RAMCO Weekly Jun. 23, 2015

Paul Resnik operates Resnik Asset Management Co. (RAMCO), a registered investment advisor. 

Overview

Federal Reserve Policy took center stage again last week, and the belief that a reduction in the Fed's forecast of economic growth this year and next will be reflected in federal funds rate increases coming later and progressing more slowly helped bolster stock prices. For the week, the Dow Jones Industrial Average rose 117.61 points (0.65 percent), the S&P 500 Index advanced 15.88 points (0.76 percent), and the Nasdaq Composite added 65.90 points (1.30 percent; it closed at a record level on Thursday). Another positive was the passage by the House of Representatives of the previously rejected presidential fast-track authority on trade pacts; the bill now goes to the Senate. The Greek drama continued with depositors picking up the pace of withdrawals from Greek banks (it may not be a "run" on the banks but it's at least a "jog"). The European Central Bank continued to back up Greek banks, while the European Union called an emergency summit to discuss the Greek debt crisis (a key debt payment deadline is June 30) for Monday. Greek Prime Minister Alexis Tsipras has arrived with a last-ditch proposal which may at least be a basis for renewed negotiations.

In the News

ConAgra Foods (CAG-43.37) Changing the Menu?

Jana, a hedge fund founded by Barry Rosenstein that disclosed a new active stake of about 7.2 percent in ConAgra, said in a regulatory filing Thursday that it asked the Company to push back its June 21 deadline to submit nominations for its annual meeting to provide “more time to have collaborative discussions.” In a statement in response to Jana's filing, ConAgra said it has extended that deadline to July 8. Jana said in the filing that ConAgra's $6.7 billion purchase of Ralcorp in 2013 “has been followed by disappointing performance for stockholders, repeated guidance misses, negative revisions to long-term earnings targets, no dividend per share growth, and operating performance challenges”. The hedge fund said it began amassing its stake after ConAgra wrote down the deal by $1.3 billion in March. Jana is calling on ConAgra to embark on a review of strategy and corporate structure, examine its operational performance and costs, and better manage the way it allocates capital. ConAgra responded stated that it looked “forward to opening discussions with Jana Partners” after ConAgra's fourth-quarter earnings release on June 30. Before the Ralcorp acquisition, ConAgra was focused on well-known brand names including Hunt's ketchup, Swiss Miss cocoa and Orville Redenbacher's popcorn. The deal was a bet that Ralcorp's faster-growing private-label business, which sells supermarket brands, would be a good fit for the company...it wasn't. ConAgra shares were up 13.8 percent for the week.

Martha Stewart Living Omnimedia (MSO-6.98) Time for Better Living

Shares of Martha Stewart Living Omnimedia shares rose 36.9 percent during the last two days of the week as The Wall Street Journal reported on Thursday that the global lifestyle company is nearing a deal to be acquired by Sequential Brands (SQBG) Sequential Brands is an acquisitive retail-licensing company that owns brands including Ellen Tracy, William Rast, Revo, Caribbean Joe, Heelys, DVS, The Franklin Mint and People's Liberation. Stewart's company, once worth $2 billion now has a market value of only $400 million, even after this week's rally. The Company, along with other print media firms, has struggled in recent years and its glossy magazines, Martha Stewart Living and Martha Stewart Weddings, unable to command the high ad prices they once enjoyed, were outsourced to fellow publisher Meredith Corp. in 2014. With her talk show cancelled, Stewart's company has focused on increasing number of its licensing deals.

The Week Ahead

This week's economic data is expected to continue to show a snapback in the economy and steady improvement in home sales. The light earnings calendar will be highlighted by releases from key consumer names Bed Bath & Beyond and NIKE, homebuilder Lennar, and the major agricultural company Monsanto. Monday's European Union emergency meeting will likely set the tone for the week. Monday could also be the day that the Supreme Court rules on the legality of Obamacare tax subsidies for participants in the 34 states where insurance exchanges were set up by the federal government in the absence of state action. A ruling against the federal government would mean that 6.4 million enrollees could lose their subsidies as soon as August 1. It is likely that millions of enrollees would discontinue coverage after losing their assistance, but that the sicker customers would likely stay because they need the insurance. This change in the mix of the insured base would lead to much higher rates and more departures from the program. While there are a number of alternatives, these approaches would require political compromise. The Treasury auctions scheduled for this week are on: Monday: $24 billion three-month bills and $24 billion six-month bills; Tuesday: $25 billion one-year notes and $26 billion two-year notes; Wednesday: $35 billion five-year notes and $13 billion one-year, ten-month floating rate notes; and Thursday: $29 billion seven-year notes. Based on Friday's when-issued levels, the yields on the one and two year notes will be below the last auctions and the rates on the five and seven year notes will be higher than the last auctions.

Resnik Asset Management Co., Inc. 69 Fairfield Road, Yonkers, New York 10705 (914-423-5733)