Singular Research Director’s Letter: November performance 2019
Singular Research’s November 2019 Director’s Letter
With signs of optimism that a deal with China can be reached in December, investors have become cautiously optimistic on the economy. Liquidity indicators point to a bullish rebound as there was an increase in large mega mergers and all-cash buyouts (Luis Vuitton & Tiffany’s and Novartis & Medicines). However, investors remain cautious as the November Purchasing Managers Index (PMI) registered 48.1 percent, a decrease of 0.2 percentage points from the October reading of 48.3 percent. Similarly, the Conference Board Leading Economic Index® (LEI) for the U.S. declined 0.1 percent in October to 111.7 (2016 = 100), following a 0.2 percent decline in both September and August, and a 0.4 percent increase in July. On a positive note, the unemployment rate remained stable at 3.5%, one of the lowest rates since December 1969.
For the month of November, the Singular coverage list underperformed the S&P 500 and Russell 2000 by 27 and 84 basis points, respectively. Year-to-date, the Singular coverage list has outperformed the S&P 500 and the Russell 2000 by 1,210 and 1,643 basis points, respectively. As the trade war with China continues and European markets falter, there appears to be an apparent shift to domestic small cap stocks that are not affected by international affairs.
EHTH, IEC, and LUNA all performed well as investors were thrilled from continued growth stories. IEC continues to grow revenue backlog while their quarter-ending revenue grew 28% YoY and gross margin expanded 150 basis points. QNST reported record sales and they are in the process of looking for strategic alternatives. LUNA reported 72% revenue growth YoY, its 8th consecutive doubledigit quarter of revenue growth.
NVEE took the largest hit for the month with a 34% decline. The company posted better than expected revenue (+25%) and backlog (+35%) growth. However, from the acquisition of seven companies in 2019 and the costs associated with their integration, NVEE guided for lower revenue results for the full year of 2019. The company remains on track for higher revenue and EPS estimates for 2020. ANIK and IRMD both posted solid earnings results and guided higher, but investors may have been anticipating even stronger results which has led to their stock price declines. DAKT reported flat quarterly revenue growth with a decline in operating income of $5 million, mainly due to increased prices from China trade war tariffs. To strengthen results, they are looking at ways to improve operations and cut ties with China.
For November, we initiated coverage on Good Natured Products, Inc. (GDNP.V). Good Natured Products designs, produces and sells plant-based packaging for baked goods, prepared meals and fresh produce, and “green” home and business products like recycling bins and totes. The company is targeting for annual sales growth of 30-50% over the next three to five years. We wish to thank our clients for their support and belief in our process. For a complimentary report for new subscribers, to provide feedback, or to share some valued insights, please e-mail me using the link below.
Robert Maltbie, CFA
Singular Research, President