Singular Research Director’s Letter April 2015: Small Caps Outperform

Singular Research Director’s Letter : April 2015

Small Caps Outperform

March seemed to bear out what many prognosticators have been calling for as small caps outperformed their larger peers, as noted in the table below. The strength of the US Dollar has been cited as a headwind for US companies that derive a meaningful portion of their revenues overseas as the translation of those sales back into US Dollars is negatively impacted by exchange rate movements. Small caps, on average, derive less revenue from export or overseas activities and thus don’t face this same headwind.

Beyond currency impacts, market participants continue to focus on the FED and whether or not an interest rate increase will be coming sooner or later. As we evaluate our coverage, our analysts are ever-mindful of the potential impact on those companies with leverage as well as the potential relative advantage of those with debt-free balance sheets.

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Recapping the table above, for March, the S&P 500 was down 1.70%, the Russell 2000 was up 1.39% and the aggregate Singular List was down 0.55%. For the trailing twelve months, the S&P was up 10.03%, the Russell 2000 was up 5.39%, and the Singular Research List was down 3.90%.

Digging into the companies on our coverage list, as our table below shows, the top performing company on the Singular List was recent initiation KMG Chemicals (KMG). The company announced earnings results for its fiscal second quarter (year ending July 2015) which beat our estimates. With the recent announcement of an accretive acquisition we have increased our price target to $34 from $29. Looking at the rest of our Top 5 performers, Top Ideas for 2015 list member CMT has been faring well, driven by a positive earnings report too.

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Our worst performers in March 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 SeaBridge Gold (SA). The company has issued recent updates that we feel are very positive with respect to the long term value of the business. We also recently hosted a non-deal road show with management and remain very bullish on the story, urging investors to take advantage of the recent move lower that had no fundamental cause.

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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.

Jeremy Hellman, CFA
Director of Research/Chief Operating Officer

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