Singular Research List up 33.3% year to date but fell behind S&P 500's big gain in November 

In November our hedged portfolio of long and short names could not keep up with the S&P 500, as the index put in its 2nd best month all year. The Singular Research List rose 2.16% in November versus a 3.06% for the time-weighted S&P 500. With earnings season upon us, there was more volatility in the list than we usually experience. Within the list, performance ranged from up 53.7% to down 19.3%. Since much of the volatility in the list was driven by news flow, let me start by recapping the earnings announcements.

Ten of our companies reported in November, with six beating our expectations, and four missing. Hansen Natural Corp. (HANS:BUY) was far and away our biggest winner rising an impressive 53.7% in November. Q3:05 sales doubled and EPS was up 240%. Growth continues to be driven by high margin energy drinks, a category that is growing at 50% and in which HANS is taking market share from larger competitors. Finally, HANS announced a new stock buyback program in mid November under which the company can buy back up to $50 million of its own shares.

Parlux Fragrances (PARL:BUY) missed our earnings estimate, but the market drove the stock 24.3% higher anyway. Part of the explanation is that our estimates were more aggressive than our competitors and PARL actually met Street expectations. The company also reiterated guidance that indicates sales will more than double in the next two quarters. Sales growth has been accelerating at PARL and operating income was up 90.5% in Q3:05. Our EPS estimates imply EPS will at least double for FY:06. PARL trades at just 11x consensus earnings and our price target implies 84% upside.

Maxwell Technologies (MXWL:BUY) reported better than expected results with revenues up 80% YoY. The company is narrowing its losses and our analyst expects profitability by Q4:06. MXWL was up 12.8% for the month. Span-America Medical Systems (SPAN:BUY) also reported better than expected results significantly beating our estimates, and the stock was up 12.3% in November. We continue to expect the firm's new catheter product to be a significant catalyst in coming quarters. Join us for our December 19th conference call when the CEO of SPAN, Jim Ferguson, will elaborate on his business. Our price target implies 85% upside.

Hardinge (HDNG:BUY) had a rough quarter missing our estimates by 63%. However, due to rising backlogs and orders (up 38% and 18% respectively), the stock gained 4.3%. As a machine tools manufacturer, Hardinge is very exposed to global economic growth. Since we have a favorable view on future global economic growth, we continue to rate HDNG a Buy and our price target implies 55% upside. Hampshire (HAMP:BUY) also missed our estimates, but the stock was basically flat, up 1%. We expect rising revenues at HAMP due to a recent acquisition but margins are under some pressure. With the continuing consolidation in the apparel industry, we would not be surprised to see HAMP as an acquisition target in 2006.

American Physicians Service Group (AMPH:BUY) reported EPS of more than double our estimate helped by the realized gain on an equity investment. On a pro forma basis, however the upside was just a penny and the market did not like the operating margin compression. AMPH declined 0.2% in November. AMPH continues to have large positions in cash, equity investments and fixed income investments. Backing these out, investors are getting the two profitable business subsidiaries for around $3/share. We continue to believe there is value to be unlocked in AMPH and remind investors that AMPH is up 20% from a year ago when we initiated on it. Our price target implies another 75% upside.

Iris International (IRIS:HOLD) reported an inline quarter which included 36% revenue growth and 185% EPS growth. However, the stock was up 250% from our initiation price. Since IRIS had almost reached our price target of $25, we reluctantly cut our rating to HOLD from BUY. IRIS remains a fantastic company, but at 49x forward earnings and 84x trailing earnings, it is difficult to argue that it is undervalued.

Excel Maritime (EXM:BUY) reported 45% higher EPS than we had projected although the sale of one of its boats accounted for much of the upside. On a pro forma basis, EPS of $0.61 missed our $1.07/share expectation and helps explain why the stock declined 13% in November. Nevertheless, EPS is up 164% year to date. We believe that most investors do not fully understand the radical transformation that EXM has undertaken in the last year to bulk up its fleet, revenues and earnings. EXM is a classic example of what we look for in our investments as the firm is both very profitable and very cheap. Excel Maritime sports a 44% ROE, and operating margin in the 45 - 55% range, yet trades at just 3.5x our 2005 EPS estimate, and at just 2.6x free cash flow. Our price target implies 72% upside.

Our biggest disappointment for November was Arrhythmia Research Technology, Inc. (HRT:BUY). The company missed our estimates by 50% and the stock was down 19.3%. However, our analyst believes that recent low margin tool sales are indicative of higher margin custom molded products in future quarters. We view the stock decline as an overreaction and our price target implies 60% upside from current levels.

During November we also added two new names to our research list, one long and one short. Outlook Group (OUTL:BUY) is a specialty printing company with some recent large contract wins including Proctor and Gamble (PG:Not Rated). Its 16.6% decline on no news was an inauspicious start, but our price target implies 61% upside. Foxhollow Technologies, Inc.(FOXH:SELL) is our newest short call, and is very much in the mold of NeuroMetrix (NURO:SELL) in terms of being a medical device company bid up to a price unsupported by the company's fundamentals. (As an aside we were gratified to see our short call on NURO return 16.5% for November, our third best call for the month.) FOXH manufactures and markets the SilverHawk system for treating peripheral artery disease (PAD). The company has been consistently unprofitable, but our analyst expects that to change next quarter. Still, at 78x our street high 2006 EPS estimate of $0.57/share, FOXH is priced for perfection. Our price target, which itself includes fairly heroic assumptions, implies more than 30% downside.

As our list grows, I find myself unable to talk about each name at the length I would like to. Just in November, we had other double digit movers such as DRTK (up 15%), NVEC (down 13.1%), and TZOO (down 16.6%). Year to date our research list is up 33.3% versus the S&P 500's 2.8% return. We continue to believe these are the best ideas from the Microcap space and we will be introducing more in the coming months. We are grateful for our customer's support and will keep striving to bring you the best unbiased investment research anywhere. B11+B12In November our hedged portfolio of long and short names could not keep up with the S&P 500, as the index put in its 2nd best month all year. The Singular Research List rose 2.16% in November versus a 3.06% for the time-weighted S&P 500. With earnings season upon us, there was more volatility in the list than we usually experience. Within the list, performance ranged from up 53.7% to down 19.3%. Since much of the volatility in the list was driven by news flow, let me start by recapping the earnings announcements.
Ten of our companies reported in November, with six beating our expectations, and four missing. Hansen Natural Corp. (HANS:BUY) was far and away our biggest winner rising an impressive 53.7% in November. Q3:05 sales doubled and EPS was up 240%. Growth continues to be driven by high margin energy drinks, a category that is growing at 50% and in which HANS is taking market share from larger competitors. Finally, HANS announced a new stock buyback program in mid November under which the company can buy back up to $50 million of its own shares.

Parlux Fragrances (PARL:BUY) missed our earnings estimate, but the market drove the stock 24.3% higher anyway. Part of the explanation is that our estimates were more aggressive than our competitors and PARL actually met Street expectations. The company also reiterated guidance that indicates sales will more than double in the next two quarters. Sales growth has been accelerating at PARL and operating income was up 90.5% in Q3:05. Our EPS estimates imply EPS will at least double for FY:06. PARL trades at just 11x consensus earnings and our price target implies 84% upside.

Maxwell Technologies (MXWL:BUY) reported better than expected results with revenues up 80% YoY. The company is narrowing its losses and our analyst expects profitability by Q4:06. MXWL was up 12.8% for the month. Span-America Medical Systems (SPAN:BUY) also reported better than expected results significantly beating our estimates, and the stock was up 12.3% in November. We continue to expect the firm's new catheter product to be a significant catalyst in coming quarters. Join us for our December 19th conference call when the CEO of SPAN, Jim Ferguson, will elaborate on his business. Our price target implies 85% upside.

Hardinge (HDNG:BUY) had a rough quarter missing our estimates by 63%. However, due to rising backlogs and orders (up 38% and 18% respectively), the stock gained 4.3%. As a machine tools manufacturer, Hardinge is very exposed to global economic growth. Since we have a favorable view on future global economic growth, we continue to rate HDNG a Buy and our price target implies 55% upside. Hampshire (HAMP:BUY) also missed our estimates, but the stock was basically flat, up 1%. We expect rising revenues at HAMP due to a recent acquisition but margins are under some pressure. With the continuing consolidation in the apparel industry, we would not be surprised to see HAMP as an acquisition target in 2006.

American Physicians Service Group (AMPH:BUY) reported EPS of more than double our estimate helped by the realized gain on an equity investment. On a pro forma basis, however the upside was just a penny and the market did not like the operating margin compression. AMPH declined 0.2% in November. AMPH continues to have large positions in cash, equity investments and fixed income investments. Backing these out, investors are getting the two profitable business subsidiaries for around $3/share. We continue to believe there is value to be unlocked in AMPH and remind investors that AMPH is up 20% from a year ago when we initiated on it. Our price target implies another 75% upside.

Iris International (IRIS:HOLD) reported an inline quarter which included 36% revenue growth and 185% EPS growth. However, the stock was up 250% from our initiation price. Since IRIS had almost reached our price target of $25, we reluctantly cut our rating to HOLD from BUY. IRIS remains a fantastic company, but at 49x forward earnings and 84x trailing earnings, it is difficult to argue that it is undervalued.

Excel Maritime (EXM:BUY) reported 45% higher EPS than we had projected although the sale of one of its boats accounted for much of the upside. On a pro forma basis, EPS of $0.61 missed our $1.07/share expectation and helps explain why the stock declined 13% in November. Nevertheless, EPS is up 164% year to date. We believe that most investors do not fully understand the radical transformation that EXM has undertaken in the last year to bulk up its fleet, revenues and earnings. EXM is a classic example of what we look for in our investments as the firm is both very profitable and very cheap. Excel Maritime sports a 44% ROE, and operating margin in the 45 - 55% range, yet trades at just 3.5x our 2005 EPS estimate, and at just 2.6x free cash flow. Our price target implies 72% upside.

Our biggest disappointment for November was Arrhythmia Research Technology, Inc. (HRT:BUY). The company missed our estimates by 50% and the stock was down 19.3%. However, our analyst believes that recent low margin tool sales are indicative of higher margin custom molded products in future quarters. We view the stock decline as an overreaction and our price target implies 60% upside from current levels.

During November we also added two new names to our research list, one long and one short. Outlook Group (OUTL:BUY) is a specialty printing company with some recent large contract wins including Proctor and Gamble (PG:Not Rated). Its 16.6% decline on no news was an inauspicious start, but our price target implies 61% upside. Foxhollow Technologies, Inc.(FOXH:SELL) is our newest short call, and is very much in the mold of NeuroMetrix (NURO:SELL) in terms of being a medical device company bid up to a price unsupported by the company's fundamentals. (As an aside we were gratified to see our short call on NURO return 16.5% for November, our third best call for the month.) FOXH manufactures and markets the SilverHawk system for treating peripheral artery disease (PAD). The company has been consistently unprofitable, but our analyst expects that to change next quarter. Still, at 78x our street high 2006 EPS estimate of $0.57/share, FOXH is priced for perfection. Our price target, which itself includes fairly heroic assumptions, implies more than 30% downside.

As our list grows, I find myself unable to talk about each name at the length I would like to. Just in November, we had other double digit movers such as DRTK (up 15%), NVEC (down 13.1%), and TZOO (down 16.6%). Year to date our research list is up 33.3% versus the S&P 500's 2.8% return. We continue to believe these are the best ideas from the Microcap space and we will be introducing more in the coming months. We are grateful for our customer's support and will keep striving to bring you the best unbiased investment research anywhere.

Tags: Director's Letter, Latest Updates