Singular Research List up 1.9%, Beats Index, Plus New Initiation

November was a busy month as we got the rest of the Q3 earnings calendar and almost all of the 10Qs filed. For the September quarter, earnings surprises ranged from -1,400% to an upside surprise of 467%. Excluding the ICOP outlier, the average surprise was a positive 9% on the longs and 0.2% on our short calls. Not surprisingly, many of our stocks moved quite dramatically on the earnings results. We had six stocks up by double digits and five stocks down by double digits. Despite recommending a long/short portfolio against a bull market backdrop, we still managed to outperform the S&P 500 again in November. The Singular Research list was up 1.9% versus the S&P 500’s 1.6%. With one month left in 2006, our list is up 21.3% year to date versus 11.9% for the S&P 500.

On the macroeconomic front, some areas of concern have moderated, and others remain. Commodity inflation has eased in some cases, yet core inflation remains a major concern of the Federal Reserve, especially with historically low unemployment. Yet, rather than bargain for higher wages leading to wage and, ultimately, price inflation, workers seem convinced the economy is far weaker than headline statistics suggest. Investors seem manic/depressive, vacillating between fears of inflation leading to Federal Reserve tightening, and fears of a recession just around the corner.

Our bigger concern is a simple one. It stems from the simple belief that earnings drive stock prices. After a long string of double digit earnings growth, corporate profits as a percent of the economy are near record levels. If profit margins decline, rather than see earnings growth in excess of nominal GDP growth, investors will see low single digit earnings growth. We do not believe the market is properly discounting this possibility. Moreover, even if strong earnings growth can continue, there is the very real possibility of rising interest rates from today’s very low levels, which would also be detrimental to stock returns.

Looking more closely at our list, our top performer was one of our newer initiations, US Global Investors (GROW:BUY). GROW grew 58.8% bigger in November and is now up 145.4% since our October 9th initiation. Investors have been impressed with the company’s 81% revenue growth and 125% growth in earnings as mutual fund assets under management nearly doubled from $2.4 billion to $4.6 billion. Our price target and rating are under review.

The second best performer was Bolt Technology (BTJ:BUY) up 24.1% on top of the 21% last month. We had viewed last quarter’s selloff as an excellent opportunity to add this oil services name at reduced prices. With oil starting to back up again, investors have rediscovered why they liked Bolt in the first place, namely 25% top line growth and 94% earnings growth. BTJ beat our $0.24 estimate by 46%, the second biggest earnings surprise on our list.

ACS Motion Control (ACSEF:BUY) rose 20% in November as investors realized they had overreacted to the downside earlier in the year. Despite missing our estimates slightly, ACS proved it could still be profitable despite the loss of a major customer suffered earlier on the year. ACSEF is now up 31.1% since we launched on it in September, but our price target implies another 70% upside.

McDermott International (MDR:BUY) also had a great month rising 16.5% after beating our estimates. After watching the company report backlog growth of 169%, 122% revenue growth and 74% profit growth, our analyst raised his estimates. Investors seem not to have appreciated just how profitable MDR would be once its Power Generations Systems subsidiary was reconsolidated, now that asbestos headaches are behind the segment. MDR is now up 85.8% since we launched on it last December.

American Software Inc. (AMSWA:BUY) was up 15.7% in November ahead of its earnings report due out next Thursday. We are looking for 17% revenue growth and 206% earnings growth. News flow for the month was not unusual, consisting of new customer wins, new awards won and conferences attended. Investors may have been attracted to the hefty dividend yield which, while now 3.9%, was 4.4% at the start of the month. AMSWA is now up 20.2% since we launched on it in June, not counting the dividend.

Miller Industries Inc. (MLR:BUY) rose 11.7% for the month after reporting an 11.5% upside earnings surprise. This remains one of our favorite value ideas, and at just 10.9x our 2007E estimates is still very reasonably priced considering its 20% revenue and 23% earnings growth last quarter. Our price target implies 75% upside.

Not surprisingly, our worst call of the month was one of our short calls, Baidu.com, Inc. (BIDU:SELL) up 32.7%. Investors’ infatuation with Chinese stocks, especially Chinese Internet stocks defies rationality. In scenes reminiscent of the worst parts of the Internet bubble, we have seen competitors justify price targets based on multiples years out in the future. Indeed, it is hard to imagine how a company trading at 104x EV/EBITDA, 24.5x Book value, and 69.7x forward earnings could be undervalued. BIDU’s recent announcement of its entry into the Japanese market seems ill fated according to our analyst and may say more about growth prospects and the competitive environment in China than anything else. Our price target implies 57% downside for BIDU.

IRIS International, Inc. (IRIS:BUY) shares fell 25.1% in November on weaker than expected results. The company reported numerous one-time charges, and a CFO change, however we believe investors are not giving the company credit for the likely resumption of profitable growth next year. We also find the insider buying by the CEO and several directors encouraging. Our price target implies 78.2% upside.

Maxwell Technologies Inc. (MXWL:BUY) dropped 21.1% last month despite better than expected earnings results. Ultracapacitor sales are lumpy and the company is being unfairly punished for lower guidance in our analyst’s opinion. Maxwell is turning the corner to profitability so investors are going to be concerned by continued losses. MXWL is still up 37.6% since we launched on it back in June 2005. The recent selloff gives event-driven and technology oriented investors a great entry point to this stock with 70% upside to our target.

The fourth biggest decliner in November was our other Chinese Internet stock, CTRP International (CTRP:SELL) up 13.3%. This stock remains perhaps an ever better short candidate than BIDU given the lower barriers to entry. This is the Chinese equivalent of Travelocity before Orbitz was created. Only, it is worse than that as Chinese customers with lower per capita GDP are even more price sensitive than Americans. We project that CTRP will face a very competitive marketplace with downward pressure on margins. For a company facing slowing growth rates and margin compression in an increasingly competitive environment, we do not see how multiples such as EV/EBITDA of 45x, PE of 44x, and P/S of 19x can be maintained.

Last but not least, Hansen Natural Corp. (HANS:BUY) fell 11.4% in November. Hansen got caught up in the growing stock option backdating scandal. By caught up, I mean they received a letter from the SEC and have begun an internal investigation. As a result, the 10Q has been delayed and the class action lawyers have swooped in. Lost in the fracas was better than expected Q3:06 earnings results. Sometimes, the best investments are made when everyone else is running for the exists. We believe this may well be the case with HANS. Despite an estimated 75% earnings growth rate for 2006, HANS trades at just 22x our 2007E estimates. Our price target implies 113% upside.

During the quarter we added a new name, The Lamson & Sessions Co. (LMS:BUY). LMS has had very strong historical results such as 15.8% sales and 111% earnings growth last quarter, yet trades at just 7.8x trailing EPS and EV/EBITDA of 4.2x. The stock has already rallied sharply as at least one investor has pressured the company to buy back more of its own stock. Our price target implies 40% upside. We also dropped On Track Innovations Ltd. (OTIV:HOLD) from our list. Despite a large market opportunity, the company continues to fumble and losses are piling up. Making matters worse, the company shows a disregard for investors that is unrivaled, and may well have run afoul of Reg. FD. We aren’t willing to stick around to find out.

We’d like to take a moment to point out a couple of names we think have excellent prospects and are currently on sale. Among our growth oriented names, Premier Exhibitions, Inc. (PRXI:BUY) strikes us as having an excellent risk/reward profile. The company is poised to move from a net revenue to a gross revenue model, and will no longer have to share profits on its shows. Due to the complexities of its prior revenue sharing arrangements, we do not believe the market fully appreciates how explosive the financial results are likely to be in the coming quarters. We are looking for 137% and 62% revenue growth for FY:06 and FY:07 ended February respectively. Earnings growth could accelerate from an expected 42% in FY:07 to 83% in FY:08, yet the company is priced at just 14.4x our FY:08 estimates.

Our top value pick would be Acme United Corp. (ACU:BUY). The company is executing well and taking market share. We expect 16% revenue growth in 2006 and 14% in 2007. Despite an estimated 25% EPS growth rate in 2007 and 20.2% return on equity, the stock trades at just 9.7x our estimates. European operations have been a drag on reported results. If, as we expect, European operations turn profitable, our estimates could well prove conservative.

We are focused on only one thing, finding the most compelling and attractive investments in the Micro to small cap space for our clients. Thank you for your support.