Great things are done by a series of small things brought together

“Great things are done by a series of small things brought together”

–Vincent Van Gogh

This year is shaping up to be a very good year for equity investors with the S&P 500 up 20% and the Russell 2000, a measure of the broader market, rising over 10%. At its meeting two weeks ago, the Federal Reserve lowered its borrowing rate for the first time since 2022 as economic data is showing inflationary pressures are abating. The Fed is turning its attention to maintaining economic growth as data has shown both consumer spending and manufacturing activity is moderating. While the Fed Funds cut has been widely anticipated by market participants, hence the strong stock market, it is refreshing to see the Fed take steps to help spur the economy.

Media headlines have focused primarily on the “Magnificent Seven”, of which we own three. Therefore, we think it is helpful to review how stocks held in Ayrshire client accounts have done over the last year. We own companies that generate more cash flow than they need to run their businesses so watching how management uses the excess cash to create value matters. Of the 34 companies on our client holding list 31 pay a dividend. Of those, 30 companies raised dividends in the last year by an average of 15.3% compared to an average S&P 500 dividend increase of 10%. Additionally, 20 companies on our holdings list reduced the number of shares outstanding through share buybacks. Earnings growth in client owned stocks increased 15.5% in the most recent quarter vs. 10.4% growth for the S&P 500. We believe these measures suggest our stocks will continue to do well over time.

During the quarter we added a new position in Insulet Corporation, a medical device company that manufactures infusion systems for people with insulin dependent diabetes. The company has recently received approval from the FDA to market its pump to people with type 2 diabetes, which significantly expands its addressable market. The stock is trading below its historic valuation, so we think there is room for the stock to appreciate.

Finally, we recognize the current valuation of the stock market is discounting the economy avoiding a recession and a recovery in consumer and business spending. Should this not be achieved then the market is ripe for a correction due to its elevated valuation. We believe because the companies we own on your behalf have strong cash flow, they will navigate turbulence well. Thank you for entrusting us with the management of your money. We look forward to speaking with you soon.

Sincerely,

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