Mergers and Acquisitions

U.S. equity markets ended last week in positive territory and the S&P 500® Index closed at an all-time high on Friday.  Friday’s close marks the seventh time this year an all-time high has been set for the index.  Mergers and acquisitions stole the show during the week.  On Assignment Inc. (ASGN), a current Argent Small Cap holding, bought Creative Circle LLC for $570M in cash, spurring a 15% rally in ASGN stock.  Additionally, the Wall Street Journal reported that Danaher Corp. acquired Pall Corp. for nearly $14B in cash.  Earnings season continued and Bloomberg reported that members of the S&P 500 are on track to report 0.2% earnings growth for the quarter.  Prior to the start of first quarter earnings season, Bloomberg had projected that earnings would be 5.8% lower than last quarter among S&P 500 constituents.  Investors were happy with the upward revision in earnings.  Finally, many retailers are set to report earnings this week and the reports should provide investors with a good measure on the strength of retail sales.  Stay tuned.

The S&P 500® was up 0.3% for the week.  The top-performing sectors in the S&P 500® Index included Consumer Staples (1.2%) and Health Care (1.1%), while bottom-performing sectors included Basic Materials (-0.3%) and Energy (-1.7%). In the fixed-income market, the 10-year Treasury yield was even during the week, ending at 2.1%.

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

Favorable Odds

MasterCard, Inc. (MA), founded in 1966, operates with its subsidiaries to provide transaction processing and additional services for its credit, deposit, and ATM programs, which reach over 24,000 financial institutions worldwide. MA facilitates the authorization, clearing, and settlement of transactions, as well as markets and develops other payment-related services. MA’s brands include MasterCard, Maestro and Cirrus.

The payment transition from cash to checks to plastic is well underway in the U.S., but is in its infancy in areas abroad. We expect MA to be a prime beneficiary of this secular change, as the company enjoys high barriers to entry, basically dividing the market with Visa, Inc. (V). The positive competitive landscape will, in our belief, protect MA’s profits in the years to come, as the company increases its saturation in developing economies. Like many companies, MA impacted by the slowing economy; however, it has at its disposal cost cutting options to mitigate the cyclical pressures that may weigh on its earnings. Given the company’s bright long-term growth prospects and near-term ability to protect profits, we believe MA represents favorable odds for our clients.