Weekly Investor – February 3, 2014
Super Bowl Reflecti0ns
While congratulations are in order for Seattle Seahawk fans, the one-sided Super Bowl should not diminish a spectacular season achieved by the Denver Broncos. The Broncos will reflect on the past as they plan for the future. Likewise, while the equity markets have paused with the S&P 500 down 3.5% in January and 0.4% last week, this should not be cause for alarm following spectacular returns in 2013. Last week, market watchers reflected on solid 4th Quarter GDP growth of 3.2% and a busy week of earnings, with blue chip names such as Caterpillar, Dow and Google that met or exceeded estimates while Apple and Amazon missed lofty expectations. At the same time, the Fed confirmed a widely expected $10 billion reduction in monthly bond-buying and the health of emerging market economies continued to concern. Market volatility may continue as equity investors continue to digest earnings and reflect on those emerging markets concerns and an improving economic environment in developed economies.
The S&P 500® was down 0.4% for the week. The top-performing sectors in the S&P 500® Index included Utilities (2.9%) and Health Care (0.6%), while bottom-performing sectors included Energy (-1.5%) and Consumer Staples (-1.7%). In the fixed-income market, the 10-year Treasury yield was even during the week, ending at 2.7%.
We continue to seek those companies possessing identifiable catalysts, and focusing on those stocks with favorable odds.
Electronic Arts Inc. (EA) develops, markets, publishes and distributes game software content and services for video game consoles, personal computers, mobile phones, tablets and electronic readers as well as the Internet. EA sells its products through mass market retailers, electronics specialty stores and game software specialty stores worldwide. EA was founded in 1982 and is headquartered in Redwood City, CA.
EA is currently undergoing a strategy change focused on improving its return profile. We agree with EA’s strategy and see significant room for improved profitability within the company. The improved profitability should lead to increased earnings power, which we believe is currently underestimated by Wall Street. In addition, EA is positioned to benefit from the next generation video game cycle, providing a tail wind to its traditional console business and complementing EA’s growing digital business. As a result, we believe EA offers favorable odds to our clients.
Top 10 Equity Holdings
|Endo Health Solutions||4.0%|
|Post Holdings, Inc.||3.6%|
U.S. Equity Indices
|Index||01/31/14||Week % Chg||YTD % Chg|
|Russell 1000 G||838.6||-0.3%||-2.9%|
U.S. Credit Rates
|3 Month T-Bill||0.1%||0.1%||0.1%|
|5 Year T-Note||1.5%||1.6%||1.8%|
|10 Year T-Note||2.7%||2.7%||3.0%|
|30 Year T-Bond||3.6%||3.6%||4.0%|
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.