Glass Half Empty

Market Summary:  

Last week presented mostly disappointing economic news and investors took a “glass half empty” view toward the market.  The Federal Reserve’s Beige Book indicated slowing economic trends across much of the country, Federal Reserve Board Governor Bernanke said the recovery was “frustratingly slow,” and jobless claims remained elevated even though they declined for the week.  However, there are a number of potentially positive future catalysts that bear watching.  For example: U.S. vehicle production is set to surge beginning in July; following supply disruptions caused by the natural disasters in Japan, the price of gasoline is declining; the U.S. Congress is edging closer to a debt-ceiling and deficit reduction package; and housing prices for non-distressed sales have ticked higher over the last four months. In summary, while the glass may be half empty, there may be evidence of a refill that we will be watching for over the next few weeks.

Over the past week, top-performing sectors in the S&P 500® Index included Utilities (-0.7%) and Health Care (-1.1%), while bottom-performing sectors included Technology (-3.3%) and Consumer Discretionary (-2.7%).  In the fixed-income market, the 10-year Treasury gained ground ending the week with the yield ending at 2.98%.

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

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 Adding Value through Growth

 Qualcomm Incorporated (QCOM) is a leading provider of digital wireless communications technologies, products and services.  QCOM’s extensive intellectual property portfolio, which includes industry-leading code division multiple access (CDMA) technologies, is sold through licensing agreements with wireless network infrastructure and wireless device manufacturers, and through the sale of CDMA-based chipsets and system software.  In addition, QCOM provides a broad range of technology solutions and services to enterprise, government and transportation companies.  QCOM was founded in 1985 and is based inSan Diego,California.

QCOM is well positioned to benefit from the proliferation of smartphones and wireless devices, such as the iPad and other netbooks, as QCOM supplies chips that power many such devices.  More importantly, QCOM receives royalty payments from the sale of devices that utilize QCOM’s patented technologies.  We believe the current valuation does not fully reflect QCOM’s potential earning power, assuming that double–digit growth rates in sales and earnings are achievable over the next few years.  For these reasons, we believe purchasing QCOM positions us ahead of the curve as QCOM presents favorable odds for our clients.