Weekly Investor – March 5, 2018
A Tough Week for Stocks
Stocks dropped last week after President Trump announced new steel and aluminum tariffs, instilling fears of a potential trade war. Comments by Fed Chairman Jerome Powell, reiterating to Congress a gradual increase in short-term interest rates, also pressured stocks. Investors worry rising inflation from new tariffs and higher growth from the recent tax cuts could cause the Federal Reserve to raise short-term interest rates faster than expected.
In economic news, the labor market displayed further signs of tightening, with initial jobless claims falling to the lowest level since 1969. The ISM Manufacturing Index rose to the highest level since 2004, coming in at 60.8 in February, well above the consensus expected 58.7. Looking ahead, Friday’s unemployment report for February will be the key economic data point. The unemployment rate is expected to drop to 4% from 4.1% and wage growth is expected to come in at 2.8% year-over-year. Last month’s strong uptick in wages sparked an increase in volatility and helped propel a correction in the market.
The S&P 500® Index was down -2.0% for the week. The top-performing sectors in the S&P 500 Index included Telecommunications (-0.7%) and Technology (-0.8%), while bottom-performing sectors included Industrials (-3.3%) and Basic Materials (-4.0%). In the fixed-income market, the 10-year Treasury yield was down during the week, ending at 2.8%.
.We continue to seek those companies that reflect our Change-Based InvestingSM approach.
Upside Potential
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, networking solutions and third-party digital content and applications worldwide.
AAPL stands to benefit from higher iPhone revenues, driven by demand for more expensive phones such as the iPhone X and iPhone 8 Plus. It had been three years since AAPL’s last major refresh (iPhone 6). We believe the new update has the potential to drive a multi-year cycle of growth for the company. AAPL has also maintained strong growth in its high-margin Services segment by generating revenue from offerings such as the App Store, iTunes, Apple Music, iCloud and Apple Pay, among others. Given the changes in tax law, AAPL has access to $163B in cash, net of debt that it can use for increased dividends, share buybacks, internal investments or acquisitions. We expect AAPL will use its excess cash to generate shareholder value. For these reasons, we believe the company possesses considerable upside potential for our clients.
Top 10 Equity Holdings
Large Cap Growth
| Alphabet, Inc. (Google, Inc.) | 7.4% |
| Red Hat Inc. | 5.1% |
| Marvell Technology Group | 4.9% |
| Baxter International Inc. | 4.6% |
| JP Morgan Chase & Co. | 4.2% |
| Masco Corporation | 4.0% |
| Fortive Corporation | 3.8% |
| Mastercard Inc. | 3.8% |
| Cognizant Technology | 3.6% |
| Post Holdings Inc. | 3.4% |
Small Cap Core
| Wintrust Financial | 3.0% |
| Fortinet Inc. | 2.7% |
| Mastec Inc. | 2.5% |
| Pacific Premier Bancorp | 2.4% |
| First Internet Bancorp | 2.4% |
Dividend Select
| JP Morgan Chase & Co. | 5.8% |
| Marvell Technology | 4.2% |
| Principal Financial | 3.8% |
| Las Vegas Sands Corp. | 3.7% |
| Occidental Petroleum | 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.
