Conclusion, Investment Implications, Strategy
A. O. Smith Corporation (AOS) appears to be resuming its June 2020 major uptrend amid coincident quarterly relative outperformance versus the benchmark S&P 500 (SPX). A sustained rise above the $66.00 area would help confirm this and would target an additional 15% rise to $80.00per share. This is an Asbury Momentum trade idea.
Analysis and Rationale
A. O. Smith Corporation (AOS) manufactures and markets residential and commercial gas and electric water heaters, boilers, tanks, and water treatment products in North America, China, Europe, and India. It operates through two segments, North America and Rest of World. The company offers water heaters for residences, restaurants, hotels and motels, office buildings, laundries, car washes, and small businesses; residential and commercial boilers for space heating applications in hospitals, schools, hotels, and other commercial buildings; and water treatment products, including on-the-go filtration bottles, point-of-use carbon and reverse osmosis products, point-of-entry water softeners, and whole-home water filtration products for residences, restaurants, hotels, and offices. It also provides food and beverage filtration products; expansion tanks, commercial solar water heating systems, swimming pool and spa heaters, and related products and parts; and heat pumps, combi-boilers, solar tank units, and air purification products. The company was founded in 1874 and is headquartered in Milwaukee, Wisconsin.
The upper panel of Chart 1 below plots AOS daily since December 2020 along with its 200- and 50-day moving averages, widely-watched major and minor trend proxies. The lower panel displays a corresponding daily relative performance chart of AOS versus the benchmark S&P 500 (SPX, blue) along with its 63-day moving average (green, quarterly, our Strategic time period).
The rightmost green highlights in the upper panel show that AOS appears to be resuming its June 2020 major uptrend, as defined by its 200-day MA, following last week’s test of the 50-day MA. Meanwhile, AOS’s Feb 5th trend of quarterly relative outperformance versus SPX as shown in the lower panel also appears to be resuming. The other green highlights show that a similar test of the Strategic relative outperformance trend on Oct 28th also resulted in the resumption of the trends in both panels. A sustained rise above the 50-day MA, currently situated at $65.99, would help to confirm the outright uptrend has resumed and would target an additional 15% rise to $80.00 per share.
Table 1 below shows that considering the aforementioned upside target and a protective stop placed below the $66.08 area, a long entry price of $69.59 would provide a 1:3.0 risk/reward ratio (risking $1.00 to make $3.00) with an initial risk of 5.0%.
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