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

Market activity, both bonds and stocks, has been all about realigning expectations. Wednesday’s Fed announcement was more dovish than expected, and the market is now pricing in roughly 25bps of cuts by the end of 2019. Stocks reacted positively on Thursday, but then reversed (and then some) on Friday as global growth concerns became a little more serious. We continue to maintain our positive outlook. In today’s report we recap our bullish investment thesis and highlight attractive Groups and stocks within Consumer Staples, Materials, and Services.

Market activity, both bonds and stocks, has been all about realigning expectations. Wednesday’s Fed announcement was more dovish than expected, and the market is now pricing in roughly 25bps of cuts by the end of 2019. Stocks reacted positively on Thursday, but then reversed (and then some) on Friday as global growth concerns became a little more serious. We continue to maintain our positive outlook. In today’s report we recap our bullish investment thesis and highlight attractive Groups and stocks within Consumer Staples, Materials, and Services.

U.S. Equity Strategy: Bullish Outlook Intact

Asia Ex-J Consumer/ Transport analyst

Valerie Law, CFA

Equity Bottom-Up

WH Group's share price plunged about 10% yesterday on news that China plans a 25% tariff on US Pork imports (Source: <a href="http://www.bloomberg.com/news/articles/2018-03-22/trump-orders-50-billion-hit-on-china-goods-amid-trade-war-fears" target="_blank">Bloomberg</a>). The company's share price recovered some ground as the market could be expecting a strong set of results for FY17, which will be released early next week. In this article, I present two scenarios based on the impact of such a tariff on their packaged meat segment. Although both scenarios suggest a short-term pressure on EBIT margins by 1-1.5 ppt, the company may be able to reverse the dent in their group margins in the long run if they can achieve a speedy diversification of meat sources.

WH Group's share price plunged about 10% yesterday on news that China plans a 25% tariff on US Pork imports (Source: Bloomberg). The company's share price recovered some ground as the market could be expecting a strong set of results for FY17, which will be released early next week. In this article, I present two scenarios based on the impact of such a tariff on their packaged meat segment. Although both scenarios suggest a short-term pressure on EBIT margins by 1-1.5 ppt, the company may be able to reverse the dent in their group margins in the long run if they can achieve a speedy diversification of meat sources.

WH Group: China's Pork Tariffs Could Trim EBIT Margins by 1 to 1.5ppt Near Term

MSCI Emerging Markets Index / Technical Analysis

Big-picture technicals offer a compelling outlook for equities -- in the long-run. Despite arguably stretched trends, especially in the U.S. and EM, one indicator in particular keeps us optimistic: monthly charts.  What is clear right now is: (1) Europe is on the doorstep of breaking above secular resistance; (2) Japan is breaking out above secular resistance; (3) and EM already has. Speaking of EM, we view this as the place to be, or overweight, in 2018. The EM/EAFE’s 20-year chart (below) reveals an in-progress trend reversal (which developed at a secular trendline) in favor of EM.In today’s report we review every global sector, highlighting actionable stocks within each.

Big-picture technicals offer a compelling outlook for equities -- in the long-run. Despite arguably stretched trends, especially in the U.S. and EM, one indicator in particular keeps us optimistic: monthly charts.  What is clear right now is: (1) Europe is on the doorstep of breaking above secular resistance; (2) Japan is breaking out above secular resistance; (3) and EM already has. Speaking of EM, we view this as the place to be, or overweight, in 2018. The EM/EAFE’s 20-year chart (below) reveals an in-progress trend reversal (which developed at a secular trendline) in favor of EM.In today’s report we review every global sector, highlighting actionable stocks within each.

<h2>Softer hog prices and world-class execution benefited WH Group so far:</h2>WH Group has gained ~33% since my note <a href="https://www.smartkarma.com/insights/synergies-and-global-ambitions-underappreciated" target="_blank" data-smartkarma-citation="insights:8612">Synergies and Global Ambitions Underappreciated</a> in early February. Although I still like the company, the valuation gap between WH Group and global peers such as Tyson Foods and Industrias Bachoco has been narrowing. Meanwhile, the company faces rising competition from other importers of pork and beef.<ul><li>In my earlier notes, I mentioned that WH Group deserves to trade at 12X forward PE due…</li></ul>

Softer hog prices and world-class execution benefited WH Group so far:WH Group has gained ~33% since my note Synergies and Global Ambitions Underappreciated in early February. Although I still like the company, the valuation gap between WH Group and global peers such as Tyson Foods and Industrias Bachoco has been narrowing. Meanwhile, the company faces rising competition from other importers of pork and beef.In my earlier notes, I mentioned that WH Group deserves to trade at 12X forward PE due…

Take Profit on WH Group (+33%) As Valuation Gap with Peers Narrows; Revisit After Interim Results

Since our February note <a href="https://www.smartkarma.com/insights/synergies-and-global-ambitions-underappreciated" target="_blank" data-smartkarma-citation="insights:8612">Synergies and Global Ambitions Underappreciated</a>, WH Group's shares have gained 18%. Our recent conference call with the management re-affirmed our belief that it has big plans to become a global food player (the likes of Tyson Foods and Hormel Foods) and not just a pork supplier. With access to a market which loves pork and twice the size of US, current valuations suggest that WH Group's ambitions and potential are still underappreciated.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/024/754/original/FY16%20revenue%20breakdown.png?1492830828" class="editor-image img-responsive" data-smartkarma-image-id="24754"></figure>Source: company slidesIn the near-…

Since our February note Synergies and Global Ambitions Underappreciated, WH Group's shares have gained 18%. Our recent conference call with the management re-affirmed our belief that it has big plans to become a global food player (the likes of Tyson Foods and Hormel Foods) and not just a pork supplier. With access to a market which loves pork and twice the size of US, current valuations suggest that WH Group's ambitions and potential are still underappreciated.Source: company slidesIn the near-…

Call with WH Group Management Re-Affirmed Our Views Company's Global Operations Are Undervalued

United States

Hormel Foods Corporation manufactures and markets consumer-branded meat and food products.  The Company processes meat and poultry products and produces a variety of prepared foods.  Hormel markets its products around the world under a variety of branded names.

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Hormel Foods (HRL US)

U.S. Equity Strategy: Bullish Outlook Intact

Market activity, both bonds and stocks, has been all about realigning expectations. Wednesday’s Fed announcement was more dovish than expected, and...

Vermilion Research

WH Group: China's Pork Tariffs Could Trim EBIT Margins by 1 to 1.5ppt Near Term

WH Group's share price plunged about 10% yesterday on news that China plans a 25% tariff on US Pork imports (Source: Bloomberg). The company's...

Valerie Law, CFA

Global Equity Strategy: Overweight EM

Big-picture technicals offer a compelling outlook for equities -- in the long-run. Despite arguably stretched trends, especially in the U.S. and...

Vermilion Research

Take Profit on WH Group (+33%) As Valuation Gap with Peers Narrows; Revisit After Interim Results

Softer hog prices and world-class execution benefited WH Group so far:WH Group has gained ~33% since my note Synergies and Global Ambitions...

Valerie Law, CFA

Call with WH Group Management Re-Affirmed Our Views Company's Global Operations Are Undervalued

Since our February note Synergies and Global Ambitions Underappreciated, WH Group's shares have gained 18%. Our recent conference call with the...

Valerie Law, CFA

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