News & Our Thinking

Weekly Investor

Weekly Investor June 21, 2010

24 June 2010

Fundamentals Will Matter

Market Summary:
The major averages posted solid gains for the week, pushing the indices near the break-even level for the year. Economic data was mixed as we approach the forthcoming arrival of earnings season. On the positive front, near-record low interest rates coupled with few signs of inflation continued. On the other hand, Philadelphia Fed Manufacturing Index lagged expectations and homebuilding numbers disappointed in part due to the expiration of first-time homebuyer tax credits. Much of the year’s activity in the markets has been driven by headlines related to overseas financial risks, BP’s oil catastrophe, and numerous political debates here at home. Second quarter earnings are set to be unveiled in a matter of weeks and investors hope business fundamentals shift back into focus.

Over the past week, top-performing sectors in the S&P 500® Index included Utilities (+3.9%) and Technology (+3.4%), while bottom-performing sectors included Telecomm (+0.9%) and Consumer Discretionary (+1.0%). In the fixed-income market the 10-year Treasury lost ground with yield ending the week at 3.3%.

We continue to seek those companies possessing identifiable catalysts, and focusing on those stocks with favorable odds.


Starwood Hotels (HOT) – Moving From Defense to Offense

Founded in 1969, Starwood Hotels & Resorts Worldwide, Inc. (HOT) is a hotel and leisure company operating luxury and upscale full service hotels, retreats, resorts, and residences around the globe. The company’s portfolio includes the following brands, among others: St. Regis, The Luxury Collection, W, Westin, Le Meridien, Sheraton, Four Points and Element.

Prior to the global economic pullback, HOT embarked upon a strategy change whereby the company began selling its hotel properties while maintaining the management contracts. After implementation of this plan, HOT will be left strictly in the hotel management business. The impact of this transition, once completed, will result in a company that offers investors much higher returns with less cyclicality when compared to the current ownership structure. Despite this positive shift, broad economic challenges have weighed heavily on the company and the hotel industry as a whole. HOT’s change in strategy offers the potential for very attractive returns as the economy begins to heal.

Top 10 Equity Holdings

Cisco Systems Inc. 4.5%
Newell Rubbermaid Inc. 4.1%
Google Inc. 4.0%
Danaher Corp. 3.9%
Starwood Hotels 3.8%
Carnival Corp. 3.4%
Intel Corp. 3.3%
MasterCard Inc. 3.2%
EMC Corp. 3.2%
Energizer Holdings 3.1%

U.S. Equity Indices

Index 06/18/10 Week % Chg YTD % Chg
DJIA 10,450.6 2.4% 0.2%
NASDAQ 2,309.8 3.0% 1.8%
S&P 500  1,117.5  2.4%  0.2%
Russell 1000 G 498.3 2.4% -0.4%

U.S. Credit Rates

Index 06/18/10 06/11/10 12/31/09
3 Month T-Bill 0.1% 0.1% 0.1%
5 Year T-Note 2.1% 2.0% 2.6%
10 Year T-Note 3.3% 3.2% 3.8%
30 Year T-Bond 4.2% 4.2% 4.6%
Prime Rate 3.3% 3.3% 3.3%

This newsletter presents selected recommendations from portfolio managers of Argent Capital Management LLC, a registered investment advisor. Opinions reflect the portfolio manager’s judgment on the date above and are subject to change. A list of stocks recommended by Argent is available upon request. You should not assume that these recommendations are or will be profitable. In the course of it’s business, Argent’s client accounts may be buying and selling these stocks.