About March 2005 Performance

"Don't fight the Fed" - Unknown

"Rule number one of investing is never lose money. Rule number two is never forget rule number 1" - Warren Buffet.

These two quotes come to mind as we wrap up March and the first quarter. First, it has long been sage advice that trying to make money in stocks as the Fed is in a tightening cycle is difficult, and recent results bear this out. While the Fed only controls short-term rates, normally we expect long-term rates to follow. That they have not up until recently, has been quite an anomaly. Since hitting a near term low of around 4% in early February, the 10 Year treasury is now up 50 bps.

As yields on bonds become more attractive, we would expect funds to shift out of stocks and into bonds. Indeed, the first quarter ends with the S&P declining 2.6%. Moreover, higher interest rates tend to hit the more speculative stocks, whose prospective cash flows are farther in the future, even harder. For example, the NASDAQ is down 8.1% for the first quarter.

For this reason, we think our picks are exceptionally well positioned for relative outperformance in the 2nd quarter. We tend to recommend stocks with positive and growing free cash flow and low valuations. This is where the second quote comes to mind. In an environment where stocks are likely to decline, we want companies that have a margin of error built into their valuations. Our rigorous focus on fundamental intrinsic value has helped us avoid losing money even as the indices have declined. Indeed, our list of stocks put in yet another month of outperformance in March beating the S&P 500 by 1.9%. For the first quarter, our recommended list is up 5.2% versus the S&P500's 1.9% decline, for a 7.24% alpha.

For a change this month, rather than talk about which stocks helped our hurt our performance, I'd like to highlight a few of those stocks with the most room to our analyst's price targets. Acme United (ACU:BUY) remains one of our favorite picks. After a spectacular run for most of lat year through early March, the stock has given back some of its recent gains, on no news, down 20% in March. It currently sits 80% below our $25 price target. This is a great opportunity to build a position.

United Guardian (UG:BUY) is another stock we'd highlight, sitting 60% below our $12 price target. While the company did report disappointing earnings, it has been aggressively returning cash to shareholders, first in a special dividend of $0.25/share last September, and more recently, hiking its regular dividend 20%.UG trades at just 12.3x our forward estimates.

Finally, Travelzoo (TZOO:SELL) remains one of our top short ideas. Despite having declined 42% from our initial short call at $94, we still believe the stock remains hugely overvalued. Our $23 price target implies an additional 58% decline from current prices and the recent jump in the shares, most likely on other's short covering, provides a great entry point. TZOO is a classic case of the kind of stock which should be hurt the most in a rising interest rate environment.

Subscribers will find much more inside. Why not sign up for a free one month trial? If you believe as we do, that most asset classes are overvalued, and we're in for mid single digit type returns on the major US indices, then successful stock picking will become even more crucial for market beating returns. Let us help you to a prosperous 2005. Happy trading.

About February 2005 Performance

"To the extent we have been successful, it is because we concentrated on identifying one-foot hurdles that we could step over rather than because we acquired any ability to clear seven-footers." - Warren Buffett

We kept our winning streak alive in February with another month of outperformance. The StockJock research list returned 2.8% for the month of February eclipsing the 1.76% return for the S&P 500. Results were lead by our short call on NVEC which dropped 26.9% as our analyst saw through the chip maker's hype. PARL put in another strong month, up an additional 11.5% and is now up 200% from where we launched on it last year. Our price target and rating on both PARL and NVEC are under review in light of this month's strong performance. HAMP, launched on February 4th with a BUY, also put in a strong month, up 8.3%.

As always, there were some disappointments. We dropped coverage of HGGR, but not before it dropped 15.9% on us. LINK was also down 15.9% on a negative preannouncement. Our analyst has downgraded LINK to HOLD following the news. The last big loser was ISNS which dropped 11.9% giving back much of last year's gains. In our opinion, ISNS remains attractively valued. Its results were exactly in line with our estimates and we remain a strong believer in the story viewing the pullback as another buying opportunity.

We launched on two new companies in February, Hampshire Group, Ltd. (HAMP) at the beginning of the month, and Amrep Corp. (AXR) at the end of the month, both with BUY ratings. Hampshire is a manufacture of apparel, especially sweaters, and Amrep has two subsidiaries, one in Real estate and another in magazine subscription fulfillment.

In addition to our stock picks, we hope you'll find our screens and other resources valuable as well. If you are looking for quick trading ideas, check out our Swing Trades (Hyperlink) screen based on technical analysis. Value investors, check out our Mid Cap GARP screen (Hyperlink). Contrarians, looking for that list of stocks with endless success already baked into its price? Look no further than our list of "Cocktail Party" (Hyperlink) stocks.

Subscribers will find much more inside. Why not sign up for a free one month trial? If you believe as we do, that most asset classes are overvalued, and we're in for mid single digit type returns on the major US indices, then successful stock picking will become even more crucial for market beating returns. Let us help you to a prosperous 2005. Happy trading.

January 2005 Director's Letter

Director's Letter
January 2005

January was another great month for Singular's research picks. Our research list was up 2.64% versus a 2.34% decline in the S&P 500 leading to an almost 500 basis point outperformance.

Performance was broad based, driven by strong performances from Travelzoo Inc. (TZOO:SELL) Adam's Energy (AE:BUY), Hansen Natural Corp. (HANS:BUY), Acme United Corp. (ACU:BUY), and American Physicians Service Group Inc. (AMPH:BUY).

Travelzoo Inc. dropped an eye popping 39.3% during the month as investors realized the company could never grow free cash flow fast enough to meet the expectations imbedded in the stock price. However, even at $58, TZOO still trades at a forward PE of 70, and a trailing PE of 174 and still has a way to go to our price target of $23.

Adam's Energy not only rose over 20% in January, but is up another 17% so far in February. The stock still has another 20% to our $30 price target. Hansen was up 12.3% in January and now exceeds our $32 price target. Since we initiated on Hansen with a BUY rating the stock is up 71%. Our rating is under review. Acme United put in another good month, up almost 9% as a competing firm put ACU on its list of  to watch. ACU is up 90% since we launched with a BUY rating last year. Finally, AMPH was up 8.6% in January.

Of course not every call worked out. Image Sensing Systems (ISNS:BUY) was down 11.3% despite being picked as a "Hidden Gem" on the Motley Fool, a month and a half after we launched on it. Our $18 price target implies another 20% gain from current levels. Our calls on Interlink Electronics (LINK:BUY), CPI Aerostructures (CVU:BUY), NVE Corp. (NVEC:SELL) were down 10.8%, 10.6%, and 10.8% respectively.

In addition to our stock picks, we hope you'll find our screens and other resources valuable as well. If you are looking for quick trading ideas, check out our Swing Trades (Hyperlink) screen based on technical analysis. Value investors, check out our Mid Cap GARP screen (Hyperlink). Contrarians, looking for that list of stocks with endless success already baked into its price? Look no further than our list of "Cocktail Party" (Hyperlink) stocks.

Subscribers will find much more inside. Why not sign up for a free one month trial? If you believe as we do, that most asset classes are overvalued, and we're in for mid single digit type returns on the major US indices, then successful stock picking will become even more crucial for market beating returns. Let us help you to a prosperous 2005. Happy trading.