937:1">Dominion Energy Inc (D US)</a>, <a href="https://www.smartkarma.com/entities/xcel-energy-inc" target="_blank" data-smartkarma-citation="entities:6402:1">Xcel Energy Inc (XEL US)</a>, <a href="https://www.smartkarma.com/entities/new-jersey-resources-corp" target="_blank" data-smartkarma-citation="entities:19030:1">New Jersey Resources (NJR US)</a>, <a href="https://www.smartkarma.com/entities/cms-energy-corp" target="_blank" data-smartkarma-citation="entities:3143:1">Cms Energy Corp (CMS US)</a>, <a href="https://www.smartkarma.com/entities/sempra-energy" target="_blank" data-smartkarma-citation="entities:1796:1">Sempra Energy (SRE US)</a>, and <a href="https://www.smartkarma.com/entities/atmos-energy-corp" target="_blank" data-smartkarma-citation="entities:13170:1">Atmos Energy (ATO US)</a>. Although many of these are expensive, their growth should cushion returns if valuations compress.</li>
<li>Utilities' rich valuations limit their defensiveness. Utilities entered the 2007-09 bear market with a 19 P/E and outperformed the S&amp;P 500 by 11 percentage points, their worst bear-market performance in 35 years. Bear-market returns improved when utilities had more modest valuations.</li>
<li>Although utilities look rich on absolute valuation measures, the sector's 3.4% average dividend yield remains attractive relative to the 2.1% 10-year U.S. Treasury yield. Historically, utilities have outperformed bonds when their dividend yields are this much higher than interest rates.</li>
</ul><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/090/378/original/1.JPG?1560737544" class="editor-image img-responsive" data-smartkarma-image-id="90378"></figure>

Growth is hip, but valuations are a drag.Utilities Fundamentally Attractive, but Valuations Still RichHalfway through 2019, utilities continue to impress with good growth prospects, secure dividends, and sound balance sheets. That's good for investors, who could realize 5%-7% annual dividend and earnings growth from many high-quality utilities with narrow moats and 3% yields.But those strong fundamentals come at a high price. U.S. utilities in our coverage universe trade at a 14% premium to our fair value estimates on a median basis as of mid-June. That means investors' long-term capital gains are at risk even if utilities make good on their earnings and dividend growth potential.Utilities' rich valuations also lessen their attractiveness as defensive investments in a market downturn. During the last two major U.S. bear markets—2007-09 and 2000-02—utilities' valuations going into the downturn had a big impact on the sector's outperformance relative to the market.Investors should be selective as they pick utilities in this market, focusing on those with the best growth plans or cheap relative valuations to offset a valuation pullback we think is coming.Key Takeaways
Utilities' long-term growth opportunities are abundant based on our discussions with utilities executives at the recent American Gas Association Financial Forum. We think renewable energy and distribution growth projects are the most attractive. Our May 20 report, Capital Investment Drives Utilities' Growth, but Valuations Are Rich, has more detail on utilities' growth plans.
Utilities are 14% overvalued as of mid-June based on our fair value estimates, the richest they have been since 2017. Regulated utilities are particularly expensive with median 22 P/E and 2.1 P/B—both multi-decade highs.
Utilities with large, attractive investment plans include Nextera Energy (NEE US), Edison International (EIX US), Dominion Energy Inc (D US), Xcel Energy Inc (XEL US), New Jersey Resources (NJR US), Cms Energy Corp (CMS US), Sempra Energy (SRE US), and Atmos Energy (ATO US). Although many of these are expensive, their growth should cushion returns if valuations compress.
Utilities' rich valuations limit their defensiveness. Utilities entered the 2007-09 bear market with a 19 P/E and outperformed the S&amp;P 500 by 11 percentage points, their worst bear-market performance in 35 years. Bear-market returns improved when utilities had more modest valuations.
Although utilities look rich on absolute valuation measures, the sector's 3.4% average dividend yield remains attractive relative to the 2.1% 10-year U.S. Treasury yield. Historically, utilities have outperformed bonds when their dividend yields are this much higher than interest rates.


Utilities Sector Outlook: Playing Offense or Defense?

Materials Analyst/Strategist, Janus Analysis

Gaius King

Materials Analyst/Strategist

Accelerating Tomorrow’s Independent Research

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<ul>
<li>Quantifying nuclear statistics with substantial discrepancies</li>
<li>LT contracts &amp; speculative hoarding driving recent 40% spot price increase</li>
<li>Primary/secondary Uranium supplies currently 112% of 2017 demand</li>
<li>Uranium supply deficits extremely unlikely before 2022</li>
<li>Global Uranium demand to fall 25-40% by 2050</li>
<li> Primary Uranium sector LT SELL</li>
</ul>
<p>We have independently audited global nuclear construction statistics in order to determine future Uranium demand.  Although near-term statistics match those in the public domain, long-term demand determined via construction pipeline illustrates substantial discrepancies.  Compiling planned plant construction, operational extensions, nameplate upgrades, versus decommissioning announcements/events, and in many cases, public policy inertia; has led us to believe that despite historical primary supply shortages, global nuclear demand peaked in 2006.</p>
<p>Since plateauing and despite strong Chinese growth, nuclear power generation has fallen &lt;2% over the past two decades, a decline that is predicted to accelerate as a number of developed and developing nations pursue other energy options.</p>
<p>The macro-trend not replacing existing nuclear infrastructure means (dependent on assumptions), according to our calculations, global uranium demand will decrease between 20 to 40% by 2050.</p>
<p>As opposed to signifying a fundamental change in underlying demand, we believe that recent Uranium price increases are the result of producers closing primary operations, and substituting production with purchases on the spot market to meet long-term contract obligations.  In addition, hedge funds are buying physical uranium in order to realise profits on potential future commodity price increases.  Critically, we determine that primary and secondary supplies are more than sufficient to meet forecast demand over the next four to five years; before taking into account substantial existing global uranium stocks, some of which are able to re-enter the spot market at short notice.</p>


Quantifying nuclear statistics with substantial discrepancies
LT contracts &amp; speculative hoarding driving recent 40% spot price increase
Primary/secondary Uranium supplies currently 112% of 2017 demand
Uranium supply deficits extremely unlikely before 2022
Global Uranium demand to fall 25-40% by 2050
 Primary Uranium sector LT SELL

We have independently audited global nuclear construction statistics in order to determine future Uranium demand.  Although near-term statistics match those in the public domain, long-term demand determined via construction pipeline illustrates substantial discrepancies.  Compiling planned plant construction, operational extensions, nameplate upgrades, versus decommissioning announcements/events, and in many cases, public policy inertia; has led us to believe that despite historical primary supply shortages, global nuclear demand peaked in 2006.
Since plateauing and despite strong Chinese growth, nuclear power generation has fallen &lt;2% over the past two decades, a decline that is predicted to accelerate as a number of developed and developing nations pursue other energy options.
The macro-trend not replacing existing nuclear infrastructure means (dependent on assumptions), according to our calculations, global uranium demand will decrease between 20 to 40% by 2050.
As opposed to signifying a fundamental change in underlying demand, we believe that recent Uranium price increases are the result of producers closing primary operations, and substituting production with purchases on the spot market to meet long-term contract obligations.  In addition, hedge funds are buying physical uranium in order to realise profits on potential future commodity price increases.  Critically, we determine that primary and secondary supplies are more than sufficient to meet forecast demand over the next four to five years; before taking into account substantial existing global uranium stocks, some of which are able to re-enter the spot market at short notice.

Uranium - About to Enter Its Own Nuclear Winter

<p>The Best Ideas list is a compilation of stock ideas sourced from Morningstar’s global equity research team. With more than 100 analysts covering nearly 1,500 companies, we’re able to provide a wide variety of what we believe are attractively priced securities looking across sectors, industries, and geographies. Best Ideas are nominated by analysts and approved by managers in addition to the normal due diligence processes that precede our published research and ratings.</p><p>The list may include a broad mix of quality and risk characteristics to meet varying investor needs, including no-, narrow-, and wide-moat companies as well as the full spectrum of uncertainty ratings from low to very high. Most or all of the highlighted stocks will be trading at a discount to our estimate of intrinsic value, indicating improved odds of capital appreciation.</p>

The Best Ideas list is a compilation of stock ideas sourced from Morningstar’s global equity research team. With more than 100 analysts covering nearly 1,500 companies, we’re able to provide a wide variety of what we believe are attractively priced securities looking across sectors, industries, and geographies. Best Ideas are nominated by analysts and approved by managers in addition to the normal due diligence processes that precede our published research and ratings.The list may include a broad mix of quality and risk characteristics to meet varying investor needs, including no-, narrow-, and wide-moat companies as well as the full spectrum of uncertainty ratings from low to very high. Most or all of the highlighted stocks will be trading at a discount to our estimate of intrinsic value, indicating improved odds of capital appreciation.

United States

Dominion Energy, Inc. produces and transports energy products. The Company offers natural gas and electric energy transmission, gathering, and storage solutions. Dominion Energy serves customers in the United States.

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Dominion Energy Inc (D US)

Downgrading Technology To Underweight

Downgrading Technology to underweight. Attractive and actionable stocks highlighted: Fertilizer, Railroad Equipment & Products, Construction &...

Vermilion Research

U.S. Equity Strategy: Index Supports Breaking; Upgrading and Buying Utilities

Indexes continue to violate our key supports on the Russell 2000 (IWM), the S&P 500, and the equal-weighted Nasdaq 100 (QQEW). Most opportunities...

Vermilion Research

Utilities Sector Outlook: Playing Offense or Defense?

Growth is hip, but valuations are a drag.Utilities Fundamentally Attractive, but Valuations Still RichHalfway through 2019, utilities continue to...

Morningstar, Inc.

Uranium - About to Enter Its Own Nuclear Winter

Quantifying nuclear statistics with substantial discrepancies LT contracts & speculative hoarding driving recent 40% spot...

Boost Research

Best Ideas List for January 2019

The Best Ideas list is a compilation of stock ideas sourced from Morningstar’s global equity research team. With more than 100 analysts covering...

Morningstar, Inc.

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