Director’s Letter May 2014

Small Caps Continue to Lag April saw the main market indices we track – the Russell 2000 and the S&P 500 – diverge as investors sought safety in larger companies.  For the month, the S&P500 was in the black, outperforming the Russell 2000 by 429 basis points (+0.61% vs -3.68%).  Given that our Singular Coverage universe is heavily skewed to small cap companies, the overall market action presented a significant headwind.  Offsetting this negative, we saw several of our SELL-rated companies drop significantly while several other BUY-rated companies posted gains driven by quality earnings reports. Looking at key macroeconomic statistics, manufacturing-related data looks to be trending positively.  Beyond the data points, many pundits and economists have been offering commentary with a positive tone regarding the manufacturing sector.  In particular, many theorize that Capex budgets need to grow which would be supportive of broader economic activity.  This would be in contrast with recent years where many companies have favored financial engineering, such as share buybacks, as a preferred use of cash.


For April, the S&P 500 was up 0.61%, the Russell 2000 was down 3.68% and the aggregate Singular List was down 1.2%.  For the trailing twelve months, the S&P was up 18.3%, the Russell 2000 was up 17.2%, and the Singular Research List was up 16.8%. We initiated coverage on three companies during April, Innovative Systems and Solutions (ISSC), Comstock Mining (LODE), and Aviat Networks (AVNW).  All three are BUY-rated, with ISSC having a price target of $10; LODE a target of $2.25; and AVNW a target of $2.80. Our top five performers in April include companies from a variety of industries and are also a mix of BUY and SELL rated ideas.  In a departure from our prior format, we present our top five in the table below in lieu of the prose version we have used previously.


As with our top performers, our worst performers in April were also from a variety of industries.  A key theme with all five was the absence of a directly-observable cause, thus leading us to attribute the negative performance to the shares moving down in sync with overall weakness in small caps in general and some sectors in particular, such as biotech.


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.



Jeremy Hellman,
CFA Chief Operating Officer

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