Singular Research Director’s Letter: June 2016

Small Caps Improve But Still Receive Little Respect

Small cap indexes continue to underperform on both a YTD and LTM basis. Concerns over rising interest rates suddenly abated for the short term after weaker than expected GDP and labor reports. The consumer sectors continue to be the drivers for economic growth. We anticipate the concerns of higher interest rates to return soon. The equity market now faces election year uncertainty and the summer doldrums.


The performance of recent initiations YTD are up an average of 10.8%, significantly above the small cap and broader market indexes. This points to the benefit of tracking changes to the Singular Research coverage list.

For the companies on the Singular Research coverage list, IRIDEX Corp. (IRIX) was the strongest performer in May. The company develops and markets laser-based medical equipment primarily in the ophthalmic space. A new proprietary product and recurring sales of disposable components drove the strong operating results. Management increased its guidance. GASS owns ocean vessels that ship LPG and the industry is emerging out of a cyclical trough. KLIC, EBS and CPS all had strong quarterly reports that included better than expected revenues and/or earnings. The earnings estimate for KLIC was increased significantly.


The worst performing group of companies from the Singular list during May all reported weak quarters. HHS has reduced its dividend, but our analyst expects the turnaround to be completed this year. REED had a decent quarter, but earnings were below expectations. REED is expanding its distribution, which we expect will lead to better performance in the coming quarters. HAYN is streamlining its distribution business. AMRK had a healthy increase in volumes which attests to the company’s strong market position, but precious metal pricing was weak. SALM was a strong performer in recent months, and is well positioned to benefit from the increased media expenditures that result from the election year.


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. Singular Research sponsored its first conference in San Francisco on June 9 and many interesting companies presented. We thank our clients for your support of independent equity research.