Weekly Investor – August 23, 2021
Stocks Down for the Week
Stocks fell last week, weighed down by losses from economically-sensitive companies as concerns over economic growth increased. Investors worried that Covid-driven lockdowns in China and abroad could pressure supply chains further. In addition, continued high inflation readings along with signals from the Federal Reserve that it could soon begin to taper its bond purchases, led to a risk-off week for stocks. Retail sales for July fell by 1.1% due to a rise in cases from the Delta variant.
Although economic releases may remain choppy in the near term, corporate profits continue to surge. With 97% of companies reported, S&P 500® profits for the second quarter grew by over 85%. The average company in the S&P 500 Index beat earnings expectations by over 15% versus a historical average of 5%. Several retailers reported results last week with Walmart Inc., Kohl’s Corporation and Macy’s, Inc. all reporting much better-than-expected results. In technology, Applied Materials, Inc. reported strong results and positive guidance as long-term semiconductor wafer demand remains robust. NVIDIA Corporation also delivered better-than-expected results on strength in data center demand. Looking ahead to this week, traders will be focused on any pronouncements from the Federal Reserve at its Jackson Hole conference.
The S&P 500 Index was down 0.6% for the week. Its top-performing sectors were Utilities (1.8%) and Health Care (1.8%), while the bottom-performing sectors were Basic Materials (-3.1%) and Energy (-7.3%). In the fixed-income market, the 10-year Treasury yield was even, ending at 1.3%.
We continue to seek companies that reflect our Change-BasedSM investment approach.
Change Based Investment
Zimmer Biomet Holdings is a U.S. based medical device company founded in 1927. Zimmer designs, develops, manufactures and markets orthopedic products including knee, hip, shoulder, elbow, foot and ankle artificial joints and dental prostheses. The company has operations in more than 40 countries.
The coronavirus has caused elective procedures across the globe to be put on hold, significantly pressuring Zimmer’s fundamentals. While the near-term fundamentals are expected to remain weak, this environment offers an opportunity to invest in a high quality, leading orthopedic company at an attractive discount to its long-term value. The company is also entering a new product cycle with the rollout of its Rosa robotic surgery platform. We expect this platform to drive significant growth acceleration for years to come. While we cannot predict the timing of when elective procedures will normalize, Zimmer’s new product cycle, history of successful execution and market-leading position make Zimmer a good fit for Argent’s Change-BasedSM investment approach.
Top 5 Equity Holdings
Large Cap Growth
|D.R. Horton, Inc.||4.7%|
Small Cap Core
|Medpace Holdings, Inc.||4.4%|
|OneMain Holdings, Inc.||4.1%|
|JPMorgan Chase & Co.||5.2%|
|Eaton Corporation Plc||4.4%|
|Life Storage, Inc.||4.3%|
|Zebra Technologies Corp.||4.7%|
|Marvell Technology, Inc.||4.0%|
|Builders FirstSource, Inc.||3.3%|
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.