Singular Research Director’s Letter: August 2016

Strong Q2 Earnings Rejuvenates Equity Markets

After focusing on the potential negative impact of Brexit in June, the equity markets focus shifted to the Q2 earnings season and political conventions. Low expectations on Q2 earnings set the equity markets up for a positive outcome with the predominance of earnings beats. And Q3 is now looking to be the first quarter for aggregate annual earnings growth in over a year. The earnings view into 2017 is also rosy, buoyed by an improved outlook for energy and a peak in currency headwinds. Future concerns may arise over Fed tightening, but we anticipate this will occur after the US election. The political convention season, which is usually filled with patriotic optimism, albeit political, has taken on a different tone with such unique and different presidential candidates. But the equity markets are voting that both candidates are either an improvement or will not derail the current expansion.

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For the companies on the Singular Research coverage list, Emergent BioSolutions (EBS) and Haynes International (HAYN) were the strongest performers in July. Both companies rebounded from deeply oversold territory, and our analysts maintain Buy ratings on these two stocks. ACU had a strong Q2 report with revenues and earnings above expectations. ACET has been beating estimates for several quarters and is finally being rewarded with higher valuations. LAKE has had very strong fundamental performance in its turnaround, and the company announced a stock re-purchase recently.

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Most of the stocks in the worst performing group of the Singular coverage list during July had good fundamental performance and are creating good buying opportunities in our opinion. The two worst performing stocks, STMP and GTN, both reported Q2 after the end of July, and both had strong fundamental reports and their stock prices have responded. SA was weak on an equity raise, but we still view the company as the most attractive acquisition or partner candidate in the gold mining industry. ANIK reported an exceptionally strong Q2, but the stock had also performed well prior to the earnings release. CTRP was down as a Short recommendation, and we still view the company as over-loved by Wall Street analysts that display no discernment that the company’s valuation is several years ahead of itself, and is susceptible in any market weakness.

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At Singular Research, we continue to seek out investment ideas that have minimal to no Wall Street coverage. We are tracking several names that we anticipate to launch coverage. We thank our clients for your support of independent equity research.

We remind our readers that the 11th Annual Singular Research Conference, the Best of the Uncovered’s, is in September. We anticipate a number of interesting and relatively unknown companies to present. Please plan to attend this insight-packed one-day event in Los Angeles. There is more information on the Singular Research website, or contact your Singular Research representative for details. We look forward to seeing you in Los Angeles on September 22, 2016.

Sincerely,
Singular Research