Weekly Investor – December 05, 2011
Not So Super After All
Market Summary:
The major U.S. equity averages produced their largest weekly gains in three years. The week started with a strong rally on Monday, helped by news that European authorities were discussing the possibility for a new fiscal union that could make budget discipline legally binding and enforceable by European authorities. On Wednesday, stocks surged after the Fed and five other central banks announced coordinated actions to increase liquidity. The actions should relieve stresses caused by the underlying solvency problems inEurope. On the same day,China announced a separate action to reduce its Reserve Requirement Ratio which should increase bank lending in their country. U.S. economic news remained quite positive; the unemployment rate declined to 8.6% and the ISM Manufacturing Survey surprised with a higher than expected reading. The gains in the market came after tough losses during Thanksgiving week and provided affirmation that periods of market volatility are often best addressed by patient, disciplined investing.
The S&P 500® closed up 7.0% for the week. The top-performing sectors in the S&P 500® Index included Energy (+10.1%) and Financials (+9.5%), while bottom-performing sectors included Consumer Staples (4.4%) and Utilities (3.9%). In the fixed-income market, the 10-year Treasury ended the week little changed at 2.1%.
We continue to seek those companies possessing identifiable catalysts, and focusing on those stocks with favorable odds.
Industrial Strength
Ingersoll-Rand Co. Ltd. (IR) offers a diverse portfolio of products within the industrial, security and climate control business segments. IR’s recognizable brands include Thermo King, Club Car and Schlage. Its climate control products include refrigerated display cases, while its security products include electronic access control systems. IR sold off its Bobcat unit and most of its Road Development unit, but has since acquired Trane Inc.
Over the last couple of quarters, IR’s earnings have slowed due to the downturn in residential construction. We feel that the slow down is a near-term issue and has been reflected in the stock’s valuation. IR has nevertheless continued to produce good cash flow, and the Trane acquisition has allowed it to expand its presence in the global air conditioning market. Going forward, we expect reduced earnings volatility, as the company grows its service business and focuses on recurring revenue. IR should then be rewarded with a higher valuation.
Top 10 Equity Holdings
| . | |
|---|---|
| MasterCard Inc. | 5.0% |
| Biogen Idec Inc. | 4.3% |
| Google Inc. | 4.1% |
| Qualcomm Inc. | 3.9% |
| Danaher Corp. | 3.6% |
| Jabil Circuit Inc. | 3.5% |
| Hansen Natural Corp. | 3.5% |
| Allergan Inc. | 3.4% |
| Gilead Sciences Inc. | 3.4% |
| Energizer Holdings | 3.4% |
U.S. Equity Indices
| Index | 12/02/11 | Week % Chg | YTD % Chg |
|---|---|---|---|
| DJIA | 12,019.4 | 7.0% | 3.8% |
| NASDAQ | 2,626.9 | 7.6% | -1.0% |
| S&P 500 | 1,244.3 | 7.4% | -1.1% |
| Russell 1000 G | 582.4 | 7.2% | 1.3% |
U.S. Credit Rates
| Index | 12/02/11 | 11/25/11 | 12/31/10 |
|---|---|---|---|
| 3 Month T-Bill | 0.1% | 0.1% | 0.1% |
| 5 Year T-Note | 0.9% | 1.0% | 2.0% |
| 10 Year T-Note | 2.0% | 2.1% | 3.3% |
| 30 Year T-Bond | 3.0% | 3.0% | 4.3% |
| 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.
