News & Our Thinking

Weekly Investor

Weekly Investor – August 14, 2017

15 August 2017


Geopolitical Concerns

U.S. equity markets fell last week and the S&P 500® Index posted its worst weekly performance since March of this year as increased geopolitical tension rattled markets around the globe. President Trump stated that the U.S. would respond to any further threats from North Korea “with fire and fury like the world has never seen.”  In addition, last week brought a number of disappointing earnings results which added to a sell-off.  Shares of Walt Disney Co. lost over 5% after cable networks continued to report subscriber losses.   In a defensive move, the company also announced the end of their partnership with Netflix, Inc. as the company searches for new ways distribute content.  Macy’s Inc. and Kohl’s Corp. also reported declining sales in the second quarter as fundamentals continue to deteriorate for traditional department stores.  However, despite the bad news, S&P 500 earnings are still on pace to increase 10% for the second quarter with 91% of companies reporting thus far.  Looking ahead, the conflict with North Korea will remain a concern for investors.

The S&P 500® Index was down for the week. The top-performing sectors in the S&P 500® Index included Consumer Staples (0.1%) and Utilities (-0.4%) while bottom-performing sectors included Financials (-2.7%) and Energy (-2.9%).  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.

New Product Pipeline

Apple Inc. (AAPL) designs, manufactures and markets mobile communication and media devices, personal computers and portable digital music players as well as sells related software, services, peripherals, networking solutions and third-party digital content and applications worldwide.

We have initiated a new position in AAPL based upon the company’s new product pipeline, specifically, the iPhone 8. It has been three years since AAPL’s last major refresh (iPhone 6) and we believe the new update has the potential to drive a super-cycle of growth for the company. Additionally, AAPL has $246 billion of cash on hand, opening the door to the possibility of transformative acquisitions and new products for the company.  Finally, AAPL maintains strong growth in its high-margin service segment by generating revenue from offerings such as iTunes, Apple Music, iCloud and Apple Pay, among others.  This segment is expected to double sales within four years.  For these reasons, we have added AAPL to our portfolio as we believe the company possesses favorable odds to outperform in the future.  Candidly, some may find this purchase a surprise.  We last owned AAPL several years ago, but sold as the competitive landscape began to change.  With hindsight, being out of the stock for a few years has not hurt portfolio returns, but given the current situation our process is telling us to buy.


Top 10 Equity Holdings

Alphabet, Inc. (Google, Inc.) 7.2%
Baxter International Inc. 4.6%
Post Holdings, Inc. 4.2%
Masco Corporation 4.1%
ON Semiconductor Corp. 3.9%
Skyworks Solutions, Inc 3.9%
Celgene Corp. 3.9%
JP Morgan Chase & Co. 3.9%
Red Hat, Inc. 3.8%
Fortive Corporation 3.8%

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.