Buy a Half Position in VHI
As the internal condition of the broad equity market shows gradual improvement while short covering continues, I think it’s time we turn our attention to stocks and ETFs that are in a position of relative strength compared with the rest of the market.
One such stock is Valhi (VHI), a leader in the titanium industry, which happens to be among today’s best-performing metals (up 85% year to date). The company has operations through majority-owned subsidiaries or less than majority-owned affiliates operating in several industries, including component products (security products, furniture components and performance marine components) and titanium metals products.
But its biggest segment by sales is titanium dioxide pigments, which are used in the automotive and construction industries, as well as in plastic and printing inks. Its main titanium oxide subsidiary is Kronos (KRO)—whose stock was recently a (profitable) part of our trading portfolio.
On the financial front, Valhi posted revenue of $629 million in Q1, up 24% from a year ago, led by higher titanium oxide selling prices and volumes in its chemical segment. Per-share earnings of $1.59, meanwhile, beat estimates by 34 cents. When the company reports Q2 earnings on August 11, analysts expect EPS to grow 170% from a year ago and over 25% sequentially.
In view of VHI’s strong relative performance in the last few weeks, I’m recommending a conservative position in this stock using an initial stop-loss slightly under 41.60 (closing basis). BUY A HALF