Impressive Bounce Follows Early Drop
October certainly featured its share of volatility with the Russell 200 index falling as much as 6% early in the month before rallying sharply to close with a gain of over 6%. The early drop appeared driven by the combination of weak foreign economic data, Ebola fears, and collapsing oil prices. As the Ebola scare receded and oil prices found equilibrium in the low $80s, the market bounced, led by positive US economic data.
We return to highlighting our MMI indicator which, as shown in the chart below, displays strong correlation with the Russell 2000. As a reminder, an index score for our MMI indicator of 60 or higher is considered bullish; 50 to 60 is neutral; and under 50 is bearish. In the chart below we plot our weekly MMI readings since early May versus the level of the Russell 2000 index. After falling through September, our indicator bottomed early in October before rallying into neutral territory as of our last reading on October 27.
For October, the S&P 500 was up 2.4%, the Russell 2000 was up 6.4% and the aggregate Singular List was up 3.0%. For the trailing twelve months, the S&P was up 18.0%, the Russell 2000 was up 8.5%, and the Singular Research List was up 7.8%. Year to date the S&P 500 is up 8.8%; the Russell 2000 is up 0.9% and the Singular list is down 1.7%.
We had two new initiations in September – both BUY rated. We initiated coverage of media company Crown Media Holdings (CRWN) with a $4 price target and energy construction firm Argan, Inc (AGX) with a $41 price target.
Our top five performers in October included four BUY rated companies along with one of our SELL rated companies. As our table shows, the top performing company on the Singular List in June was REED. Although the company had no material news during the month, the market continued its positive reaction to the company’s last round of earnings and guidance. Our analyst has had the view for some time that REED offers compelling upside potential if/when certain pieces of the puzzle are put into place and that appears to be unfolding.
As with our top performers, our worst performers in October were also from a variety of industries and with a range of reasons for the declines. A common theme seen in several of the companies noted below is exposure to the energy industry. As oil prices fell precipitously shares of most companies in the sector suffered accordingly. In the case of companies on our list such as VTNR, we see the short term reaction as providing a great entry point for long-term oriented investors.
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