Research Reports

Rapidly rising inflation 2022 knocked stocks into a bear market. While growth strategies suffered the most, value strategies also declined. Even bond prices were lower last year. Volatility, which has dropped from the highs of 2020, still has not returned to pre-COVID levels. Is it time for investors to cash in their chips? We note that investors exit the stock market at their own peril, as long-term returns from equities consistently have outpaced long-term returns from other asset classes, such as fixed income and cash. As well, those fixed-income returns are from eras when the 10-year Treasury bond yield was much higher than the current 3.5% level. So what's a potential equity strategy for investors amid all the uncertainty? Argus believes that Min Vol is an all-weather strategy that is timely in any investing climate.

Argus has published its latest Portfolio Selector, which features its popular Focus List. Each month, Director of Research Jim Kelleher, CFA, surveys the team of Argus Research industry analysts for their timeliest recommendations out of the company's fundamental universe of over 500 stocks. The Focus List typically includes 30 stocks: turnover is high, as Jim typically adds three or four new stocks per month. Below are the latest additions, all of which are rated BUY at Argus.

Each December, Argus surveys its team of analysts, seeking their best ideas for the upcoming year. The Argus Research team draws on its experience (the average analyst has 18 years of Wall Street experience and 10 year at Argus), as well as the company's proprietary six-point research framework and earnings and valuation models to make the calls. Argus analysts cover the waterfront (every sector from Energy to Healthcare to Consumer to Technology), so each sector is represented. This year's list includes some long-time favorites, as well as some recent upgrades and new initiations. The list includes mostly large-caps and mid-caps, and both growth and value stocks. We will be going over the list in more detail during our January webinar and detailing why each stock has been selected by the covering analyst. In the interim, more information on each of these BUY-rated stocks is available on our website.

Runaway inflation -- an 85% rate -- has sent Turkish 10-year bond rates soaring above 10%. A relatively high inflation rate of 13% is also propping up 10-year bond rates in Brazil. But interest rates around the rest of the world generally are much lower, as they are in Europe and the U.K., or are even flat at 0.0%, such as in Japan. We would avoid over-weighting foreign-government fixed-income securities at this time, given their volatile yields, sovereign risks, and repatriation issues. In the U.S., the Federal Reserve is in the later innings of its fight against inflation, and most likely will be batting/battling for the next 1-2 quarters. As such, we look for long-term U.S. interest rates to remain relatively stable over the next few months, but then move lower as unemployment rises and the economy teeters near recession. Our advice to fixed-income investors seeking current returns is to focus on short to intermediate (two-year to seven-year) U.S. Treasuries and floating-rate securities. We recommend paring back positions in inflation-protected securities as inflation rates may have peaked. For specific ideas among closed end funds, exchange traded funds, preferred stocks, and common stocks, please see our Fixed Income Strategy Report.

The Portfolio Selector features the Argus Focus List, a group of 30 "best idea" stocks generated and regularly updated by Argus' analysts and investment policy committee. It also includes the director of research’s monthly investment strategy column, stock recommendations and sector picks, economic forecasts, and an asset allocation model. This month, the Focus List additions are Corteva Inc (CTVA); Dell Technologies Inc (DELL); Exxon Mobil Corp. (XOM); Thermo Fisher Scientific Inc. (TMO) and the Focus List deletions are Linde Plc (LIN); Lilly(Eli) & Co (LLY); ASML Holding NV (ASML); EOG Resources, Inc. (EOG).

ESG (Environmental, Social, Governance) investing continues to grow. According to the Global Sustainable Investment Association, global assets under management in ESG strategies had grown to $40 trillion in 2020, up from $23 trillion in 2016 and on track for $50 trillion by 2025. As assets have flowed in over the past 40 years, Sustainable Impact Investing has evolved. The discipline, originally known as Socially Responsible Investing, focused at first on excluding companies that conducted business in South Africa, or participated in industries such as tobacco, alcohol and firearms. In time, the list of industries to avoid increased to include soft drinks, fast food, and oil and gas, among numerous others. Performance of these initial strategies lagged, and the approach has been modified. Now, instead of merely identifying industries to avoid, the discipline promotes "sustainable" business practices across all industries that can have an "impact" on global issues such as the climate, hunger, poverty, disease, shelter, and workers' rights. At Argus Research, we track ESG developments at specific companies as part of our Management analysis - one of the six points in our proprietary Six-Point Fundamental Approach. In addition to reviewing and measuring the ESG proclamations from the companies under coverage, we partner with an ESG research firm, the JUST Capital Foundation, and leverage its analysis and insights on the topic as well. JUST Capital's mission is to drive measurable corporate change to create a stakeholder-centric, inclusive form of capitalism that reflects the priorities of the American public. JUST utilizes a combination of data-driven research and strategic engagement in an attempt to shift norms and practices in corporate America and the financial markets. JUST ESG Custom Ratings rank stocks in the Russell 1000 on criteria using a scale of 1-100. Drawing on the JUST Capital rankings, we have compiled focused lists of companies followed by Argus Research that are in position to have this type of "sustainable impact" on the environment, workplace, community, and marketplace. These firms have exemplary records not only in delivering on the bottom line, but also in improving the environment, contributing to community relations, and showing respect for their employees. We also have a Theme Model Portfolio based in part on the ESG criteria. To build the Argus U.S. ESG Model Portfolio, we applied financial concepts such as industry diversification, income generation, risk reduction and growth at a reasonable price to our various lists. In addition, all stocks must be on the Argus BUY list. Here are the new stocks that have been added to the Argus U.S. ESG Model Portfolio. For more JUST Score details on these companies, and others in the portfolio, please visit the JUST Capital website, www.justcapital.com.

Sustainable Impact Investing, or ESG investing, is gaining traction not only with Argus Research clients but also with the global investment community. BlackRock CEO Lawrence Fink, who oversees approximately $9 trillion in assets, announced in January 2020 that his firm would be investing in companies that are making progress on sustainability. He doubled down in his January 2021 letter, calling on company managements to disclose their plans for making their businesses "compatible with a net-zero economy" by 2050. As assets have flowed in over the past 40 years, Sustainable Impact Investing has evolved. The discipline, originally known as Socially Responsible Investing, focused at first on excluding companies that conducted business in South Africa, or participated in industries such as tobacco, alcohol, and firearms. Performance of these initial strategies lagged, and the approach has been modified. Now, instead of merely identifying industries to avoid, the discipline promotes "sustainable" business practices across all industries that can have an "impact" on global issues such as climate, hunger, poverty, disease, shelter, and workers' rights.

Crude oil (WTI) had quite a day on Monday, falling all the way to $75.27 early on -- which was a bit lower than the level hit in late September. But oil then stormed back, closing near $80 and setting up a very interesting potential double bottom -- and maybe even the end of the correction that has been in play since June (when crude was up at $123). Yes, we are a bit over our skis in suggesting an end to the correction. But it's possible that oil is tracing out a large cup pattern.

Stocks fell on Monday morning at the start of the holiday-shortened week, led by sharp losses in Energy and Consumer Discretionary stocks. Disney shares rose 7% after the company announced that former CEO Bob Iger would return to the top job, replacing Bob Chapek, who had served as CEO for less than three years. The Dow fell 0.3%, the S&P 0.6%, and the Nasdaq 1.0%. Crude oil fell $5 to $75 per barrel, while gold fell $18 to $1736 per ounce.