Weekly Investor – March 9, 2015
Will Rates Rise Soon?
U.S. equity markets ended the week down. The majority of the weekly loss came on Friday after a robust job report led investors to speculate that the Federal Reserve may need to raise rates sooner than expected. The unemployment rate reached a seven year low of 5.5% as employers added 295,000 jobs, beating estimates of 235,000. Finally, payrolls have shown monthly increases for twelve consecutive months, the longest streak since 1995. In other U.S. economic news, personal spending fell in January despite strong employment gains and lower gasoline prices. While investors will pay close attention to any action by the Fed, either scenario could be conducive for equity market returns. While a rate increase would be followed by robust growth, lowered economic growth could lead to a more accommodative Fed. Stay tuned.
The S&P 500® was down 1.6% for the week. The top-performing sectors in the S&P 500® Index included Financials (-0.5%) and Consumer Discretionary (-0.8%), while bottom-performing sectors included Energy (-2.9%) and Utilities (-4.2%). In the fixed-income market, the 10-year Treasury yield was up during the week, ending at 2.2%.
We continue to seek those companies possessing identifiable catalysts, and focusing on those stocks with favorable odds.
Improving Profitability
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 complimenting EA’s growing digital business. We believe EA offers favorable odds to our clients and therefore have added EA to our portfolio.
Top 10 Equity Holdings
| . | |
|---|---|
| Google, Inc. | 5.3% |
| Electronic Arts, Inc. | 5.2% |
| Skyworks Solutions | 5.1% |
| Teva Pharmaceutical | 4.1% |
| Post Holdings, Inc. | 4.0% |
| CBS Corporation | 4.0% |
| Danaher Corp. | 3.8% |
| Lincoln National | 3.7% |
| Broadcom Corporation | 3.7% |
| Mallinckrodt plc | 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.
