Singular Research Director’s Letter : March 2017

A Theme Based Market Advance

As the market attempts to gauge the winners and losers based on policy changes from the new US administration, there have been pockets of euphoric market moves, primarily in larger cap names. The aggressive agenda of the new administration leads to good headline material, but the slow grind-it-out process of enacting new legislation may cause some of the recent gains to be suspect in the months ahead. The US equity market is generally positive on the pro-business stance in Washington, however, some of the main themes may play out with fits and starts. That being said, there will be investment opportunities in many companies that may benefit from higher infrastructure spending, lower taxes, lower regulations, a changing healthcare landscape, and higher military spending. Some of these headline themes may take more time to develop. Overall, we remain bullish on the prospects for the small cap arena.

For the top performing companies in February on the Singular Research coverage list, a common theme is current and anticipated strong revenue growth. Salem Broadcasting (SALM) was the strongest performer in February. The company operates radio, print and internet properties targeting a conservative-minded audience, and the stock has been on a steady rise after early November lows. Kulicke & Soffa designs and semiconductor, LED, and electronic assembly equipment. Much stronger than expected equipment sales drove the better than expected quarter. Gray Television Networks (GTN) owns television stations and digital assets in many US markets. GTN has been reporting strong revenue growth and the stock has been on a rebound since the November lows. Iridex (IRIX) manufactures laser-based medical equipment and supplies for the ophthalmology market. New products are driving revenues. Stealthgass (GASS) provides seaborne transportation for LPG. GASS has responded from its lows and the company reported an uptick in contract rates for its vessels. There are very few industry builds coming online in the next two years which will likely lead to higher dayrates.

The worst performing group of the Singular coverage list during February have several hidden gems that we anticipate will perform well in the next year. The worst performing stock of the coverage list, Aceto (ACET), has been correcting for a few months, but our analyst perceives strong EPS growth in the next 18 months.  VASCO Data Security (VDSI) is transitioning to be a software company, and outperformed recently reduced expectations. . CTRP.com (CTRP) was down as a short. The stock has moved up to the top of the trading range, and we expect weak performance (positive as a short). NV 5 Global (NVEE) provides technical engineering and consulting for infrastructure and construction markets. The stock has been digesting recent strong gains and our analyst expects a very strong 2017. ClearOne (CLRO) provides audio/video conferencing tools for Fortune 500 companies. The company has developed new products that are expected to drive growth in 2017.

We initiated coverage on two new companies in February. General Finance (GFN) with a BUY rating. GFN is a specialty rental services company with portable storage, modular space and liquid containment solutions. The Asian fleet, primarily in Australia, has a very high utilization rate while the utilization rate in the US fleet has declined due to the slump in the oil & gas industry. Our analyst expects improvements in the US from general economic growth and any uptick in oil & gas will drive EPS growth. We initiated coverage on New York Times (NYT) with a SELL rating. NYT publishes the New York Times and has had challenges in the digital market where others dominate. Ad spending with newspapers continues to decline, and NYT is saddled with high unfunded pension costs.

We continue to work on new ideas and plan to launch coverage in the coming weeks on one or several new names. At Singular Research, we continue to seek out investment ideas that have minimal to no Wall Street coverage. We thank our clients for your support of independent equity research.