Singular Research Director’s Letter: July 2016

Brexit Vote Drives Volatility

The changing perception over the Brexit vote drove volatility in the small cap indexes: the Russel 2000   initially increased 3% in the first week of June, then declined 8% and finally rebounded 6% from the monthly lows. Without clear trends, equity markets have been victim to changing perceptions. We anticipate more volatility in the coming months due to extrapolative interpretations of the Brexit vote, and uncertainty over the US presidential election. And volatility can create opportunities, which we perceive in EBS and GASS now. The bar for earnings overall is low for the upcoming earnings reporting season. Low fuel prices and the expanding labor force will continue to support US growth and we do anticipate further Fed tightening this year.

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For the companies on the Singular Research coverage list, Harte-Hanks (HHS) was the strongest performer in June. The company rebounded from oversold conditions after a weaker than expected first quarter. Our analyst has lowered expectations but still highlights strong appreciation potential in the next year. SA has benefited from the increased interest in gold, and the company has been increasing its known gold reserves after drilling programs during the past year. ANIK is a market leader in visco-supplementation for osteoarthritis patients. Our analyst expects Monovisc will continue to take market share, and new products in the coming years will support additional growth. HAYN is rebounding from deep oversold conditions in May. CTRP is overly-loved by Wall Street, even as the company continues to avoid directly answering most analyst’s questions on the quarterly conference calls. The company has a ridiculously high valuation, has lowered expectations, and has huge integration issues with recent acquisitions.

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Most of the stocks in the worst performing group of the Singular coverage list during June are creating good buying opportunities. Some have had weak quarterly reports but others have not and represent significant opportunities. EBS has good fundamental performance but a recent Biothrax order was less than some had expected. Our analyst believes the stock price reaction is overdone.  GASS is another company that is oversold. The company is a leader in the LNG delivery market in Asia. We have dropped coverage of REED. GTN had strong revenue growth in Q1 and is positioned to benefit from the increasing advertising this year due to the Olympics and the presidential election. CPS reported a strong Q1 above expectations but the stock declined after the Brexit vote.

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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.