Weekly Investor – July 25, 2011
Greek Bailout II
The major equity averages all posted gains this past week as European leaders reached an agreement to bail out Greece. Investors had expected another Greek bailout, but were happily surprised that leaders were focused on controlling contagion risk by enhancing the flexibility of the European Financial Stability Facility (EFSF). Additionally, precedents were set in case some of the other debt-burdened “peripheral” countries in Europe need a bailout including: the length of EFSF loans to Greece were doubled to 15 years and interest rates lowered to 3.5%. These actions increase the odds that Greece will be able to pay its debts. Greek bondholders will have to accept a 21% haircut on their bond holdings in exchange for the help from the EFSF. Closer to home, lawmakers in Washington are still maneuvering around each other and engaging in some brinksmanship as our country nears the deadline for Federal lawmakers to agree on the debt ceiling and other budget matters. Meanwhile, the early innings of second quarter earnings have been generally positive, as more than 75% of those companies in the S&P 500 that have reported have beaten earnings expectations.
Over the past week, top-performing sectors in the S&P 500® Index included Technology (+3.7%) and Energy (+3.4%), while bottom-performing sectors included Telecommunications (-0.1%) and Basic Materials (0.9%). In the fixed-income market, the 10-year Treasury lost ground with the yield ending the week at 3.0%.
We continue to seek those companies possessing identifiable catalysts, and focusing on those stocks with favorable odds.
Strong Execution in a Challenging Environment
Varian Medical Systems, Inc. (VAR) is a leader in radiation therapy and oncology treatment. The company designs, manufactures, sells and services equipment and software products used to treat cancer with radiation, operating in two segments: Oncology Systems and X-ray Products.
Over the past 18 months, large capital equipment purchases by hospitals have been negatively affected by a host of budgetary issues. Despite the challenging environment, VAR has continued to take market share from competitors along the way and strengthen its leading position. VAR’s strong execution over this time period resulted in superior stock price performance in absolute terms and relative to the market. With hospital spending beginning to stabilize and VAR’s competitive position even stronger today, we feel an investment in VAR offers favorable odds for our clients.
Top 10 Equity Holdings
|Biogen Idec Inc.||3.8%|
|Gilead Sciences Inc.||3.6%|
|Jabil Circuit Inc.||3.3%|
U.S. Equity Indices
|Index||07/22/11||Week % Chg||YTD % Chg|
|Russell 1000 G||628.0||2.2%||9.3%|
U.S. Credit Rates
|3 Month T-Bill||0.1%||0.1%||0.1%|
|5 Year T-Note||1.5%||1.4%||2.0%|
|10 Year T-Note||3.0%||2.9%||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.