Singular Research August 2021 Director’s Letter
Singular Research’s August 2021 Director’s Letter
In August, stocks continued to climb higher as the S&P 500 has now increased for seven straight months, its longest winning streak since January 2018. August historically has been one of the worst performing months for stocks; however, 2021’s August did not follow historical trends. Interestingly, Delta variant fears, inflation concerns, and supply chain constraints were not enough to move markets lower. Many believe Fed Chair Jerome Powell’s dovish comments to “support the economy for as long as is needed to achieve a full recovery” outweighed all the other negative market sentiment for the month. Large cap stocks outperformed small caps while large cap growth outperformed large cap value. 98% of S&P 500 companies reported by the end of August with 89% of those companies posting earnings growth; the average upside beat was 16.4% and sales estimates were 4.6% higher. Financials, Communications, and Utilities led the way with 5.1, 5.0, and 4.1% returns respectively while Staples, Industrials, and Energy were the biggest losers with 1.4, 1.1, and (2.0)% returns, respectively. Markets continue higher led by a never-ending dovish Fed. Laissez les bons temps rouler! (Let the good times roll!)
The August Purchasing Managers Index® (PMI) registered 59.9 percent, an increase of 0.4 percentage points from the July reading of 59.5 percent. Similarly, the Conference Board Leading Economic Index® (LEI) increased 0.9 percent in July to 116.0 (2016 = 100), following a 0.5 percent increase in June and a 1.2 percent increase in May. The July PMI reading indicates economic expansion for the 14th consecutive month. The unemployment rate decreased 5.4% in August (5.9% in July) as businesses have started the rehiring process.
For the month of August, the Singular coverage list outperformed the S&P 500 and Russell 2000 by 1,016 and 1,068 basis points, respectively. Over the last twelve months, the Singular coverage list outperformed the S&P 500 and Russell 2000 by 9,808 and 8,180 basis points, respectively. Since our 2004 inception, the Singular coverage list has outperformed the S&P 500 and Russell 2000 by an annualized 559 and 539 basis points, respectively.
For August, our top three performers were acquired, hence the large monthly price returns and our lack of future price targets. RSI had a strong Q2 earnings report with revenue up 89% year-over-year; the Company increased full year 2021 revenue guidance as well. TA also reported a strong Q2 as the Company’s net income increased to $28.9 million, an increase of $26.8 million from the prior year. Adjusted EBITDA increased to $73.5 million, an increase of 60.6% year-over-year.
BBKCF was our worst performer for the month as the Company reported Q2 results that did not appease market participants; revenue increased 24% sequentially which is strong, but apparently not satisfactory for crypto currency investors. ZM fell similarly as the Company posted year-over-year revenue growth of 54%; however, ZM guided for Q3 revenue and adjusted EPS to be weaker than Q2 results. LUNA also had a poor month as the Company’s Q2 results were weaker than expected after the OptaSense acquisition.
For the month, we initiated on Riot Blockchain, Inc. (RIOT) and Gogo, Inc. (GOGO). RIOT is the largest publicly traded cryptocurrency mining company in North America. Its mining operations are based out of Coinmint LLC’s facility in Massena, New York and the recently acquired Whinstone facility in Texas. GOGO is the world’s largest provider of broadband connectivity for the business aviation market. Its products offer equipment for inflight connectivity, including voice and data services for the North American market.
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Robert Maltbie, CFA
Singular Research, President