Weekly Investor – May 16, 2011
Equity Investors vs. the U.S. Dollar
U.S. stocks were pulled up and down last week as investors got wrapped up in the dollar’s every move as well as its impact on commodity prices. Given that when the dollar’s up, commodities are down, and vice versa; the most crowded trade became the short dollar-long commodities trade as investors adopted the view that the dollar would continue its decline and commodities would continue their rise. Some took the lower commodity prices as a of a weakening economy which encouraged many to sell stocks and purchase Treasuries. However, much of the activity in commodities markets was speculative in nature since the declines in silver and oil were precipitated by an increase in margin requirements. It is likely the day-to-day performance of equities will continue to be wrapped up in the volatility of this trade for the next few weeks as investors digest near-term markers of volatility. These include the end of “QE2,” the European debt crisis, and the debt/budget battle in the U.S.
Over the past week, top-performing sectors in the S&P 500® Index included Consumer Staples (+2.1%) and Utilities (+1.8%), while bottom-performing sectors included Financials (-2.1%) and Basic Materials (-1.9%). In the fixed-income market, the 10-year Treasury was flat this week with the yield ending at 3.2%.
We continue to seek those companies possessing identifiablecatalysts, and focusing on those stocks with favorable odds.
Strategy for Success
Murphy Oil Corporation (MUR) is an oil and gas exploration and production company with refining and marketing operations in the United States and the United Kingdom. Its operations are classified into two business activities: Exploration and Production, and Refining and Marketing. MUR’s exploration and production activities are subdivided into six geographic segments, including the United States, Canada, Malaysia, the United Kingdom, Republic of the Congo and all other countries. In August 2010, a wholly-owned subsidiary of the Company purchased an unfinished ethanol production facility in Hereford, Texas.
MUR’s updated guidance suggests growth potential that we believe will attract investor attention. MUR’s exploration program remains a source of catalysts and potential resource additions, with 30 prospects between now and the end of 2012. Additionally, the company’s ongoing progress with its unconventional resource growth in North America in proven areas like the Eagle Ford shale do not depend on exploration success. We also believe the odds are favorable that Murphy’s earnings will surprise on the upside as the company has a history of solid production growth. Meanwhile, with shares trading at a discount, MUR is poised to outperform the market and its peers in the long-term.
Top 10 Equity Holdings
|Jabil Circuit Inc.||3.5%|
|Biogen Idec Inc.||3.4%|
|Gilead Sciences Inc.||3.3%|
U.S. Equity Indices
|Index||05/13/11||Week % Chg||YTD % Chg|
|Russell 1000 G||616.6||-0.1%||7.3%|
U.S. Credit Rates
|3 Month T-Bill||0.0%||0.0%||0.1%|
|5 Year T-Note||1.8%||1.9%||2.0%|
|10 Year T-Note||3.2%||3.2%||3.3%|
|30 Year T-Bond||4.3%||4.3%||4.3%|
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.