News & Our Thinking

Weekly Investor

Weekly Investor – December 26, 2017

27 December 2017

Optimism Abound for 2018

The S&P 500 continues its upward trend closing out last week up over 22% since the beginning of the year. As hot as the equity market has been in 2017, cryptocurreicies have managed to steal a lot of their thunder, especially as of late. Bitcoin reached its all-time high on Monday and then proceeded to drop over 30% through mid-day Friday, closing at a 20% drop for the week.

Political news was the main driver of stock moves last week as the Republican led tax cuts boosted optimism on many analysts 2018 outlook. Treasury prices were also affected by the tax bill as they dropped moderately over the course of the week. If the tax bill were to lead to a widening of the deficit then the federal government would be pushed to increase debt issuance and therefore the supply of treasuries in the market, which would weigh on prices. This also increased growth and inflation expectations including some economists raising GDP expectations, further increasing yields.

Looking ahead, the Senate passed a stopgap funding through January 19th of next year. This measure will avoid a partial government shutdown and allow the Republicans and President Trump to push forward with their plans to overhaul the nation’s welfare programs or infrastructure plan in 2018.

The S&P 500® Index was up for the week. The top-performing sectors in the S&P 500® Index included Energy (4.5%) and Basic Materials (2.2%) while bottom-performing sectors included Health Care (-1.0%) and Utilities (-4.7%).  In the fixed-income market, the 10-year Treasury yield was up during the week, ending at 2.5%.

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

Positive Catalysts

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 is currently in the midst of several changes including the restructuring of the company’s valve and controls business. 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.


Top 10 Equity Holdings

Alphabet, Inc. (Google, Inc.) 7.5%
Marvell Technology Group 4.7%
ON Semiconductor Corp. 4.7%
Baxter International Inc. 4.6%
Masco Corporation 4.5%
Wynn Resorts Ltd. 4.4%
Red Hat, Inc. 4.3%
JP Morgan Chase & Co. 4.1%
Fortive Corporation 3.8%
Lincoln National 3.6%

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.