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An Alternative To Money Market Funds

February 2017

January is behind us and what a month it was! Donald Trump became our nation’s 45th President on January 20. Now President Trump and Congress must find agreement on taxation, repealing Obamacare, judicial appointments and immigration. The Dow Jones Industrial Average, S&P 500 and Nasdaq all reached record levels with the Dow Jones Industrial Average breaking through the 20,000 level for the first time.

There were a number of developments in the Mergers & Acquisitions sector, with Verizon making headlines both surprising and disappointing. Last month Verizon disclosed it was pushing back the closing date of its acquisition of Yahoo’s assets until the second quarter. Verizon reported a weak 4th quarter and then days later, the Wall Street Journal wrote that Verizon was exploring a merger with Charter Communications, America’s second largest cable television company.

In other news, British American Tobacco (BTI)  and Reynolds American (RAI) finally agreed on a $50 billion cash and stock deal enabling BTI to take full control of RAI. Rival Altria Group acquired the maker of Nat Sherman cigars, Sherman Group Holdings LLC. Aetna and Humana saw their deal to form one of America’s largest health insurers blocked in federal court. This decision likely means the Anthem and Cigna merger will be blocked on antitrust grounds as well.

Several major retailers reached 52 week lows in January as Amazon’s online growth has caused many retailers to lose sales. The Limited and Wet Seal closed all of their retail stores. Analysts fear that Sears may need to file for bankruptcy due to its years of struggle. Just last month, Sears sold its iconic Craftsman brand to Stanley Black & Decker to help ease its liquidity concerns.

The deep selloff in the shares of the major retailers may turn out to be a great buying opportunity for patient investors after the major retailers report their quarterly results in late February. Many of the large retailers now offer dividend yields of 3% or more while trading at multiples well below the S&P 500 market multiple. Both Target and Walmart have increased their dividends for more than 40 consecutive years.

Keep in mind that a year ago, several analysts saw the collapse of the oil and gas sector due to the supply glut. Some predicted that crude oil would soon trade below $15 per barrel while the price of natural gas was headed below the $1 level. As we now know, such dire forecasts never materialized. The energy sector ended 2016 as the best performing sector in the S&P 500. Thus, the major retailers may offer a similar opportunity in 2017 for patient investors.

My weekly radio show on WWPR 1490 AM airs at 12.30pm each Friday. The show can also be heard live on the station’s website (www.1490 wwpr.com). My prior radio shows and news columns are available on my firm’s website (www.amescapmgmt.com).

If you are unhappy with the returns offered by money market funds, feel free to contact us.

 

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