Director’s Letter April 2014

Small Caps Hit and Air Pocket

March saw equities, and small cap stocks in particular, give up some of February’s advance.  While events in the Ukraine might be viewed as the primary risk point on the global stage, we view that as more of a coincident catalyst as small caps may have simply been due for a pullback.  Given the stellar performance in 2013 it is not difficult to view the market segment as needing some time to consolidate those gains relative to corporate fundamentals.  In that context, a sideways move with attendant back and forth swings around a flat-line is not hard to fathom.

Looking at key macroeconomic statistics, the most recent round of unemployment data indicated a positive downward trend continues.  Obviously such data needs to be viewed over a continuum and in concert with myriad other data points.  Even so, as we sift the data looking for clues on which direction the market may trend, growing employment could be one point supporting the notion that the market is consolidating before a next leg up.

March 2014  Jobless Claims

For March, the S&P 500 was up 0.67%, the Russell 2000 was down 0.67% and the aggregate Singular List was up 3.8%.  For the trailing twelve months, the S&P was up 19.2%, the Russell 2000 was up 23.3%, and the Singular Research List was up 19.2%.

We initiated coverage on two companies during March, both with SELL ratings.  The first was Abbott Labs (ABT), which we initiated with a $30 price target, and the second was Syntel (SYNT), which we started with a $76 price target.

Our top five performers in March include companies from a variety of industries.  The top performer was Vertex Energy, up 70.1%.  The company announced a significant, accretive acquisition followed by strong Q4:13 earnings.  Orion Energy was up 30.1%in March.  After reporting earnings in February there was no news to directly account for the solid performance leaving us to conclude investors are methodically warming to the story.  SELL-rated SolarCity was down 26.2%.  Absent any specific news, we attribute the decline to the overall weakness seen in many high-risk names in March. Bacterin was up 25.3%, following a similarly strong February, driven by a solid earnings report.  SELL-rated Pandora declined 18.9% as Amazon emerged as the latest threat in the music-streaming space.

Our worst performers in March are from a variety of industries and for differing reasons.  Despite the adverse moves in the near term, we believe our theses are sound on all of them, offering significant alpha from here.  Reed’s was down 26.3%in March.  The company reported earnings which disappointed although we feel the issues that weighed on earnings can be cured.  Global Ship Lease was down 18.1% despite the lack of an observable catalyst.  Seabridge Gold was also down 18.4% following a decline in gold for the month.  Arabian American Development was down 11.3% following the release of earnings early in the month.  Hudson Technologies was down 10.5% in March as the shares continued to slip following a nice gain last December following the EPA’s latest ruling on coolant phase out regulations.

At Singular Research we continue to seek out investment ideas that have minimal to no Wall Street coverage.  There are a number of uncovered and under-covered names we have been investigating, and we plan to launch coverage on several names in the coming weeks.  We thank our clients for your support of independent equity research.

Sincerely,

Jeremy Hellman, CFA
Chief Operating Officer

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