A Rate Increase

U.S equity markets were mixed last week and the S&P 500® Index closed up 0.12%. Investors spent much of the week digesting the widely expected rate hike by the Federal Reserve from 1% to 1.25%.  In economic news, retail sales declined by 0.3%, the largest decline since January 2016 and consumer prices fell 0.1% in May, leaving many analysts skeptical about future rate increases by the Federal Reserve.  In stock news, Amazon.com, Inc. agreed to buy Whole Foods Market, Inc. in an all cash deal for $13.7 billion.  Looking ahead to this week, investors will continue watch markets for any signal of distress and pay close attention to announcements on existing and new home sales.

The S&P 500® Index was up 0.1% for the week. The top-performing sectors in the S&P 500® Index included Industrials (1.6%) and Utilities (1.6%), while bottom-performing sectors included Basic Materials (-0.8%) and Technology (-1.2%). In the fixed-income market, the 10-year Treasury yield was down during the week, ending at 2.2%.

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

An Activist Investor

Pentair plc (PNR) operates as a diversified industrial manufacturing company. PNR designs, manufactures, markets and services water purification filters and pumps, flow and fluid technology as well as valves and controls for energy and utility infrastructure.  PNR also engages in the production and service of metal electronic protection boxes, fasteners and thermal management solutions for a variety of customers and markets.  PNR was founded in 1966 and is headquartered in Minneapolis, MN.

PNR recently sold the valves and controls portion of their business to Emerson for $3.1 billion. The proceeds from the sale will allow PNR to pay down debt and potentially make acquisitions in core business areas.   Additionally, an activist investor from Trian Partners has taken a seat on PNR’s board.  Trian has publicly stated that they would like to see PNR consolidate the fragmented markets in which they compete.  This came to fruition with PNR’s acquisition of ERICO, a maker of electrical and fastener products, which PNR acquired in August of 2015.  These catalysts, along with PNR’s stated plan to improve margins by growing within the water purification and fluid technology end markets, bodes well for potential earnings growth going forward.   For these reasons, we have added PNR to our portfolio as we believe the company offers favorable odds.