News & Our Thinking

Weekly Investor

Weekly Investor – September 24, 2012

25 September 2012

An Improving Outlook

Market Summary:  

The major U.S. equity markets slightly declined last week in the wake of Federal Reserve Chairman, Ben Bernanke’s announcement that the Fed will purchase mortgage securities as part of its additional round of quantitative easing (QE3).  However, this was offset by positive housing data.  On Wednesday, the National Association of Realtors announced that sales of existing homes had increased to 7.8%, the best number reported by the organization in two years.  This adds further credence for investors that a housing recovery is indeed taking place.  Finally, Apple Inc. (AAPL) spurred the markets with the release of iPhone 5 and the stock closed at an all-time high on Wednesday.  As another earnings season is set to begin, investors hope for more signs of an improving economic outlook.

The S&P 500® closed down -0.4% for the week.  The top-performing sectors in the S&P 500® Index included Telecommunications (2.4%) and Health Care (1.8%), while bottom-performing sectors included Financials (-2.4%) and Energy (-1.8%).  In the fixed-income market, the 10-year Treasury yield closed down for the week at 1.76%.

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

Favorable Odds

APPLApple Inc. (AAPL) designs, manufactures, and markets mobile communication and media devices, personal computers, and portable digital music players; and sells related software, services, peripherals, networking solutions, and third-party digital content and applications worldwide.  After producing many popular and innovative products for consumer and domestic markets, AAPL is being gradually adopted by business, international and emerging markets.  AAPL has found increasing success in business markets partly due to its latest product, the iPad.  In addition, AAPL plans to open 40 new stores in 2012, 30 of which will be in international markets including the Asia-Pacific market.  AAPL’s latest in a long line of innovations, the Siri voice activation feature in the iPhone 4, was a huge success for the company, especially in China.  AAPL intends to integrate Siri into other products, potentially an iTV, in the future.   We believe APPL’s new product pipeline, including the recent iPhone 5, and entrance into new markets can power sales and profit growth for many years to come.

Despite the fact that we have always been impressed by APPL’s products, we are cautious of a consumer product company that has a narrow product offering, as success attracts competition.  However, based on APPL’s accelerating leadership position we believe its competitive landscape has continued to improve.  While the stock has performed well over the years, it has grown sales and earnings at rates that justify strong performance and is expected to continue to do so.

Top 10 Equity Holdings

Google Inc. 5.2%
Gilead Sciences Inc. 5.0%
Biogen Idec Inc. 4.9%
Qualcomm Inc. 3.9%
Sun Trust Banks, Inc. 3.8%
CBS Corp. 3.8%
Danaher Corp. 3.8%
Lowes Cos. 3.7%
Express Scripts Holding 3.7%
Forest Laboratories 3.5%

U.S. Equity Indices

Index 09/21/12 Week % Chg YTD % Chg
DJIA 12,217.6 -0.1% 11.1%
NASDAQ 2,605.2 -0.1% 22.1%
S&P 500 1,257.6 -0.4% 16.1%
Russell 1000 G 580.9 -0.1% 17.2%

U.S. Credit Rates

Index 09/21/12 09/14/12 12/30/11
3 Month T-Bill 0.1% 0.1% 0.1%
5 Year T-Note 0.7% 0.7% 2.0%
10 Year T-Note 1.8% 1.9% 3.3%
30 Year T-Bond 2.9% 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.