Singular Research Director’s Letter : May 2017

Is Economic Growth Slowing – Is This Bull Market About to End?

US economic growth was expected to improve in 2017 but the initial release of the first quarter GDP was less than stellar. And bond yields declined recently – is this a forewarning of a weaker economy and what are the impacts on the equity markets? Our perception of the weaker than anticipated Q1:17 GDP growth is that it fits a pattern of the last several years where the first or second quarter has been the low point of the year. Any concerns about consumer spending which was weak in Q1:17? Our view is the lull in consumer spending is temporary – the data is preliminary and will likely be revised upwards. We anticipate the trends of lower productivity growth and higher labor costs of the past few years are at the point to drive increasing capital investments for greater productivity, and continued job growth. These major trends will support GDP growth for the next few years. In the process there may be lulls and sparks, but we are not close to the top of this economic cycle or the end of this Bull market, in our opinion.

For the top performing companies in April on the Singular Research coverage list, several have forecasts of consistent revenue and earnings growth while others are rebounding after recent weakness. Control4 Corp (CTRL) was the strongest performer in April. The company provides smart home and business solutions that integrates audio, video, lighting, temperature, security, and communications. The company has consistently been beating estimates. Century Casinos (CNTY) has casino operations in a diverse set of venues including cruise ships and horse racing. CNTY reported a strong Q4 with adjusted EBITDA up 40%. Arotech (ARTX) provides innovative defense and security solutions for government agencies and commercial users. The stock is rebounding from a recent dip. Multi-Color Corp. (LABL) makes labels for consumer products, and our analyst is forecasting consistent revenue and earnings growth in the next year. The stock is rebounding from a recent dip. Anika Therapeutics (ANIK) provides treatments for early stage osteoarthritic joints with its innovative products. The company has been consistently gaining share in the viscosupplement market.

 

The worst performing group of the Singular Research coverage list during April have several hidden gems that we anticipate will perform well in the next year, some of which are moving through a product transition. The worst performing stock of the coverage list, Stealthgass (GASS) provides seaborne transportation for LPG. 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. Stamps.com (STMP) provides online postage services and after reporting a strong Q4:16, the stock is consolidating recent gains. Harvard Bioscience (HBIO) provides scientific equipment and consumables to the research markets. Our analyst expects the company to have consistent earnings growth in the next year, but concerns over NIH funding is having a negative impact on the stock. Seabridge Gold (SA) is a development stage company that explores and acquires gold properties. The company announced a resource expansion as a result of recent drilling and also made an acquisition. Iridex (IRIX), posted a loss in Q4:16 driven by higher expenses associated with a new product platform. Our analyst expects strong revenue and earnings growth over the next two years.

We initiated coverage on two new companies in April. We initiated coverage of Biolase (BIOL) with a BUY rating. BIOL is a leader in laser dental products, which reduces pain, trauma, and bleeding for patients. The company has installed over 33,000 lasers in 90 countries, and has recently had improving international success. The cash burn has declined significantly and the addressable market is very large. We initiated coverage on Control4 Corp. (CTRL) with a BUY rating. CTRL provides smart home and business systems that integrate many functional items including audio, video, lighting, temperature, security, communications, and network management. The company integrates its proprietary software with its chip designs. Thousands of devices are “enabled” on the CTRL system, the company has a strong intellectual property portfolio, and markets primarily through independent dealers.

We continue to work on new ideas in the small and micro cap space. 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.

Sincerely,

 

Singular Research