Investors can easily find more exciting ideas than Valvoline (NYSE:VVV), which occupies an unusual niche in the broader energy ecosystem. As a specialist in oil changes and other automotive-related preventative care, Valvoline is far removed from compelling, frontline narratives. At the same time, the company is a functional necessity, making VVV stock an excellent idea for those seeking shelter from a possible recession.
Fundamentally, Valvoline’s bullish argument centers on its defensive nature. Although electric vehicles have witnessed tremendous proliferation in recent years, the vast majority of vehicles on the road are combustion powered. That means frequent oil changes and other basic maintenance requirements. Plus, with so much emphasis placed today on speed and convenience, Valvoline provides a relevant service.
It’s also worth pointing out that, generation wise, Valvoline is practically indispensable. According to information cited by the National Association of Realtors, millennials are short on basic skills and tools for home maintenance. For example, young homeowners are least likely to know how to fix a leaky faucet or caulk tiles.
It’s not much of a stretch to assume, then, that millennials wouldn’t know how to change the oil in their car.
Even among knowledgeable and skilled drivers, modern vehicles have become much more complex. Gone are the days when any individual could easily tinker with their ride. Now, everything is controlled by semiconductors and other integrated devices.
Bottom line? It’s often just better and more holistically cost-effective to let the experts do their job. Therefore, even under recessionary conditions, VVV stock arguably represents a solid proposition.
Despite the pertinence of the underlying business, VVV stock has struggled to impress investors recently. During the midweek session, Valvoline was one of the biggest single-day losers, dropping more than 5% of equity value. Since the start of this year, VVV slipped 7%. In contrast, the benchmark S&P 500 is down less than 1% in the same period.
Nevertheless, contrarian investors may want to keep close tabs on VVV stock: it’s flashing a quantitative signal that few seem to appreciate.
Currently, from a market breadth standpoint, Valvoline is printed a “3-7-D” sequence: three up weeks, seven down weeks, with a net negative trajectory across the 10-week period. Notably, in 69.44% of cases, the following week’s price action sees upside, with a median return of 1.84%.
Should VVV stock follow the implications of this quant signal, the equity could pop above the $34 level within the next week or two. Over the next three to four weeks, if the bulls maintain control of the market, the share price could swing above the $35 mark.
Mathematically, what’s perhaps most attractive about the above setup is the shift in projected probabilities. On any given week, the chance that a long position in VVV stock will be profitable is only 53.45%. That’s a small bullish edge. However, the 3-7-D sequence boosts this probability to above 69%. Yet market makers are pricing risk based on odds that are closer to 50/50.
In other words, you’re incentivized to take a shot here because the odds are surprisingly in your favor. That’s an edge that the Street doesn’t want you to know about.
