Singular Research Director’s Letter: March performance 2020
Singular Research’s March 2020 Director’s Letter
In March, the Corona virus continued to spread throughout the world, making the U.S. the world leader in confirmed cases. The summer Olympics were postponed until 2021 and countries began closing their boarders with mandatory lockdowns in an attempt to curtail the spread of the Corona virus and its damage to human life and the economy. Domestically, the March Purchasing Managers Index (PMI®) fell into contraction territory, registering 49.1 percent, a decrease of 1.0 percentage points from the February reading of 50.1 percent. Similarly, the Conference Board Leading Economic Index® (LEI) for the U.S. increased 0.1 percent in February to 112.1 (2016 = 100), following a 0.7 percent increase in January and a 0.3 percent decline in December. The Conference Board has flatly stated that the Leading Economic Index® will not show improvement in March. The unemployment rate rose to 4.4% (3.5% in February), as workers were laid off due to the negative effects of the Corona virus.
For the month of March, the Singular coverage list outperformed the Russell 2000 by 149 basis points and underperformed the S&P 500 by 768 basis points, respectively. Year-to-date, the Singular coverage list has outperformed the Russell 2000 by 337 basis points and underperformed the S&P 500 by 733 basis points, respectively. As the Corona virus continues to spread domestically and globally, small businesses are the most affected because of their lack of resources to weather such volatile times. Investors continue to look favorably to companies that may not be negatively affected as others, such as precious metals and healthcare.
FND was our top performer in March mainly because it is a short position. As fears of the Corona virus exacerbate, investors have and will continue to look to safe haven plays such as AMRK and EHTH, both of which should benefit in times of pandemonium. Interestingly, AMRK and EHTH were on our top performers list for the month of February.
CMTL was our worst performer for the month after delivering a slightly weaker second quarter than expected and lower guidance for the remainder of the year; however, in January, the company just acquired Gilat Satellite Networks, Ltd., and we believe this acquisition will position the company well for 2021 and beyond. RUBI was our second worst performer for the month even after reporting strong fourth quarter results in late February. Given the national quarantine and shut down of the U.S. economy, investors may believe that companies will not be spending as much on advertising, thus hurting RUBI’s top line. NMIH, a private mortgage insurance company, also had dismal results as investors worried over the company’s future success if many Americans may lose their jobs and their ability to stay current on their loans. GEOS also had a poor month as the price of oil collapsed, worrying investors about demand for GEOS’ products. Finally, BLX had a dismal month as the Latin American economy also has fallen on tough times due to the Corona virus; many investors fear of an increased delinquency rate on BLX’s loans.
For March, we initiated coverage on the LGL Group, Inc. (LGL). The LGL Group manufactures custom-designed highly engineered electronic components and instruments. The company’s products are primarily used in defense, aerospace, and Internet Communications Technology (ICT) industries.
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Robert Maltbie, CFA
Singular Research, President