Dear Friends,
We experienced some slight market volatility in November, but all three major indexes still had near-even returns. Some of the market’s volatility came from uncertainty regarding the December Federal Reserve meeting. Markets were mixed on whether or not the Fed would cut rates another 25 basis points. Recent prediction data has pointed to another 25-basis point cut on December 10th, but earlier in November, there was more uncertainty. The market generally reacts positively towards rate cuts, as lower interest rates help spur economic growth. Access to cheaper debt encourages corporations to spend more on capital expenditures and growth projects. While a December rate cut is not guaranteed, it is the base case right now.
This time of year presents a lot of important economic data, particularly regarding the strength of the consumer. Black Friday online spending increased over 9% from last year, according to Reuters. Travel during the week of Thanksgiving also set a new record, as over 360,000 flights were scheduled over the holiday weekend. Both of these statistics illustrate that consumers still have plenty of room for discretionary spending. Even though consumer sentiment is lower than normal, people continue to have disposable cash to spend, signaling an overall strong consumer. As holiday spending continues to ramp up ahead of Christmas, we expect consumer spending to be near all-time highs.
Artificial intelligence and semiconductor spending continue to be the primary drivers of the stock market. Large tech companies are investing billions of dollars into these advanced technologies to try to get a leg up on their competitors. Microsoft and Google are among the companies competing to have the best AI chatbot. Both companies have similar offerings, and we think continued investment in their AI programs will create stronger products. We see investment in AI continuing, which should continue to lead to strong growth in the technology sector. As well, we continue to invest in a diversified blend of active and passive fixed-income products. As interest rates continue to fall, the return on fixed-income will continue to decrease, but this will make the capital value of the current holdings more valuable. Overall, we will continue doing everything we can to provide you with the best returns for the lowest amount of risk.
The following are our best current recommendations:
We experienced some slight market volatility in November, but all three major indexes still had near-even returns. Some of the market’s volatility came from uncertainty regarding the December Federal Reserve meeting. Markets were mixed on whether or not the Fed would cut rates another 25 basis points. Recent prediction data has pointed to another 25-basis point cut on December 10th, but earlier in November, there was more uncertainty. The market generally reacts positively towards rate cuts, as lower interest rates help spur economic growth. Access to cheaper debt encourages corporations to spend more on capital expenditures and growth projects. While a December rate cut is not guaranteed, it is the base case right now.
This time of year presents a lot of important economic data, particularly regarding the strength of the consumer. Black Friday online spending increased over 9% from last year, according to Reuters. Travel during the week of Thanksgiving also set a new record, as over 360,000 flights were scheduled over the holiday weekend. Both of these statistics illustrate that consumers still have plenty of room for discretionary spending. Even though consumer sentiment is lower than normal, people continue to have disposable cash to spend, signaling an overall strong consumer. As holiday spending continues to ramp up ahead of Christmas, we expect consumer spending to be near all-time highs.
Artificial intelligence and semiconductor spending continue to be the primary drivers of the stock market. Large tech companies are investing billions of dollars into these advanced technologies to try to get a leg up on their competitors. Microsoft and Google are among the companies competing to have the best AI chatbot. Both companies have similar offerings, and we think continued investment in their AI programs will create stronger products. We see investment in AI continuing, which should continue to lead to strong growth in the technology sector. As well, we continue to invest in a diversified blend of active and passive fixed-income products. As interest rates continue to fall, the return on fixed-income will continue to decrease, but this will make the capital value of the current holdings more valuable. Overall, we will continue doing everything we can to provide you with the best returns for the lowest amount of risk.
The following are our best current recommendations:
HARE Portfolio
(Growth Companies)
Alphabet Inc Class C (GOOG)
Alphabet is a holding company that owns the internet giant Google. The primary driver of revenue for GOOG is advertising, as the Google brand generates about 90% of GOOG’s revenue. Alphabet’s Google brand includes the search engine, YouTube, Pixel Smartphones, Chromebooks, and sales in the Google Play Store. Google's search engine is dominant, and Morningstar estimates that it will continue to grow by about 7%-9% compounded annually. Digital advertising is still growing, but it is also maturing, so growth in that area may not be as strong down the line. YouTube is expected to grow by over 10% annually, too, as the video streaming site continues to draw excellent advertising revenue. The other 10% of GOOG’s revenue is driven by cloud computing growth, which includes AI. This segment will be Alphabet’s growth driver for the future, with expected growth of 34% annually. In total, we are expecting Alphabet to grow by about 13% annually. Google also successfully launched the third iteration of its AI tool, Gemini, and has struck a deal with META to allow it to use some of its AI processing tools in its data centers. This successful launch and deal with META have given the market and Morningstar confidence that GOOG will be a major AI player. There continues to be intense competition in the AI space, but GOOG has impressed recently. The strength of Alphabet’s core brands and future cloud growth potential led to Morningstar giving GOOG a wide moat rating. A wide moat rating indicates that a company has built a 20-year competitive advantage over most of its competitors. We think that Alphabet has done an excellent job of developing its core products, while investing and expanding offerings in high-growth areas.
Key Financial Information
Stock Price
$320.12
Fair Value Calculation
$340.00
Potential Gain
6.21%
Morningstar Rating
3 Stars
CFRA Rating
Strong Buy
Argus Comp Rating
N/A
Schwab Equity Rating
B
TORTOISE Portfolio
(Dividend Paying Companies with a Stable Business Model)
Lockheed Martin Corp (LMT)
Lockheed Martin is the world’s largest defense contractor. LMT has dominated the market for fighter aircraft since it was awarded the F-35 Jet contract in 2001. LMT generated about 2/3rds of its revenue from aeronautics. The F-35 contract is the largest weapon program in history and will deliver stable revenue for decades to come. LMT's primary customer is the US Department of Defense, which also provides long-term stability. LMT is expected to grow its revenue by about 3% compounded annually, while expanding margins over the next five years. LMT pays a solid dividend of roughly 3%. Morningstar has given LMT a wide moat rating, even though LMT primarily sells its goods to the US government. It is common for defense companies to have one primary buyer, and this relationship keeps LMT as a crucial supplier of military equipment for the US. Due to the structure of military contracts and product lifecycles, LMT will be able to generate revenue from the F-35 program until at least 2070. Government defense spending generally increases with GDP growth and unstable geopolitical environments, so LMT should be able to capture more of the national budget. We think that LMT has done an excellent job maintaining its dominant position in the defense industry.
Key Financial Information
Stock Price
$439.19
Fair Value Calculation
$538.00
Potential Gain
22.49%
Forward Dividend
3.14%
Morningstar Rating
4 Stars
CFRA Rating
Hold
Argus Comp Rating
Buy
Schwab Equity Rating
C
Growth ETF Pick of the Month
Capital Group Dividend Value ETF (CGDV)
Capital Group’s Dividend Value fund has the primary goal of generating positive capital returns, with a secondary focus on paying a higher dividend than the S&P 500. CGDV currently holds 52 equities, and 68% of holdings have wide moat ratings. Even though CGDV is a value fund, it has a high exposure to technology stocks, with 27% of the fund falling into that sector. CGDV prefers to invest in larger and more mature companies that still have strong long-term growth prospects. CGDV has an excellent performance history, and Capital Group has proven it knows how to thread the line between growth and value. We consider this fund to be a staple of our growth model, and think it will continue to perform well in the long term. CGDV currently yields 1.44%.
Top 10 Holdings
Holdings
Portfolio Weighting
Morningstar Rating
NVIDIA Corp
6.43%
4 Stars
Microsoft Corp
6.13%
4 Stars
Broadcom Inc
5.36%
3 Stars
Eli Lilly And Co
5.18%
2 Stars
RTX Corp
4.77%
3 Stars
British American Tobacco
3.98%
3 Stars
GE Aerospace
3.55%
3 Stars
Meta Platforms Inc
2.56%
4 Stars
Carrier Global Corp
2.43%
3 Stars
Starbuck Corp
2.40%
3 Stars
Key Financial Information
Current Price
$43.48
1 Year Performance
19.43%
3 Year Performance
23.25%
5 Year Performance
N/A
Morningstar Rating
5 Stars
Expense Ratio
0.33%
Fixed Income ETF Pick of the Month
First Trust Low Duration Opportunities ETF (LMBS)
First Trust’s Low Duration Opportunities fund is an actively managed ETF with a primary objective of generating current income and a secondary focus on capital appreciation. LMBS has over 1,000 bond holdings, 77% of which are invested in securitized investments. The remainder of the fund is invested in government bonds. The securitized investments in LMBS are largely mortgage investments guaranteed by the federal government. Due to this guarantee, over 98% of holdings in LMBS have a AAA credit rating. LMBS currently has a yield of 4.08%.
Top 10 Holdings
Holdings
Portfolio Weighting
2 Year Treasury Note
12.77%
FHLMC Super 30Y Fixed 4%
2.64%
Federal National Mortgage Association
1.63%
Federal Home Loan Mortgage Corp
1.47%
Federal National Mortgage Association
1.42%
United States Treasury Note
1.19%
United States Treasury Bills
1.19%
United States Treasury Bills
1.18%
United States Treasury Bills
1.18%
Key Financial Information
Current Price
$49.98
1 Year Performance
6.53%
3 Year Performance
5.94%
5 Year Performance
2.76%
Morningstar Rating
5 Stars
Expense Ratio
0.65%
Yield
4.08%
Bond Picks of the Month
JPMorgan Chase & Co
Yield
3.817%
Maturity
12/15/2026
Rating
A-
National Bank of Canada
Yield
3.960%
Maturity
12/18/2028
Rating
A-
Prudential Financial Inc
Yield
4.050%
Maturity
12/15/2030
Rating
A
CDs
Wells Fargo Bank – 1 Year CD
3.75%
First Bank of Richmond – 3 Year CD
3.85%
Morgan Stanley – 5 Year CD
4.05%
Author's Perspective
With another rate cut expected in December, smaller stocks should get another boost. Small and mid-cap stocks have lagged the S&P 500 the past few years, but we may be finally getting to a point where the environment is more constructive for smaller growth to blossom. Smaller companies tend to get debt from more floating-rate bonds, so elevated rates weigh on the amount of cash small-caps have available. If small and mid-cap stocks can join in on the growth that large-cap stocks have experienced over the past few years, we should see positive market performance broaden out, which is healthy for the overall investment market. We are actively following all of your investments, and while we work through the uncertainty of the economy, we are focused on providing you with the best possible returns for the least amount of risk.
As always, if you have any investment questions, please do not hesitate to contact us and we will be happy to assist.
As always, if you have any investment questions, please do not hesitate to contact us and we will be happy to assist.
Yours Truly,
Alan Locke, President
Locke Investment Management
Alan Locke, President
Locke Investment Management
About Alan Locke
Alan Locke, BS, MBA, CGA, CFP is the President of Locke Investment Management. After a successful financial management career, Mr. Locke founded Locke Investment Management, a registered investment advisory firm, in 1994. His credo has always been to build the best possible portfolio for each client in order to help that client achieve his or her financial goals.