A Popular Momentum Trade Is Unwinding This Month

(Bloomberg) -- Materials stocks are taking full advantage of September’s unwinding of momentum trades as the year’s previous best performers are seeing outsized selling pressure, while the worst performers are enjoying a nice bump.

One such trade seems to be -- sell can maker Ball Corp., which has been the best performing materials stock so far this year, and Mosaic Co. -- the year’s worst performer.

The fertilizer producer has suffered from a declining outlook for phosphate, while Ball has benefited from brighter growth expectations. But Mosaic has gained about 18% since the start of this month, with an especially pronounced move on Tuesday as Wall Street praised its plan to lift its buyback and curtail production. Meanwhile, Ball has fallen about 10% since the start of September, with most of that selling pressure coming in the last two days.

Similar trades are affecting other outperformers within the sector, including Ecolab Inc. and Air Product & Chemicals Inc., which saw a two-day sell-off this week. What had been the underperformers -- such as International Flavors & Fragrances Inc., Albemarle Corp. and Eastman Chemical Co. -- are enjoying a rotational bump, even as their stock prices remain low year-to-date. Steel and industrial metal stocks are also catching a bid.

READ: Materials Stocks Hurt by Trade War Outperform as Hope Emerges

“Ball has a great management team” and the market likes the company, but the shares have gotten “ridiculously overvalued,” Vertical Research Partner analyst Chip Dillon, who has a sell rating on the stock, told Bloomberg by phone. The selling has nothing to do with the stock and everything to do with market rotation, he added.

READ MORE: Energy Stocks Off to Early September Lead as Rally Continues

To contact the reporter on this story: Aoyon Ashraf in Toronto at aashraf7@bloomberg.net

To contact the editors responsible for this story: Brad Olesen at bolesen3@bloomberg.net, Scott Schnipper

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