Singular Research Director’s Letter : June 2015

Strong May Bodes Well

 

Pondering the old adage of “sell in May and go away” we also saw it noted on Bloomberg TV recently that when the market posts a positive May, the ensuing May to October period tends to produce positive returns.  Perhaps this boils down to May serving as a litmus test on the market’s opinion on year end and Q1 earnings reports which consume much of the February to May period.  If those reports are of a positive flavor and investors expect similar performance over the balance of the year, then they are likely to be post-earnings buyers, fueling a positive May with further follow-through as the summer progresses.

With this thought in mind, we see that May was positive for both large and small caps, with the Singular List outpacing both benchmarks.  Certainly some of this positive tone stems from the general consensus that the FED will not raise rates in June but as that specter still exists, we don’t believe it accounts for all the gain seen in May.  To wit, as we look at our coverage universe we see a variety of solid fundamental reasons for optimism.

dir-ltr-201500601a

Recapping the table above, for May, the S&P 500 was up 1.4%, the Russell 2000 was up 2.38% and the aggregate Singular List was up 2.41%.  For the trailing twelve months, the S&P was up 10.91%, the Russell 2000 was up 10.95%, and the Singular Research List was down 2.27%.

Digging into the companies on our coverage list, as our table below shows, the top performing company on the Singular List was Vertex Energy (VTNR).  The company is finally seeing the light at the end of the tunnel following a rough stretch resulting from the recent slide in oil prices.  As we have noted in our research, we feel the company has quality management and the weakness we have seen marks a quality entry point for long term investors.  Looking at the rest of our Top 5 performers, Top Ideas for 2015 list member CMT appears again as a repeat top 5 name from last month.  Other names on the list saw gains primarily driven by quality Q1 earnings reports.

dir-ltr-201500601b

Our worst performers in May 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 Tessco (TESS), which reported fiscal Q4 results that were a disappointment.  Even so, our analyst remains confident in the long term potential for the company and feels the current weakness represents a buying opportunity.  Other names on our worst performers list, such as IGXT and LODE, are lower-priced stocks and thus a few penny price swing can drive a percentage move large enough to land the stock on our list despite the absence of anything negative.

dir-ltr-201500601c

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