Report
Dave Nicoski ...
  • Ross LaDuke
EUR 226.50 For Business Accounts Only

Vermilion Compass: Weekly Equity Strategy

Caution remains warranted

We have noted several times throughout the month of August that key support levels were being tested for global equities (8/6 Compass and 8/8, 8/15, & 8/22 Int'l Compass), and while there has yet to be a decisive breakdown, as time has passed there has been new negative developments which lead us to be even more cautious. This past Friday's test of support is no different, and we believe the market is more vulnerable to a breakdown than it has been at any other point this year. Below we highlight the new concerning developments which lead us to believe the market remains vulnerable to a breakdown.

• Sector Relative Strength Rankings & Weighting Recommendations. Relative strength for both cap- and equal-weighted Utilities notched a new YTD high (barely) amid Friday's precipitous market drop, leading us to contemplate an upgrade to overweight. New RS highs for defensives is often a characteristic of bear markets, leading us to believe the market is vulnerable to further weakness... see pages 2-3.

• Copper hits multi-year lows, copper vs. gold ratio downtrend intact. We often look at copper prices to get a gauge on where global growth is headed. New lows in copper would suggest that global growth is poised to weaken, leading us to believe the market may be vulnerable to further downside. Additionally, the copper vs. gold ratio is yet another measure of risk appetites giving a risk-off signal... see page 4.

• Growth vs. value; small- vs. large-caps. Growth continues to outperform value -- remain overweight growth. Additionally, large-caps remain leadership, however we get a slightly different picture when comparing the Russell 2000 vs. 1000 and S&P 600 vs. 500... see page 5.

In today's report we highlight attractive Groups and stocks within Consumer Discretionary, Financials, and Materials: CD-07 Homebuilding, Small-Cap, FN-53 REITs, Storage, and MA-26 & -27 Gold, Western Hemisphere, Large- and Small-Cap (respectively)... see pages 12-29.
Underlyings
Agnico Eagle Mines

Agnico-Eagle Mines is a gold mining company with mining operations in Canada, Mexico and Finland. Co. earns a proportion of its revenues from the production and sale of gold in both dore bar and concentrate form. The remainder of revenue and cash flow is generated by the production and sale of byproduct metals. The revenue from byproduct metals is mainly generated by production at the LaRonde mine in Canada (silver, zinc, copper and lead) and the Pinos Altos mine in Mexico (silver).

Alamos Gold Inc.

Alamos Gold is engaged in the exploration, mine development, and the mining and extraction of precious metals, primarily gold. Co.'s s primary asset is the Mulatos Mine and holds the mineral rights to the Salamandra group of concessions in the State of Sonora, Mexico, which includes several known satellite gold occurrences.

B2Gold

B2Gold is a Vancouver-based gold producer with three operating mines (two in Nicaragua and one in the Philippines), a fourth mine which has entered into the commissioning and testing phase in Namibia and a portfolio of development and exploration assets in Mali, Colombia, Burkina Faso and Nicaragua. Co.'s reportable operating segments include its mining operations and development projects. The Other Mineral Properties segment consists of Co.'s interests in mineral properties which are at various stages of exploration. The Corporate and Other segment includes corporate operations and the Bellavista property in Costa Rica which is classified as held for sale.

Barrick Gold Corp.

Barrick Gold is engaged in the production and sale of gold, as well as related activities such as exploration and mine development. Co. also produces copper and hold interests in oil and gas properties located in Canada. Co.'s mining operations are concentrated in three regional business units: North America, South America and Australia Pacific. Co. also hold a 73.9% equity interest in African Barrick Gold plc that owns gold mines and exploration properties in Africa. Co.'s copper business unit contains producing copper mines located in Chile and Zambia; and a mine under construction located in Saudi Arabia.

Beazer Homes USA Inc.

Beazer Homes USA is a homebuilder. The company's homebuilding operations consist of the design, sale, and construction of single-family and multi-family homes in Arizona, California, Nevada, Texas, Indiana, Maryland/Delaware, Tennessee, Virginia, Florida, Georgia, North Carolina, and South Carolina. The company acts as the general contractor for the construction of its new home communities. The company's project development activities are controlled by its operating divisions whose employees supervise the construction of each new home community by coordinating the activities of subcontractors and suppliers, subjecting their work to quality and cost controls and ensuring compliance with zoning and building codes.

Cavco Industries Inc.

Cavco Industries designs and produces factory-built homes mainly distributed via a network of independent and the company-owned retailers, planned community operators and residential developers. The company's manufactured homes, marketed under a range of brand names including Cavco Homes, Fleetwood Homes, Palm Harbor Homes, Fairmont Homes, Friendship Homes, Chariot Eagle and Lexington Homes. The company is also a builder of park model RVs, vacation cabins and systems-built commercial structures, as well as modular homes. Each home contains a living room, dining area, kitchen, bedroom and bathroom and is equipped with central heating and hot water systems, kitchen appliances, floor coverings and window treatments.

Century Communities

Century Communities is engaged in the development, design, construction, marketing and sale of single-family attached and detached homes in metropolitan areas in the States of California, Colorado, Georgia, Nevada, North Carolina, South Carolina, Tennessee, Texas, Utah, and Washington. In several of its projects, in addition to building homes, the company is responsible for the entitlement and development of the underlying land. The company's homebuilding operations are organized into the following four reportable segments based on the geographic regions in which the company operates: West, Mountain, Texas and Southeast.

CubeSmart

CubeSmart is a real estate company focused primarily on the ownership, operation, management, acquisition, and development of self-storage properties. The company's self-storage properties are designed to provide storage space for its residential and commercial customers. The company's customers rent storage cubes typically on a month-to-month basis. Additionally, some of the company's stores provide outside storage areas for vehicles and boats. The company's stores are designed to accommodate both residential and commercial customers, with features such as aisles and load-bearing capabilities for truck access.

Eldorado Gold Corp.

Eldorado Gold is engaged in the exploration, development, mining and production of gold and other mining resources in Brazil, China, Turkey and Greece.

Extra Space Storage Inc.

Extra Space Storage is a self-administered and self-managed real estate investment trust that owns, operates, manages, acquires, develops and redevelops self-storage properties. Substantially all of the company's business is conducted through Extra Space Storage LP. The company operates in two segments:self-storage operations, which include rental operations of wholly-owned stores; and tenant reinsurance, which include the reinsurance of risks relating to the loss of goods stored by tenants in the company's stores. The company owns and operates stores in several states, Washington, D.C. and Puerto Rico.

Franco-Nevada

Franco-Nevada is a gold-focused royalty and stream company with additional interests in silver, platinum group metals, oil and gas and other resource assets located in the U.S., Canada, Mexico, Peru, Chile and Africa. Co.'s portfolio includes 340 mineral and oil and gas assets covering properties at various stages from production to early stage exploration.

KB Home

KB Home is a homebuilding company. The company builds a variety of homes designed primarily for first-time and first move-up, as well as second move-up and active adult homebuyers, including attached and detached single-family residential homes, townhomes and condominiums. The company's financial services operations provide various insurance products to its homebuyers in the markets where it builds homes and provide title services in certain of those markets. The company's financial services operations also provide mortgage banking services, including residential consumer mortgage loan originations, to its homebuyers indirectly through KBHS Home Loans, LLC, a joint venture the company formed with Stearns Lending, LLC.

Kinross Gold Corp.

Kinross Gold is engaged in the mining and processing of gold and, as a by-product, silver ore and the exploration for, and the acquisition of, gold bearing properties in the Americas, the Russian Federation, West Africa and worldwide. As of Dec 31 2013, Co.'s proven mineral reserves for gold and silver were 1,122 ounces and 1,179 ounces respectively.7,883 7,883 7,883

Kirkland Lake Gold

Kirkland Lake Gold is a Canadian gold mining and exploration company with three producing mines in Australia: the Fosterville Gold Mine and the Stawell Gold Mine in the State of Victoria and the Cosmo Gold Mine in the Northern Territory. Co. also has a portfolio of development opportunities on its significant land package, including the Big Hill Project at Stawell and various projects in the Northern Territories. In addition, Co. owns title to a mining lease located in north-central Newfoundland, Canada.

LGI Homes

LGI Homes is a holding company. Through its subsidiaries, the company is engaged in the design, construction, and sale of new homes in markets in Texas, Arizona, Florida, Georgia, New Mexico, South Carolina, North Carolina, Colorado, Washington, Tennessee, and Minnesota. The company's product offerings include entry-level homes and move-up homes sold under its LGI Homes brand, and its series homes, which are sold under its Terrata Homes brand. At Dec 31 2017, the company had 72 active communities with its LGI Homes brand and six with its Terrata Homes brand. The company's homebuilding operations are organized and managed by divisions, which comprised of Texas, Southwest, Southeast, Florida, Northwest, and Midwest.

Life Storage Inc.

Life Storage is a self-administered and self-managed real estate investment trust that acquires, owns and manages self-storage properties. The company owns its assets and conducts its operations through Life Storage LP (the Operating Partnership) and subsidiaries of the Operating Partnership. The company's self-storage facilities provide storage space to residential and commercial users on a month-to-month basis. Individual storage spaces are secured by a lock furnished by the customer to provide the customer with control of access to the space.

M/I Homes

M/I Homes is engaged primarily in the construction and sale of single-family residential homes. The company designs, sells and builds single-family homes on developed lots, which it develops or purchases ready for home construction. The company also purchases undeveloped land to develop into developed lots for future construction of single-family homes and, on a limited basis, for sale to others. The company has two operations: homebuilding, which consists of the Midwest, Mid-Atlantic, and Southern regions; and financial services, which supports its homebuilding operations by providing mortgage loans and title services to the customers of its homebuilding operations.

McEwen Mining

McEwen Mining is a mining and mineral production and exploration company focused on precious and base metals in Argentina, Mexico, Canada and the U.S. The company owns the El Gallo 1 mine in Sinaloa, Mexico, the Black Fox Complex in Timmins, Ontario, Canada, and has interest in Minera Santa Cruz S.A., the owner and operator of the producing San Jose mine in Santa Cruz, Argentina, which is controlled by the main owner of the joint venture, Hochschild Mining plc. The company also has interests in advanced stage and exploration stage properties and projects in Argentina, Mexico, Timmins, and the U.S., including the Gold Bar and Los Azules projects.

Meritage Homes Corp.

Meritage Homes is a holding company. Through its subsidiaries, the company is engaged in designing and building single-family homes. The company provides homes that are designed with a focus on first-time and first move-up buyers. The company has homebuilding operations in three regions: West, Central and East, which are comprised of Arizona, California, Colorado, Texas, Florida, Georgia, North Carolina, South Carolina and Tennessee. The company also operates a title company, Carefree Title Agency, Inc., which provides title insurance and closing/settlement services to its homebuyers. The company's homebuilding and marketing activities are conducted under the name of Meritage Homes in each of its homebuilding markets.

National Storage Affiliates Trust

National Storage Affiliates Trust is a self-administered and self-managed real estate investment trust focused on the self storage sector. The company serves as the sole general partner of its operating partnership subsidiary, NSA OP, LP (operating partnership), to conduct its business, which is focused on the ownership, operation, and acquisition of self storage properties located within metropolitan statistical areas throughout the U.S. The company also owns certain of its self storage properties through other consolidated limited partnership subsidiaries of its operating partnership.

Newmont Goldcorp

Newmont Goldcorp is a gold producer with operations and/or assets in the U.S., Australia, Peru, Ghana and Suriname. The company also produces copper, principally through operations in Boddington in Australia and Phoenix in the U.S. The company's regions include North America, South America, Australia, and Africa. The company's North America segment consists primarily of Carlin, Phoenix, Twin Creeks, Long Canyon and Cripple Creek &Victor in the U.S. The company's South America segment consists primarily of Yanacocha in Peru and Merian in Suriname. The company's Australia segment consists primarily of Boddington, Tanami and Kalgoorlie in Australia. The company's Africa segment consists primarily of Ahafo and Akyem in Ghana.

NovaGold Resources Inc.

NovaGold Resources is a mineral exploration company engaged in the exploration and development of gold and copper mineral properties. Co.'s primary focus is on the Donlin Gold project in Alaska. The Donlin Gold project is owned and operated by Donlin Gold LLC, a limited liability company that is owned equally by wholly owned subsidiaries of Co. and Barrick Gold Corporation. Co. also has an interest in the Galore Creek copper-gold-silver project in British Columbia, Canada. The Galore Creek project is held by a partnership owned equally by NOVAGOLD Canada Inc., a wholly-owned subsidiary of Co., and by Teck Resources Limited.

Public Storage

Public Storage is a real estate investment trust. The company's business activities include: Self-storage Operations, which acquires, develops, owns and operates self-storage facilities that provide storage spaces for lease on a month-to-month basis, for personal and business use; Ancillary Operations, which reinsures policies against losses to goods stored by customers in the company's self-storage facilities and sells merchandise, mainly locks and cardboard boxes, at its self-storage facilities; and Investment in PS Business Parks Inc. (PSB), in which the company has an equity interest in PSB that owns, operates, acquires and develops commercial properties, mainly multi-tenant flex, office, and industrial parks.

Royal Gold Inc.

Royal Gold, together with its subsidiaries, is engaged in the business of acquiring and managing precious metal streams, royalties, and similar interests. The company manages its business under two segments: the acquisition and management of stream interests; and the acquisition and management of royalty interests. The company's principal producing stream and royalty interests on properties outside of the U.S. are located in Canada, Chile, the Dominican Republic, Ghana and Mexico. The company also has stream and royalty interests in mines and projects in other countries, including Argentina, Australia, Bolivia, Brazil, Burkina Faso, Guatemala, Honduras, Macedonia, Nicaragua, Peru, Russia, Spain and Tunisia.

Seabridge Gold

Seabridge Gold is a development stage company engaged in the acquisition and exploration of gold properties located in North America.

Skyline Champion Corporation

Skyline Champion designs, produces and markets manufactured housing, modular housing and park models to independent dealers and manufactured housing communities located throughout the U.S. and Canada. The company's housing products are marketed under a number of trademarks and are available in a variety of dimensions. Each home typically includes two to four bedrooms, kitchen, dining area, living room, one or two bathrooms, kitchen appliances, central heating and cooling. Custom options may include but are not limited to: exterior dormers and windows; interior or exterior accent columns; fireplaces and whirlpool tubs. The company also sells homes that are Energy-Star compliant.

Taylor Morrison Home II Corporation

Taylor Morrison Home is a holding company. Through its subsidiaries, the company owns and operates a residential homebuilding business and is a developer of lifestyle communities. The company provides a variety of homes across a range of price points. The company operates under the Taylor Morrison and Darling Homes brand names. The company also provides financial services to customers through Taylor Morrison Home Funding, LLC and title insurance and closing settlement services through Inspired Title Services, LLC. The company has operations in Arizona, California, Colorado, Florida, Georgia, Illinois, North Carolina and Texas. The company has four reportable segments: East, Central, West and Mortgage Operations.

William Lyon Homes Inc.

Lyon (William) Homes is a regional homebuilder. The company is engaged in designing, constructing and selling single family detached and attached homes in California, Arizona, Nevada, Colorado (under the Village Homes brand), Washington and Oregon (together, under the Polygon Northwest Homes brand). The company's primary markets include Orange County, Los Angeles, the Inland Empire, the San Francisco Bay Area, Phoenix, Las Vegas, Denver, Seattle and Portland. The company builds and sells across a range of product lines at a variety of price points with sales to entry-level, first-time move-up and second-time move-up homebuyers, as well as a luxury brand.

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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