Weekly Investor – June 25, 2018
Tariffs Remain at Forefront in Markets
Disappointing equity returns last week largely can be distilled down to one word: tariffs. The S&P 500® Index returned -0.87%, the Dow Jones Industrial Average returned -2.03%, and the NASDAQ Composite returned -0.68%.
Although trade tensions between the U.S. and China ebbed last week, President Donald Trump outlined expanding tariffs on $200 billion in additional goods if China takes retaliatory measures against the U.S. for the $50 billion in tariffs that will begin next month. Beijing accused Trump of starting a trade war and threatened equivalent retaliation. On Friday, Trump also outlined a 20% tariff on European car imports if the EU doesn’t augment its existing tariffs on U.S.-made autos.
As risks of a trade war grow, returns are generally worse for large-cap names, which tend to have more foreign exposure, compared to small-cap names, which tend to have more dollar exposure. The large-cap S&P 500 has returned 7.20% since April 2, the day Trump formally proposed tariffs on Chinese trade, compared to the small-cap S&P 600® Index, which has returned 13.97%.
The S&P 500 was down for the week. Its top-performing sectors included Utilities (2.5%) and Real Estate (2.5%), while bottom-performing sectors included Basic Materials (-2.1%) and Industrials (-3.4%). In the fixed-income market, the 10-year Treasury yield was down slightly, ending at 2.90%.
We continue to seek companies that reflect our Change Based InvestingSM approach.
Marvell Technology on the Rise
Marvell Technology Group Ltd. (MRVL) designs, develops and markets semiconductors and is considered the market leader in data storage solutions. Customers include computer manufacturers, automobile makers, major mobile networks and internet retail and server sites. MRVL was founded in 1995 and is headquartered in Hamilton, Bermuda.
Activist investor Starboard has brought dramatic changes to MRVL since early 2016. It forced out MRVL’s management team and brought in a new CEO, Matt Murphy, who has quickly put together a new management team of successful industry veterans and delivered significant improvements to profits by implementing discipline on costs and product portfolios, along with a focus on research and development spending. Recently, MRVL announced plans to acquire Cavium to increase exposure to networking, which should drive further profit improvements and return the company to revenue growth. Because of these improvements, MRVL fits Argent’s Change-Based Investment process.
Top 5 Equity Holdings
Large Cap Growth
| Alphabet Inc. | 7.7% |
| Baxter International | 4.9% |
| Marvell Technology | 4.3% |
| Mastercard Inc. | 4.2% |
| Fortive Corporation | 3.9% |
Small Cap Core
| Fortinet Inc. | 3.1% |
| Wintrust Financial | 3.0% |
| Mastec Inc. | 2.5% |
| Lumentum Holdings Inc. | 2.1% |
| Merit Medical Systems | 2.1% |
Dividend Select
| JP Morgan Chase & Co. | 5.4% |
| Occidental Petroleum | 4.6% |
| ConocoPhillips | 4.2% |
| Las Vegas Sands Corp. | 4.1% |
| Marvell Technology Group | 3.8% |
Mid Cap
| NVIDIA Corporation | 3.3% |
| Cintas Corporation | 3.1% |
| NetApp Inc. | 3.1% |
| CDW Corporation | 3.1% |
| NVR Inc. | 3.0% |
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.
