Singular Research Director’s Letter : September 2017

Small Caps Outperform

The small and micro-cap sectors of the equity markets have been on a tear since the mid-August lows. We perceive that is partly due to the YTD underperformance of the small and micro cap sectors, but a huge boost occurred in September which we anticipate has some long legs, its tax reform. Lower corporate taxes is beneficial to investors, but in the current environment when small caps have underperformed and considering the domestic focus of small and micro cap companies, it is no wonder that this group will be supported by any positive news on domestic tax reform. Our contrarian indicators support the continuation of the latest rally. Short selling is at its highest level since before the 2016 election, and individual bullishness is below average.

For the top performing companies in September on the Singular Research coverage list, most reported strong fundamental performance in Q2, along with positive outlooks. Arotech Corp. (ARTX) was the top performer in September. The company provides engineering and security solutions to government agencies, municipalities and commercial organizations. The company recently received a new contract from the Army National Guard. Harvard Biosciences (HBIO) makes scientific equipment and consumables that are used by researchers worldwide. The company is benefiting by growth in China, increased spending from the National Institute of Health (NIH). The company is benefiting from the expanding gene editing market. Century Casinos (CNTY) has casino operations in a diverse set of venues including cruise ships and horse racing. The company beat earnings estimates in Q2. Control4 Corp (CTRL) provides smart home and business solutions that integrate audio, video, lighting, temperature, security, and communications. The company was a recent new initiation and has consistently been beating estimates.  Biolase (BIOL) makes laser dental products that are very patient friendly and recently introduced two new products in Q1. Sales of new products are ramping up slowly and the is rebounding after recent underperformance.

The worst performing group of the Singular Research coverage list during September include several companies that reported lower than expected Q2 results. The worst performing stock of the coverage list was IntelGenx Technologies (IGTX) focuses on novel drug delivery systems. Although the company missed our analysts’ expectations for Q2, there are several promising items in the near term pipeline. The New Your Times (NYT) underperformed as a short. The company had a stronger than expected Q2. Vasco Data Security (VDSI) makes hardware and software security products. Revenues declined in Q2 as expected, but our analyst expects revenue growth to resume in Q3 driven by software and service-centric offerings. A-Mark Precious Metals (AMRK) is a full-service precious metals trading company. Q4 performance (June 2017) was below expectations but our analyst notes management’s focus on expanding the high margin revenue streams in logistics, storage, financing, and minting. Acme United (ACU) reported lower than expected revenue and EPS in Q2, but management cites a shift of Q2 revenue into the second half and maintained its earlier annual guidance.

We continue to work on new ideas in the small and micro cap space. At Singular Research, we continue to seek out investment ideas that have minimal to no Wall Street coverage. We thank our clients for your support of independent equity research.

Singular Research Director’s Letter : July 2017

Small Cap Companies Bounce Back

The small and micro-cap sectors of the equity markets began to play catch-up to the broader market indices in the past month. The outperformance of the small caps is a necessary component for the longevity of this bull market since small caps have underperformed for some time. But we still anticipate there is likely to be some rough riding for the broader market in the coming months. The employment picture remains strong and is at the point where higher wages are anticipated and with that will come increasing inflationary pressures. Fed tightening is still in its early phase. So what might cause the bullishness to question itself? Any number of unforeseen events could occur but what we do see is a slowing in the aggregate earnings growth for the broader market. We are not forecasting a bear market at this time but it would be ‘normal’ to have some corrective pressures. This bull market seems a bit extended, and the seasonally weak autumn timeframe is coming soon.

For the top performing companies in June on the Singular Research coverage list, most reported strong fundamental performance in Q1. IntelGenx Technologies (IGXT) was the top performer in June. The company has designed oral film drug delivery systems and is working on several pharma products that are likely to be launched in 2018. In Q1, IGXT reported revenues above expectations and during June, the company received approval for a patent on its oral film dosage form, which will lead to long-term exclusivity for its products. The new patent allows for instant or sustained release. Lakeland Industries (LAKE) makes safety garments for industrial and public protective clothing markets. The company reported good unit volume growth and healthy gross margins in Q1 and beat our analysts’ estimates.  NV 5 Global (NVEE) provides professional engineering and consulting solutions for infrastructure, construction, real estate and energy markets. NVEE reported higher than expected revenues in Q1 with a record backlog. Gray Television Networks (GTN) owns television stations and digital assets in many US markets. GTN reported stronger than expected revenue and EPS in Q1:17, and the stock is rebounding after a weak performance in May. Stamps.com (STMP) provides online postage services and reported a Q1 that was far better than expected and increased guidance.

The worst performing group of the Singular Research coverage list during June include several companies that are correcting after strong runs. The worst performing stock of the coverage list was Biolase (BIOL) which makes laser dental products that are very patient-friendly, and recently introduced two new products in Q1. Supreme Industries (STS) had a weak Q1 due to delays in customer supplied chassis. Management noted the delays did not result in lost orders. Century Casinos (CNTY) has casino operations in a diverse set of venues including cruise ships and horse racing. CNTY reported a strong Q4 with adjusted EBITDA up 40%, and the stock is correcting after a strong run. Multi-Color Corp. (LABL) makes labels for consumer products, and our analyst has increased estimates after the strong Q1 that was above expectations. The stock has been correcting after a strong run. ClearOne (CLRO) provides audio/video conferencing tools for Fortune 500 companies. The company has developed new products that are expected to drive growth in 2H17, but the product transition was detrimental to Q1 results. Q4:16 was below expectations.

We continue to work on new ideas in the small and micro cap space. At Singular Research, we continue to seek out investment ideas that have minimal to no Wall Street coverage. We thank our clients for your support of independent equity research.

Singular Research Director’s Letter : June 2017

Is This Equity Market Getting Frothy?

The US equity markets have an underlying bullishness that has been absent for several years. Even in the face of rising interest rates this year, the averages keep inching higher. Despite the self-induced political challenges from the new US administration, any market setback is temporary. Whatever happened to the era of healthy corrections? Will the equity markets obliterate the old adage of ‘sell in May and go away’?

Our takeaway on this equity market advance is that it would be normal for some corrective pressures or at least a sideways movement for a while. Small and micro cap indices have underperformed this year and this is a typical warning sign for the broader market. As anticipated, the manufacturing sector has shown recent strength after weakness in Q1, but surprisingly consumers are, overall, spending less than anticipated. The remnants of the Great Recession are still in the aggregate consumer psyche. The positive employment metrics lead us to anticipate a healthy consumer appetite, even if not as robust as in previous expansions. This economic cycle and bull market has much further to go before it peaks out, but some corrective pressures are normal and the higher interest rate environment may be the catalyst for some temporary weakness in the equity markets.

For the top performing companies in May on the Singular Research coverage list, most have reported a good Q1, while others are rebounding after recent weakness. Stamps.com (STMP) was the strongest performer in May. The company provides online postage services and reported a Q1 that was far better than expected and increased guidance. State National (SNC) provides property and casualty coverage and has other ancillary businesses. Revenues and EPS both beat our analysts’ expectations and the price target was raised. Control4 Corp (CTRL) provides smart home and business solutions that integrates audio, video, lighting, temperature, security, and communications. The company was a recent new initiation and has consistently been beating estimates. Multi-Color Corp. (LABL) makes labels for consumer products, and our analyst has increased estimates after the strong Q1 that was above expectations. Lakeland Industries (LAKE) makes safety garments for industrial and public protective clothing markets. The company reported a mixed Q1 with good unit volume growth and healthy gross margins, but exchange rates were detrimental. Our analyst remains positive on the stock.

The worst performing group of the Singular Research coverage list during May have several hidden gems that we anticipate will perform well in the next year, some of which are moving through a product transition. The worst performing stock of the coverage list was New York Times (NYT) as a short. Our analyst has labelled the recent good fundamental performance as a temporary ‘Trump Bump’ while high legacy pension costs and the decline in print product persists. Iridex (IRIX), posted a disappointing Q1 despite double digit growth in the new product platform. Although estimates were lowered, our analyst still expects strong earnings growth over the next two years. Gray Television Networks (GTN) owns television stations and digital assets in many US markets. GTN reported stronger than expected revenue and EPS in Q1:17, and the stock is correcting after a multi-month run. Biolase (BIOL) makes laser dental products that are very patient friendly, and recently introduced two new products in Q1. Supreme Industries (STS) had a weak Q1 due to delays in customer supplied chassis.

We initiated coverage on one new company in May. We initiated coverage of Gladstone Land Corp. (LAND) with a BUY rating. Gladstone owns farmland and leases it out to producers that focus on high-value crops. The company has a solid pipeline of additional acquisitions along with adequate financing in place. The amount of available land for high-value produce is declining and the company has demonstrated strong growth in cash flows since the IPO in 2013.

We continue to work on new ideas in the small and micro cap space. At Singular Research, we continue to seek out investment ideas that have minimal to no Wall Street coverage. We thank our clients for your support of independent equity research.

 

Sincerely,

 

Singular Research

Singular Research Director’s Letter : May 2017

Is Economic Growth Slowing – Is This Bull Market About to End?

US economic growth was expected to improve in 2017 but the initial release of the first quarter GDP was less than stellar. And bond yields declined recently – is this a forewarning of a weaker economy and what are the impacts on the equity markets? Our perception of the weaker than anticipated Q1:17 GDP growth is that it fits a pattern of the last several years where the first or second quarter has been the low point of the year. Any concerns about consumer spending which was weak in Q1:17? Our view is the lull in consumer spending is temporary – the data is preliminary and will likely be revised upwards. We anticipate the trends of lower productivity growth and higher labor costs of the past few years are at the point to drive increasing capital investments for greater productivity, and continued job growth. These major trends will support GDP growth for the next few years. In the process there may be lulls and sparks, but we are not close to the top of this economic cycle or the end of this Bull market, in our opinion.

For the top performing companies in April on the Singular Research coverage list, several have forecasts of consistent revenue and earnings growth while others are rebounding after recent weakness. Control4 Corp (CTRL) was the strongest performer in April. The company provides smart home and business solutions that integrates audio, video, lighting, temperature, security, and communications. The company has consistently been beating estimates. Century Casinos (CNTY) has casino operations in a diverse set of venues including cruise ships and horse racing. CNTY reported a strong Q4 with adjusted EBITDA up 40%. Arotech (ARTX) provides innovative defense and security solutions for government agencies and commercial users. The stock is rebounding from a recent dip. Multi-Color Corp. (LABL) makes labels for consumer products, and our analyst is forecasting consistent revenue and earnings growth in the next year. The stock is rebounding from a recent dip. Anika Therapeutics (ANIK) provides treatments for early stage osteoarthritic joints with its innovative products. The company has been consistently gaining share in the viscosupplement market.

 

The worst performing group of the Singular Research coverage list during April have several hidden gems that we anticipate will perform well in the next year, some of which are moving through a product transition. The worst performing stock of the coverage list, Stealthgass (GASS) provides seaborne transportation for LPG. The company reported an uptick in contract rates for its vessels. There are very few industry builds coming online in the next two years which will likely lead to higher dayrates. Stamps.com (STMP) provides online postage services and after reporting a strong Q4:16, the stock is consolidating recent gains. Harvard Bioscience (HBIO) provides scientific equipment and consumables to the research markets. Our analyst expects the company to have consistent earnings growth in the next year, but concerns over NIH funding is having a negative impact on the stock. Seabridge Gold (SA) is a development stage company that explores and acquires gold properties. The company announced a resource expansion as a result of recent drilling and also made an acquisition. Iridex (IRIX), posted a loss in Q4:16 driven by higher expenses associated with a new product platform. Our analyst expects strong revenue and earnings growth over the next two years.

We initiated coverage on two new companies in April. We initiated coverage of Biolase (BIOL) with a BUY rating. BIOL is a leader in laser dental products, which reduces pain, trauma, and bleeding for patients. The company has installed over 33,000 lasers in 90 countries, and has recently had improving international success. The cash burn has declined significantly and the addressable market is very large. We initiated coverage on Control4 Corp. (CTRL) with a BUY rating. CTRL provides smart home and business systems that integrate many functional items including audio, video, lighting, temperature, security, communications, and network management. The company integrates its proprietary software with its chip designs. Thousands of devices are “enabled” on the CTRL system, the company has a strong intellectual property portfolio, and markets primarily through independent dealers.

We continue to work on new ideas in the small and micro cap space. At Singular Research, we continue to seek out investment ideas that have minimal to no Wall Street coverage. We thank our clients for your support of independent equity research.

Sincerely,

 

Singular Research

Singular Research Director’s Letter : April 2017

All Rallies Come to an End

The US equity markets have been on a consistent bullish run since the early November 2016 lows. It is normal to have a correction after such a run and in the face of rising interest rates during 2016, we are happy this equity market is taking a breather. We expect some digestion of recent gains in the coming months. Our read of the economic signposts point to slightly expanding GDP growth in 2017 that can easily withstand higher interest rates.

For the top performing companies in March on the Singular Research coverage list, a common theme is strong revenue and earnings growth in recently reported quarters. Century Casinos (CNTY) was the strongest performer in March. The company has casino operations in a diverse set of venues including cruise ships and horse racing. CNTY reported a strong Q4 with adjusted EBITDA up 40%. Acme United (ACU) provides innovative cutting devices, measuring instruments and safety devices for the school, home and industrial markets. The company reported a strong Q4:16 with much higher than anticipated revenues. Lakeland Industries (LAKE) makes safety garments for industrial and public protective clothing markets. The company is performing well, and the stock rebounded from a recent dip. Gray Television Networks (GTN) owns television stations and digital assets in many US markets. GTN reported stronger than expected revenue growth and the stock has been on a rebound since the November lows. Seabridge Gold (SA) is a development stage company that explores and acquires gold properties. The company announced a resource expansion as a result of recent drilling and also made an acquisition.

The worst performing group of the Singular coverage list during March have several hidden gems that we anticipate will perform well in the next year. The worst performing stock of the coverage list, Iridex (IRIX), posted a loss in Q4:16 driven by higher expenses associated with a new product platform. Our analyst expects strong revenue and earnings growth over the next two years. Arotech (ARTX) provides innovative defense and security solutions for government agencies and commercial users. The company reported lower than expected revenues in Q4:16. ClearOne (CLRO) provides audio/video conferencing tools for Fortune 500 companies. The company has developed new products that are expected to drive growth in 2017, but during the product transition Q4:16 was below expectations. IntelGenx Technologies (IRIX) reported a strong Q4:16 and has favorable licensing opportunities. Stealthgass (GASS) provides seaborne transportation for LPG. The company reported an uptick in contract rates for its vessels. There are very few industry builds coming online in the next two years which will likely lead to higher day rates.

We initiated coverage on one new company, and dropped coverage on another in March. We initiated coverage of Arotech (ARTX) with a BUY rating. ARTX operates two divisions to serve the defense and security markets. The Training and Simulation division provides simulation equipment and services for the military and law enforcement markets. The Power Systems division provides portable energy solutions for the military, aerospace and industrial customers. ARTX customer list includes Boeing, Raytheon, other defense and aerospace companies, and the US military. The company signed new multi-year contracts in 2016, and our analyst expects the increasing need for highly trained security personnel worldwide will support revenue growth. We dropped coverage of Nova Measuring Instruments (NVMI) because the stock had reached its target valuation. We may revisit NVMI at another time if the valuation parameters become favorable.
We continue to work on new ideas in the small and micro cap space. At Singular Research, we continue to seek out investment ideas that have minimal to no Wall Street coverage. We thank our clients for your support of independent equity research.

Singular Research Director’s Letter : March 2017

A Theme Based Market Advance

As the market attempts to gauge the winners and losers based on policy changes from the new US administration, there have been pockets of euphoric market moves, primarily in larger cap names. The aggressive agenda of the new administration leads to good headline material, but the slow grind-it-out process of enacting new legislation may cause some of the recent gains to be suspect in the months ahead. The US equity market is generally positive on the pro-business stance in Washington, however, some of the main themes may play out with fits and starts. That being said, there will be investment opportunities in many companies that may benefit from higher infrastructure spending, lower taxes, lower regulations, a changing healthcare landscape, and higher military spending. Some of these headline themes may take more time to develop. Overall, we remain bullish on the prospects for the small cap arena.

For the top performing companies in February on the Singular Research coverage list, a common theme is current and anticipated strong revenue growth. Salem Broadcasting (SALM) was the strongest performer in February. The company operates radio, print and internet properties targeting a conservative-minded audience, and the stock has been on a steady rise after early November lows. Kulicke & Soffa designs and semiconductor, LED, and electronic assembly equipment. Much stronger than expected equipment sales drove the better than expected quarter. Gray Television Networks (GTN) owns television stations and digital assets in many US markets. GTN has been reporting strong revenue growth and the stock has been on a rebound since the November lows. Iridex (IRIX) manufactures laser-based medical equipment and supplies for the ophthalmology market. New products are driving revenues. Stealthgass (GASS) provides seaborne transportation for LPG. GASS has responded from its lows and the company reported an uptick in contract rates for its vessels. There are very few industry builds coming online in the next two years which will likely lead to higher dayrates.

The worst performing group of the Singular coverage list during February have several hidden gems that we anticipate will perform well in the next year. The worst performing stock of the coverage list, Aceto (ACET), has been correcting for a few months, but our analyst perceives strong EPS growth in the next 18 months.  VASCO Data Security (VDSI) is transitioning to be a software company, and outperformed recently reduced expectations. . CTRP.com (CTRP) was down as a short. The stock has moved up to the top of the trading range, and we expect weak performance (positive as a short). NV 5 Global (NVEE) provides technical engineering and consulting for infrastructure and construction markets. The stock has been digesting recent strong gains and our analyst expects a very strong 2017. ClearOne (CLRO) provides audio/video conferencing tools for Fortune 500 companies. The company has developed new products that are expected to drive growth in 2017.

We initiated coverage on two new companies in February. General Finance (GFN) with a BUY rating. GFN is a specialty rental services company with portable storage, modular space and liquid containment solutions. The Asian fleet, primarily in Australia, has a very high utilization rate while the utilization rate in the US fleet has declined due to the slump in the oil & gas industry. Our analyst expects improvements in the US from general economic growth and any uptick in oil & gas will drive EPS growth. We initiated coverage on New York Times (NYT) with a SELL rating. NYT publishes the New York Times and has had challenges in the digital market where others dominate. Ad spending with newspapers continues to decline, and NYT is saddled with high unfunded pension costs.

We continue to work on new ideas and plan to launch coverage in the coming weeks on one or several new names. At Singular Research, we continue to seek out investment ideas that have minimal to no Wall Street coverage. We thank our clients for your support of independent equity research.

Singular Research Director’s Letter : February 2017

A New Year Brings Consolidation

The post-election rally took a breather in January, and in the process the large cap stocks outperformed. Does this foretell what we can expect for the year? Will the January effect work again in 2017? We anticipate an up year for the equity markets in 2017, but we expect the nature of it will likely favor small cap names which is different from what occurred in January. After a strong Q4 performance it is normal for small cap names to trail during consolidation phases. We anticipate any fiscal stimulus from lower taxes or infrastructure building will support domestic companies which typically means small caps.

For the companies on the Singular Research coverage list, most of the top performing group in January have strong fundamental outlooks. NV 5 Global (NVEE) was the strongest performer in January after digesting earlier gains in December. NVEE provides technical engineering and consulting for infrastructure and construction markets. Our analyst expect a very strong 2017. Seabridge Gold (SA) released two very favorable reports critical to mineral development. Both the Preliminary Feasibility Study and a Preliminary Economics Assessment demonstrated improved project economics on its mining assets.  Supreme Industries (STS) manufactures specialty commercial vehicles has been performing well after the October low. Our analyst indicates the company is well positioned to outpace its industry. Stealthgass (GASS) provides seaborne transportation for LPG. GASS has responded from its lows and the company reported an uptick in contract rates for its vessels. There are very few industry builds coming online in the next two years which will likely lead to higher dayrates. Nova Measuring Instruments (NVMI) develops and markets process control metrology equipment used in the manufacture of high end integrated circuits. The company expects the strong demand from foundries to continue.

The worst performing group of the Singular coverage list during January have several hidden gems that we anticipate will perform well in the next year. The worst performing stock of the coverage list, Amyris (AMRS) was a new initiation for Singular in September, and the stock performed exceptionally well in September – October. The company has several products in the pipeline with favorable long-term implications and our analyst remains very bullish on AMRS. Century Casinos (CNTY) has been performing well in the last few months and our analyst forecasts strong EPS growth in 2017. Aceto (ACET) has been correcting for a few months, but our analyst perceives strong EPS growth in the next 18 months. Trecora Resources (TREC) performed poorly driven by weakness in the mining operations. Our analyst perceives strong operating fundamentals in the petroleum business. CTRP.com (CTRP) was down as a short. The stock has been in a trading range in the past year, and we expect the breakout out of this range to be to the downside.

We are currently working on several new ideas and plan to launch coverage in the coming weeks on one or several new names. At Singular Research, we continue to seek out investment ideas that have minimal to no Wall Street coverage. We thank our clients for your support of independent equity research.

Singular Research Director’s Letter : January 2017

Post-Election Equity Market Euphoria Continues

The two month equity market rally began to take a breather when the Fed raised interest rates in December. We anticipate several more tightening moves by the Fed in 2017, driven by an uptick in the pace of economic growth. In closing out 2016, manufacturing activity and construction spending metrics have shown surprising strength – we view this as further confirmation the US economy does not need any more monetary stimulus to be self-sustaining. Expectations of a more favorable business environment from the incoming administration are adding support to the recent rally, in our opinion. We anticipate business investment and infrastructure spending to increase in 2017. The combination of these events points to continued bullishness in the US equity markets over the intermediate term. Small and micro cap indexes have begun to outperform the broader equity market in the past few months after a few years of underperformance. We expect this trend to continue through 2017. Our proprietary market overview aggregate, the MMI, has moved into neutral territory after the recent equity market run.

For the companies on the Singular Research coverage list, most of the top performing group in December reported a Q3 that was above expectations, and some of the names responded strongly after a few months of rather weak performance. Harvard Bioscience (HBIO) was the strongest performer in December after a weak November. HBIO develops and markets scientific equipment and consumables that are used in medical research, with strong brand name recognition in the industry. Emergent BioSolutions (EBS) reported much better than expected revenues and earnings, and the stock has rebounded in December after a weak November. Century Casinos (CNTY) has been performing well in the last few months after languishing for several months, and our analyst forecasts strong EPS growth in 2017. A-Mark Precious Metals (AMRK) is rebounding after lackluster performance for a few months, and the company is positioned to benefit from a healthier environment for small to mid-sized companies in 2017. Acme United (ACU) reported a very strong Q3.

The worst performing group of the Singular coverage list during December have several hidden gems that we anticipate will perform well in the next year. The worst performing stock of the coverage list, AMRS, was a new initiation for Singular in September, and the stock performed exceptionally well in October. The company has several products in the pipeline with favorable long-term implications and our analyst remains very bullish on AMRS. SA released two very favorable reports critical to mineral development. Both the Preliminary Feasibility Study and a Preliminary Economics Assessment demonstrated improved project economics on its mining assets. IRIX had a weaker than expected Q3 as the company invests in its production capacity and marketing which our analysts expects will drive margin expansion in 2017. NVEE corrected after a strong November and our analyst expects strong revenue and earnings growth in 2017. LAKE beat our analyst’s expectations in Q3, and is anticipated to have strong earnings growth driven by double digit revenue growth and margin expansion in 2017.

We initiated coverage of two companies in December, Black Hills Corp (BKH) and Daktronics (DAKT). BKH is an electric and natural gas utility company covering several states including Colorado, Wyoming, Nebraska, Iowa and Arkansas, among others. The company is a low cost producer and is developing renewable energy sites. DAKT is the leading supplier of large electronic scoreboards with commercial and live event markets driving over 60% of revenues. Margins are expanding as revenues grow in the upper single digit range.

At Singular Research, we continue to seek out investment ideas that have minimal to no Wall Street coverage. We are working on several new names that we anticipate coverage will be launched in the coming weeks. We thank our clients for your support of independent equity research. And we wish you and your families the best for 2017.

Singular Research Director’s Letter : December 2016

December 2016 Post-Election Euphoria

 

Following a weak October, the US equity markets roared back to life after the US presidential elections. What had previously been viewed as uncertainties from a potential Trump administration during the campaign season turned into a vote of confidence for an administration that is more business friendly. It’s not hard for equity investors to favor lower corporate and capital gain taxes along with a simpler personal income tax code. But are more favorable tax rates enough for a bull rally to continue? We believe there is more to the recent equity rally. Campaign rhetoric about the current state of the economy from the president-elect was not accurate, in our opinion. The US continues to lead the world in this economic expansion – employment metrics, retail sales, and the ISM data all describe the healthiest economy since the Great Recession. Adding fiscal stimulus in the next few years from infrastructure spending and military budgets will juice up this expansion. Oh, and that potential for higher interest rates – it’s still here. We expect the first of several tightening moves by the Fed in the next year to occur quite soon. That may stall the rally, but only temporarily. Small and micro cap stocks are rebounding with a vengeance after underperforming the broader indexes for a few years. Our takeaway is the US economy and US equity markets can weather Fed tightening during 2017, particularly when it occurs when confidence is high for lower tax rates and increasing fiscal stimulus.

For the companies on the Singular Research coverage list, most of the top performing group in November reported a Q3 that was above expectations, and some of the names responded strongly after a few months of rather weak performance. State National Companies (SNC) reported a very impressive Q3, with strong revenues and good expense controls. The company is valued at a significant discount to the industry, despite its unique and favorable business lines. NV5 Global (NVEE) rebounded strongly after a few weak months. Our analyst forecasts strong revenue and earnings growth in 2017. Encore Wire (WIRE) also rebounded strongly after a few weak months and a better than expected Q3. Trecora Resources (TREC) had a weaker than expected quarter but it was mainly driven by the mining investments, and the petrochemicals business rebounded from Q2 weakness. Kulicke & Soffa (KLIC) performed well after another positive earnings surprise.

The worst performing group of the Singular coverage list during November have several hidden gems that we anticipate will perform well in the next year. The worst performing stock of the coverage list, AMRS, was a new initiation for Singular in September, and the stock performed exceptionally well in October. The company has several products in the pipeline with favorable long-term implications and our analyst remains very bullish on AMRS. SA released two very favorable reports critical to mineral development. Both the Preliminary Feasibility Study and a Preliminary Economics Assessment demonstrated improved project economics on its mining assets. HBIO was a new initiation in November, and the company has met earnings expectations. CTRP was down as a short. The stock has been weak and the market rebound caused the stock to stall in its decline. EBS reported much better than expected revenues and earnings, and the stock has rebounded after month end.

We initiated coverage of Harvard Bioscience (HBIO) in November. HBIO develops and markets scientific equipment and consumables that are used in medical research. The company’s products have strong brand name recognition in the industry, and the company is well positioned to benefit from planned increases in NIH spending. New products and recent acquisitions are expected to support revenue growth while improvements in operational efficiencies, including implementation of an ERP system, are anticipated to support margins.

At Singular Research, we continue to seek out investment ideas that have minimal to no Wall Street coverage. We are working on several new names that we anticipate coverage will be launched very soon. We thank our clients for your support of independent equity research. And we wish you and your families the best during this Holiday Season.

Sincerely,
Singular Research

Singular Research Director’s Letter: November 2016

The Presidential Election Will End, But Will Washington Change?

The US equity markets were weak in October even as economic metrics convey a US economy that continues to grow slowly and it may be picking up some momentum. Listening to some of the presidential election rhetoric may cause one to believe the US economy is headed for a decline, but the economic metrics just do not support such commentary. Concerns over the impact of rising interest rates appear to be driving the recent equity market weakness – we fully expect the Fed to notch up interest rates by year end. The US economy can bear this, but equity markets may become choppier in the short-term. Both presidential candidates have mentioned the importance of infrastructure oriented spending. Such a fiscal stimulus is welcome, in our opinion, since it has been relatively absent since the stimulus spending that was needed in the wake of The Great Recession. We believe economic growth would receive a boost for a few years with such a move, which would also justify further interest rate increases. In the long term, greater economic growth and higher interest rates puts the Fed in a better position by revitalizing its monetary levers. But will congress approve of infrastructure spending? Can the two-party rhetoric and positioning get much worse? We certainly hope that regardless of the outcome of the elections, Washington DC can go through a phase of reconciliation and move towards more compromise as opposed to inflexible positioning. A non-functioning congress does not support US economic growth.

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For the companies on the Singular Research coverage list, several in the top performing group were either new initiations, or had strong quarterly reports. Amyris (AMRS) has been the strongest performer since our initiation in September. Our analyst is expecting very strong revenue growth from the new products including cosmetic ingredients and performance polymers for tires. The AMRS product pipeline is developed through partnerships with future customers. Newtek Business Services (NEWT) has seen improving results and made an acquisition recently that our analyst expects will support dividend growth. Ctrp.com (CTRP) was up as a short. China’s slowing growth and reports on excesses in real estate and monetary policy are weighing on the lofty valuation. Acme United (ACU) had a strong earnings beat in Q3:16 driven by strong margins. Stamps.com (STMP) reported a strong revenue and earnings beat in Q2.

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The worst performing group of the Singular coverage list during October includes a few companies that have lowered guidance. The worst performing stock of the coverage list, STS, reported a very strong Q3, above our analyst’s expectations, but guidance was weaker than anticipated. VDSI lowered guidance due to higher deferred revenue from European banks. EBS has been volatile as the stock is carving out a bottom, and appears very oversold. GTN reported earnings below our analyst expectation in Q2 but exhibited good cost controls, and is a likely benefactor of increased advertising revenues in Q3. HAYN has been experiencing pricing pressures.

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At Singular Research, we continue to seek out investment ideas that have minimal to no Wall Street coverage. We recently launched coverage on several companies in the past few months, while dropping coverage on others. We thank our clients for your support of independent equity research.