Singular Research Director’s Letter : May 2018
Earnings surprise and positive guidance drive upside surprises.
May proved to be a good month to hold and stay. The Singular coverage list had a good month, up 3.3% outperforming the S&P but lagging the Russell 2000 which was up nearly 6%.
The month was dominated by the close of a very strong earning season where aggregate S&P earnings were up nearly 23%. The other dominant trend was small caps began to pull away from their big cap brethren. We believe this outperformance is well supported by economic fundamentals. Small caps are more domestic focused and thus less vulnerable to International political- economic headwinds, also they seem to be benefiting from lower corporate tax rates and slightly rising interest rates due to lower levels of debt and previous inability to benefit from Financial engineering that buffeted big caps.
Finally, and possibly most significantly small caps tend to perform well when small business confidence increases. The index of small business confidence is at its highest level in over a decade.
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Our top performers for the month were lead by Olympia Financial (OLY). Olympia up 24.6%. It benefited from a strong earnings report and is supported by an attractive dividend yield of over 5%.
Salem media followed with a 20.6% return, rebounding from an extreme oversold position condition. Investors also are starting to look towards the 2018 midterms and the increased ad revenue that will generate for the company.
Nmi Holdings improved 20.2% this stock is benefiting from the strong economy and prospects for longer and improved housing starts this year.
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Our worst performers to were led by EVIO, Inc, a Cannabis testing company, down 29.4% due to a disappointing earnings report. Harvard Bioscience followed with a negative 23.5% return caused by profit-taking from its run of nearly a hundred percent over the last two very months. Our third-worst performer was Biolase down 23.4% impacted by the departure of its CEO.
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In May we initiated coverage on two new names. We started Wisdom tree Investments (WETF) with a sell due to its exposure to currencies and increased competition. We launched Cordoba Minerals (CDB) with a buy as we believe the prospects of this Canadian Resource company for the development and discovery of copper and gold are bright in the years ahead.
Finally, we want to thank our loyal clients for their strong support and confidence over the last twelve years.