Weekly Investor – June 1, 2015
Mergers & Acquisitions Save the Day
U.S. equity markets retreated last week and the S&P 500® Index closed down over 1%. Mixed economic data and the quest for interest rate clarity from the Federal Reserve continued to trouble investors. Tuesday, durable goods, housing starts and consumer confidence were all positive. However, Friday, revisions to first quarter GDP growth caused GDP to shrink from 0.2% to -0.7%. The decline was primarily due to an appreciating dollar, causing exports to decline and imports to increase. Officials at the Federal Reserve believe the setback is temporary. Overseas, the future of Greece’s debt hangs in the balance as a $300M payment is due to the IMF on June 5th. Many worry they country ay default on the payment. Finally, in stock news, mergers and acquisitions continued to dominate headlines. Avago Technologies agreed to purchase Broadcom Corp. for nearly $30b in cash and stock. Looking ahead to this week, investors hope for positive economic data.
The S&P 500® was down 0.9% for the week. The top-performing sectors in the S&P 500® Index included Health Care (0.0%) and Utilities (-0.3%), while bottom-performing sectors included Industrials (-1.9%) and Energy (-2.1%). In the fixed-income market, the 10-year Treasury yield was down 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
Post Holdings, Inc. (POST) engages primarily in the manufacture, marketing, and distribution of branded ready-to-eat cereals in the United States and Canada. The company was founded in 1897 and is based in St. Louis, Missouri.
POST previously operated as a subsidiary of Ralcorp Holdings Inc. However, in February of 2012, POST was spun off from Ralcorp to operate independently as part of a successful plan to maximize value for shareholders. We approve of the plan and think highly of POST’s current management team and its ability to drive value creation for shareholders. Additionally, POST is the number three player in its industry and possesses strong brands and impressive cash flow generation. While the turn-around effort will certainly take time, we believe a focused, stand-alone POST, whose management has a history of acquisition-driven shareholder value creation represents favorable odds for our clients.
Top 10 Equity Holdings
| . | |
|---|---|
| Electronic Arts, Inc. | 5.6% |
| Google, Inc. | 4.9% |
| Skyworks Solutions | 4.8% |
| Teva Pharmaceutical | 4.2% |
| CBS Corporation | 4.0% |
| ON Semiconductors | 3.8% |
| Danaher Corp. | 3.7% |
| Post Holdings, Inc. | 3.5% |
| Lincoln National | 3.4% |
| Mallinckrodt plc | 3.4% |
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.
