Weekly Investor – May 23, 2016
Potential for Rate Hike in June
U.S. equity markets ended a choppy week in positive territory. Strong economic data points coupled with Federal Reserve members signaling a potential rate hike in June should the economy continue to improve sent utility, consumer staples and telecommunication sectors lower. Housing starts beat expectations and increased by 6.6% while industrial production was also positive, increasing 0.7% in April. Inflation moved closer to the Fed’s long-term target with consumer prices also increasing 0.4% in April, the biggest gain in 3 years. In stock news, many retailers continue to struggle and Gap Inc. announced that it plans to close 75 locations as sales fell 6% in the first quarter. Target Corp. also missed expectations and the stock fell to its lowest level in more than 7 years. Looking ahead to this week, investors will pay close attention to the second reading for 1Q16 GDP, Durable Goods Order and the University of Michigan Sentiment index. Additionally, if the potential for a Fed rate hike remains high, equity market volatility will likely increase in the short-term. Stay tuned….
The S&P 500® Index was up 0.3% for the week. The top-performing sectors in the S&P 500® Index included Energy (1.5%) and Technology (1.4%), while bottom-performing sectors included Telecommunications (-2.1%) and Utilities (-2.3%). In the fixed-income market, the 10-year Treasury yield was up during the week, ending at 1.9%.
We continue to seek those companies possessing identifiable catalysts, and focusing on those stocks with favorable odds.
A Positive Playbook for Success
Tempur Sealy International Inc. (TPX) develops, manufactures and markets mattresses, foundations, pillows and other products. TPX’s brands include Tempur, Tempur-Pedic, Sealy and Sealy Posturepedic.
After three tumultuous years of execution missteps by its management, TPX found itself in a board room battle with a leading shareholder, H Partners. H Partners successfully waged a proxy battle to oust several board members as well as TPX’s CEO. With H partners leading the search, TPX recently announced the appointment of Scott Thompson to head the company. Mr. Thompson arrives at TPX after having led Dollar Thrifty through a multi-year turn-around that drove significant shareholder value creation. We are optimistic that Mr. Thompson’s playbook can lead to similar success at Tempur Sealy.
Top 10 Equity Holdings
| . | |
|---|---|
| Alphabet, Inc. (Google, Inc.) | 6.8% |
| Post Holdings, Inc. | 6.2% |
| Danaher Corp. | 4.5% |
| Masco Corporation | 4.4% |
| ConAgra Foods, Inc. | 4.2% |
| Baxter International, Inc. | 4.1% |
| CBS Corporation | 3.6% |
| Lowe’s Companies, Inc. | 3.6% |
| Red Hat, Inc. | 3.5% |
| C.H. Robinson Worldwide | 3.5% |
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.
