Weekly Investor – August 20, 2018
S&P Stays Up After Uncertain Week
Stocks oscillated between gains and losses before finishing higher for the week on strong earnings from a few mega cap companies and improved sentiment over a potential trade deal with China. U.S. and Chinese negotiators are working on a plan to have Presidents Donald Trump and Xi Jinping meet in November, which could lead to the end of the current trade dispute. For the week, investors had to weigh fears of Turkey’s economic crisis spreading to other emerging markets and trade concerns against continued strong economic data and earnings.
In economic news, retail sales advanced by 0.5% for July, beating expectations of a 0.1% increase. With earnings season nearly complete, shares of Cisco Systems jumped after reporting strong global demand for the company’s products. By contrast, shares of Applied Materials Inc. sank after it announced disappointing guidance because of weak demand from foundry customers.
With 93% of members reporting, the S&P 500® Index has posted 24% earnings growth for the quarter. In addition, 81% of S&P 500 members have posted positive earnings surprises for the current quarter, versus 72% for the second quarter of 2017. While trade sentiment and concerns about Turkey’s economic crisis will likely drive the market in the near term, strong domestic growth has the potential to keep U.S. markets moving higher over a longer horizon.
The S&P 500 Index was up 0.6% for the week. Its top-performing sectors included Telecommunications (3.7%) and Consumer Staples (3.2%), while bottom-performing sectors included Basic Materials (-0.5%) and Energy (-3.6%). In the fixed-income market, the 10-year Treasury yield remained steady, ending at a little less than 2.9%.
We continue to seek companies that reflect our Change-BasedSM investment approach.
Changes at Target Could Boost Valuation
Target Corporation (TGT) is the second-largest general merchandise retailer in the United States behind Walmart, selling products through its physical stores as well as its digital channels. Based in Minneapolis, Minnesota, the company was founded in 1902 as Goodfellow Dry Goods.
Target is in the midst of several changes. It is resetting its pricing strategy to close the gap with Walmart, its biggest competitor, and addressing its e-commerce needs by rolling out same-day delivery in selected markets around the country. We believe these changes will increase same store sales for Target and will drive a higher valuation for its stock. For these reasons, we believe Target fits well with Argent’s Change-BasedSM investment approach.
Top 5 Equity Holdings
Large Cap Growth
| Alphabet Inc. (Google) | 7.8% |
| Post Holdings Inc. | 5.1% |
| Baxter International | 4.7% |
| Mastercard Inc. | 4.2% |
| JP Morgan Chase & Co. | 4.0% |
Small Cap Core
| Fortinet Inc. | 3.3% |
| Wintrust Financial | 3.0% |
| Health Insurance Innovations | 2.8% |
| Merit Medical Systems | 2.4% |
| G-III Apparel Group Ltd. | 2.2% |
Dividend Select
| JP Morgan Chase & Co. | 5.7% |
| Occidental Petroleum | 4.2% |
| ConocoPhillips | 4.2% |
| Pfizer Inc. | 4.0% |
| Target Corporation | 3.9% |
Mid Cap
| Cintas Corporation | 3.4% |
| NVIDIA Corporation | 3.1% |
| NetApp Inc. | 3.1% |
| Amedysis Inc. | 3.1% |
| CDW Corporation | 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.
