Singular Research Gears up for What Promises to be an Exciting Q3:05 Earnings Season

September was the first month since October 2004 that we failed to beat the S&P 500. The Singular Research List declined 1.39% vs. the S&P 500's 0.60% increase. While we are disappointed, we'd note that the Singular Research list is up 30.1% vs. the S&P 500 which is up 1.33% year to date. Moreover, for the third quarter, our research list was up 4.7% vs. the S&P 500 up 2.8%. While we are disappointed anytime performance lags, we think many of our names are well positioned for exceptional price appreciation in the coming months.

September's underperformance was driven by both some bad news for a few of our names and some price declines on no news. First, the bad news. Duratek (DRTK:BUY) announced that revenues would be lower than expected for 2005 and the stock declined 12.8% in September. Specifically, the company announced that it now expects revenues for full year 2005 to be in the range of $280 - 286 million due to a lower than expected contribution from the Commercial Services subsidiary, a lengthening sales cycle for federal work, and lack of international projects. We view the selloff as overdone and would point out that DRTK trades at just 13x 2004 and 2005E EPS. Today, the company announced a new strategic partnership with TriVis, Inc. to provide services for commercial spent nuclear fuel dry storage to the U.S. nuclear utilities marketplace, a new $100 million opportunity. We'd also note that the stock is already up almost 14% from the low on the date the company announced its new outlook. Our price target implies 31% additional upside from current levels.

Amrep (AXR:BUY) reported lower than expected Q1:06 results and the stock declined 9.3% in September. Our analyst lowered his estimates and price target, but maintained his BUY rating. Revenues from the company's' Kable fulfillment services subsidiary continue to be soft as earlier expected customer losses materialize. Real estate revenues were also light for the quarter although these are notoriously lumpy and difficult to predict. Largely lost in the bad news, was the announcement of a one-time gain of $3.6 million or $0.54/share which will be paid out to shareholders as a dividend. Our price target implies 38% upside for AXR.

Acme United (ACU:BUY) declined 17.8% on no significant news. The company did announce that this quarter would include a non-recurring charge of $1.7 million, but the stock had already declined 15.6% before the announcement. The share price decline is baffling to us and the only reasonable expectation is that some shareholders are taking profits in a stock which is up 48% in the last year even after the recent price decline. This is an excellent buying opportunity for a small growth stock which we expect will report strong back to school results for the third quarter. ACU has grown earnings by 178%, yet trades at just 12.4x our 2005E EPS and 10.2x our 2006E EPS and our price target implies 97% upside.

On the plus side, two of our names put in double digit price increases. Credo Petroleum (CRED:BUY) increased 33.8% in September. This has been a great time to own any stock with the word "petroleum" in its name and Credo is no exception. Credo's sales were up 50% last quarter and EPS was up 70%. Our analyst raised his estimates and price target. The new price target implies a further 29% upside. Rimage (RIMG:BUY) was up 10.5% in September. While the stock was up on no news, we continue to believe the story is very compelling. RIMG is up 33.5% since we launched on it in late June and our price target implies an additional 20.8% upside.

We added three new recommendations in September, two long and one short. Utah Medical Devices (UTMD:BUY) is in the midst of litigation with the FDA which our analyst believes in undeservedly depressing the stock price. She expects a favorable resolution to the litigation and a return to more normal multiples for this small profitable medical devices company. UTMD trades at just 13.8x our 2005E EPS and our price target implies an additional 20% upside. Excel Maritime Carriers (EXM:BUY) is a dry goods bulk shipper and, as such, is a great play on global demand for such commodities as iron ore, coal and wheat. Demand from developing nations in the Far East such as China and India looks set to drive shipping rates upward. In our opinion, EXM is well positioned to profit from the relative shortage of large cargo vessels. EXM trades at just 4.2x our 2005E EPS and 3.6x our 2006E EPS and our price target implies 37% upside.

Lastly, NeuroMetrix (NURO:SELL) designs and manufactures equipment to replace traditional nerve conduction studies for patients with suspected neuropathies. The company is unprofitable, although we expect that to change, and ttm sales are just $25 million. While we expect the company to have a large measure of future success, revenue growth far exceeds customer growth and we believe that investors will ultimately be disappointed. The company is priced for perfection at 630x our 2005E EPS, 54x our 2006E EPS, 14x revenues, and 11x book value. We'd note that our estimates are far more aggressive than other analysts who cover the stock, and our long-term assumptions include sustained (over seven years) 43% return on capital, a feat few companies in history have achieved. Even with these heroic assumptions, our price target is just $17, 46% below current levels. In addition to the aforementioned Acme United, other names on our list with large expected price appreciation include Arrhythmia Research Technology, Inc. (HRT:BUY) 86.5% room to target and Span-America Medical Systems (SPAN:BUY) 85.4% room to target.

We continue to believe that the current financial landscape is one of low returns. In such an environment, passive index investing is the equivalent of accepting sub par returns and accepting higher savings rates in order for investors to reach their goals. This is a stock picker's market, and no where is that more true than in the vast uncovered Microcap space. Our analysts will continue to pour over the thousands of companies that deserve to be priced cheaply and find the overlooked nuggets that show genuine promise. We are excited for Q3:05 earnings season as we expect strong results from our companies as a group, and encourage our customers to check back frequently with our website for expected earnings dates and conference call information. As always, we are grateful to our customers without whom none of this would be possible.