Singular Research Director’s Letter : July 2015

Small Caps Continue Their Strength

Against the seemingly eternal backdrop of Greek-EU discussions, small caps continued to outperform their larger cap peers.  Given that smaller companies tend to be less exposed to foreign issues such as disrupted end markets and currency swings, we find the outperformance to be no surprise.  Taking this approach one step further, astute stock picking, as evidenced by the outperformance of the Singular list during June, can generate meaningful alpha despite the negative macro chatter.

Beyond the macro theater, US economic conditions appear positive on the whole although not without some data points here and there that can muddle investors’ thinking.  Additionally, as the market had come to expect, the FED put off raising interest rates.  Going back a number of months, the market was initially expecting a hike in June, so this was certainly a positive for the market as many see the extension of low rates as providing more runway for the economy to gain steam.

dir-ltr-201500706a

Recapping the table above, for June, the S&P 500 was down 2.38%, the Russell 2000 was up 0.37% and the aggregate Singular List was up 3.14%.  For the trailing twelve months, the S&P was up 6.41%, the Russell 2000 was up 10.5%, and the Singular Research List was up 1.6%.

Digging into the companies on our coverage list, as our table below shows, the top performing company on the Singular List was Salem Communications (SALM).  The company operates radio, print and internet media properties focused on “conservative” Americans.  As is the case with many media companies, election years see a surge in advertising revenues as candidates press their cases.  With campaign spending hitting astronomical levels and a crowded Republican field heading into 2016, we expect SALM to be a beneficiary.  Looking at the rest of our Top 5 performers, both SPCB and VDSI are “security” plays and their strong performance comes as no surprise given the proliferation of hacking and data breach incidents.

dir-ltr-201500706b

Our worst performers in June saw their monthly returns driven by various factors or, in some cases, the absence of anything positive to push shares higher.  In particular, our worst performer was Comstock Mining (LODE).  Although the company had no news during the month, gold trended lower and as a result, LODE did too.  VTNR saw its shares slide as the company conducted a large equity raise in order to shore up its balance sheet and satisfy a recent debt covenant amendment.

dir-ltr-201500706c

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 continue to track with an eye on helping our clients gain an edge.  We thank our clients for your support of independent equity research.

Sincerely,

Jeremy Hellman, CFA
Director of Research/Chief Operating Officer