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Weekly Investor

Weekly Investor – February 16, 2016

17 February 2016

 

A Whipsaw Week

U.S. equity markets ended a whipsaw week down. The S&P 500 Index returned -0.8% last week and thus far is down 8.5% year-to-date.  On Thursday, the S&P 500 closed near 1,829,  the lowest level since April 2014.  However, the Index rallied over 35 points on Friday and closed the week at 1,865.   European banks (measured by the STOXX Europe 600 Bank Index) continued to slide in the face of recession fears.  For the week, the index was down 5.9% and is down over 24% for the year.  Earnings season continued and according to Bloomberg, nearly two-thirds of companies have announced earnings and over 75% have beat earnings expectations but less than half have beat sales expectations.  JP Morgan Chase & Co. (JPM) rallied 8% on Friday as CEO Jamie Dimon announced he purchase $26M of the bank’s stock.  In economic news, Federal Reserve Chairwoman, Janet Yellen, suggested the central bank could potentially turn to negative interest rates, as the Fed has been surprised by the swings in oil prices and current strength of the dollar. She also noted that a strong dollar and high interest rates for riskier borrowers could negatively impact the domestic economy.  Finally, retail sales and labor markets showed improvement.  Looking ahead, investors hope continued positive quarterly earnings reports help lessen volatility.

The S&P 500® was down 0.8% for the week. The top-performing sectors in the S&P 500® Index included Consumer Staples (0.8%) and Health Care (-0.1%), while bottom-performing sectors included Financials (-2.4%) and Utilities (-2.5%). In the fixed-income market, the 10-year Treasury yield was down during the week, ending at 1.7%.

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


Favorable Odds

The Dow Chemical Company (DOW) manufactures and supplies chemical products for use as raw materials in the manufacture of customer products and services worldwide.  DOW was founded in 1897 and is headquartered in Midland, Michigan.

We have added DOW to our portfolio as the company currently maintains the lowest margins among its peers with plans to increase the margins toward peer levels. Additionally, an activist investor has recently become involved in the company and is championing great change which we believe has the potential to unlock substantial shareholder value.  Finally, the revolution in shale gas production provides North American-based chemical producers with a tremendous raw materials cost advantage over global competitors, giving DOW a conducive environment to enact positive changes.  For these reasons, we have added DOW to our portfolio as we believe the company offers favorable odds.

 

Top 10 Equity Holdings


.
Alphabet, Inc. (Google, Inc.) 7.4%
Post Holdings, Inc. 6.2%
ConAgra Foods, Inc. 4.4%
Danaher Corp. 4.3%
Baxter International Inc. 3.9%
C.H.  Robinson Worldwide 3.7%
Red Hat, Inc. 3.4%
Allergan plc 3.4%
The Dow Chemical Co. 3.4%
JP Morgan Chase & Co. 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.