Singular Research Director’s Letter September 2014: Month to Month Up and Down Continues

Singular Research Director’s Letter : September 2014

Month to Month Up and Down Continues

Continuing the pattern of recent months, the Russell 2000 index rallied in August, recouping much of the loss from July.  For the month, the Russell 2000 was up 4.8%.  Thus far in 2014 we have seen four up months and four down months for the Russell 2000 with the net gain for the year at 0.9%.  Notably, this compares with the S&P 500 which has performed better with six positive months versus two in the red for a net gain of 8.3%.

On the economic front, Durable Goods Orders had an eye-catching headline print of 22.6% but closer review reveals the gain was driven primarily by aircraft orders at Boeing.  Motor Vehicle Orders were also positive at 10.2% for July.  However, ex-transportation, Durable Goods Orders slipped 0.8%.  Even so, June revisions were positive and the general sentiment is that overall, manufacturing is picking up, which helped drive the indices higher.

For August, the S&P 500 was up 3.7%, the Russell 2000 was up 4.8% and the aggregate Singular List was up 4.1%.  For the trailing twelve months, the S&P was up 16.9%, the Russell 2000 was up 11.4%, and the Singular Research List was up 12.4%.  We had two new initiations in August – both BUY rated.  We initiated coverage of IT provider Black Box Corporation (BBOX) with a $31 price target and industrial electrical supply company American Electric Technologies (AETI) with an $8.40 price target.

Our top five performers in August include companies from a variety of industries with all of the five easily outpacing the gain of the Russell 2000, delivering significant alpha.  As our table shows, the top performing company on the Singular List in June was SA.  We increased our price target on the shares from $10.15 to $14 as the company received approval for its environmental assessment application from provincial regulators for the KSM project.  At the margin, as we note in our coverage of the company, its mining resources are located in relatively safe areas from a geopolitical perspective and given the recent global hotspots, investors may be according incremental value to this factor.

As with our top performers, our worst performers in August were also from a variety of industries and with a range of reasons for the declines.  Our worst performer was BONE, which conducted a secondary offering at a fairly sizable discount following a reverse split.  The company is still working to get its sales force realignment clicking but we remain confident that management has the track record to get the job done.

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 have been investigating, and we plan to launch coverage on several names in the coming weeks.  We thank our clients for your support of independent equity research.

Jeremy Hellman, CFA
Chief Operating Officer

Tags: Director's Letter, Announcements