IEC Electronics Corporation (IEC:DROP) Terminating coverage in order to focus resources elsewhere.

IEC Electronics Corporation (IEC:DROP) Terminating coverage in order to focus resources elsewhere.

22-APR-14 – IEC Electronics Corporation (IEC:DROP) Terminating coverage in order to focus resources elsewhere.

KEY POINTS

  • We are terminating coverage at this time.

Edgewater Technology (EDGW:DROP) EDGW shares have risen above our prior price target of $8.10.

dgewater Technology (EDGW:DROP) EDGW shares have risen above our prior price target of $8.10.

21-APR-14 – Edgewater Technology (EDGW:DROP) EDGW shares have risen above our prior price target of $8.10. With no discernible justification for an increased price target at this time we are closing out our coverage.

NOTES

  • EDGW shares have performed very well in recent days, topping our price target.
  • Recent trading activity is not due to any material news that we are aware of, nor do we see any justification for an increase to our price target at this time.
  • With EDGW shares above our previous price target of $8.10, we are closing out our coverage as we do not maintain “neutral” or “hold” rated recommendations.
  • We include our most recent financial model in this report for reference purposes only.

RISKS 

  • Company has completed its high-margin PI2 contract and does not have a replacement on the horizon.
  • Revenue trends are volatile and change rapidly.

Abbott Laboratories (ABT:SELL) Sales falling faster in Q1:14 due to weakness in multiple segments.

Abbott Laboratories (ABT:SELL) Sales falling faster in Q1:14 due to weakness in multiple segments.

17-APR-14 – Abbott Laboratories (ABT:SELL) Sales falling faster in Q1:14 due to weakness in multiple segments.
Trend highlights continued product troubles and unfavorable
currency movements. Earnings ahead of estimates; however,
almost half of total due to upward adjustments. Slowing topline
combined with limited catalysts continues to support SELL rating. 

ABT HIGHLIGHTS

  • Overall revenues were down (2.5)% on weak performance in Established Pharmaceuticals (6.6)%, Nutrition (4.0)%, and Medical Devices (1.2)%. Only Diagnostic segment saw positive revenue growth of
    2.6% vs. Q1:13.
  • Adjusted earnings of $0.41 were ahead of Street estimates of $0.36 and our
    forecast of $0.40. Q1:13 adjusted EPS was $0.42. GAAP earnings were $0.22.
  • In our opinion, adjusting for intangible amortization, gross margin, R&D, SG&A, Other Income, and taxes for yet another quarter is excessive and provides limited credibility to the adjusted result.
  • Q1:14 adjusted operating margins were higher largely due to several expenditure delays in R&D and SG&A totaling $60 million.
  • US Diabetes Care fell (28)% in the quarter due to the initiation of Medicare competitive bidding. This was partially offset by 14% growth in US Medical Optics helped by new products in the cataract market.
  • Other bright spots such as US Core Lab and International Molecular were both up 11%, but this was not sufficient to offset other noted declines.
  • Revenue trends have slowed incrementally each quarter from 2.5% in Q2:13 to now (2.5)% in Q1:14 suggesting the turn is still ahead.
  • Substantial adjustments to earnings are excessive and make it difficult to discern margin trends, raising risk profile and supporting our thesis that shares are overvalued relative to the market.

Director’s Letter April 2014: Small Caps Hit and Air Pocket

Director’s Letter April 2014

Small Caps Hit and Air Pocket

March saw equities, and small cap stocks in particular, give up some of February’s advance.  While events in the Ukraine might be viewed as the primary risk point on the global stage, we view that as more of a coincident catalyst as small caps may have simply been due for a pullback.  Given the stellar performance in 2013 it is not difficult to view the market segment as needing some time to consolidate those gains relative to corporate fundamentals.  In that context, a sideways move with attendant back and forth swings around a flat-line is not hard to fathom.

Looking at key macroeconomic statistics, the most recent round of unemployment data indicated a positive downward trend continues.  Obviously such data needs to be viewed over a continuum and in concert with myriad other data points.  Even so, as we sift the data looking for clues on which direction the market may trend, growing employment could be one point supporting the notion that the market is consolidating before a next leg up.

For March, the S&P 500 was up 0.67%, the Russell 2000 was down 0.67% and the aggregate Singular List was up 3.8%.  For the trailing twelve months, the S&P was up 19.2%, the Russell 2000 was up 23.3%, and the Singular Research List was up 19.2%.

We initiated coverage on two companies during March, both with SELL ratings.  The first was Abbott Labs (ABT), which we initiated with a $30 price target, and the second was Syntel (SYNT), which we started with a $76 price target.

Screenshot 2018 02 26 22.58.05

Our top five performers in March include companies from a variety of industries.  The top performer was Vertex Energy, up 70.1%.  The company announced a significant, accretive acquisition followed by strong Q4:13 earnings.  Orion Energy was up 30.1%in March.  After reporting earnings in February there was no news to directly account for the solid performance leaving us to conclude investors are methodically warming to the story.  SELL-rated SolarCity was down 26.2%.  Absent any specific news, we attribute the decline to the overall weakness seen in many high-risk names in March. Bacterin was up 25.3%, following a similarly strong February, driven by a solid earnings report.  SELL-rated Pandora declined 18.9% as Amazon emerged as the latest threat in the music-streaming space.

Our worst performers in March are from a variety of industries and for differing reasons.  Despite the adverse moves in the near term, we believe our theses are sound on all of them, offering significant alpha from here.  Reed’s was down 26.3%in March.  The company reported earnings which disappointed although we feel the issues that weighed on earnings can be cured.  Global Ship Lease was down 18.1% despite the lack of an observable catalyst.  Seabridge Gold was also down 18.4% following a decline in gold for the month.  Arabian American Development was down 11.3% following the release of earnings early in the month.  Hudson Technologies was down 10.5% in March as the shares continued to slip following a nice gain last December following the EPA’s latest ruling on coolant phase out regulations.

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.

Sincerely,

Jeremy Hellman, CFA
Chief Operating Officer

Singular Research Director's Letter: March 2014, Headwinds Out of the Gate

Singular Research Director's Letter: March 2014

Headwinds Out of the Gate

After a poor start to the year, the market rebounded in February with the S&P 500 and Russell 2000 each recovering over 4%. The solid market performance points to an overall positive reaction to this round of corporate earnings and guidance coupled with favorable macroeconomic conditions.

Looking at key macroeconomic statistics, Q4:13 GDP came in at 2.4% versus the consensus estimate of 2.5%. This was down from 4.1% in the 3rd quarter and the advance estimate of 3.2%. While the number looks poor versus these comps, a significant unknown exists in the form of the impact that the unusually cold weather in much of the country had on the number. Market participants will naturally be looking to the Q1:14 estimate to gauge the weather impact although this quarter has also seen several spells of severe cold too.

For February, the S&P 500 was up 4.2%, the Russell 2000 was up 4.4% and the aggregate Singular List was up 2.4%. For trailing twelve months, the S&P was up 22.5%, the Russell 2000 was up 29.6%, and the Singular Research List was up 19.5%.

We initiated coverage on one company during February, Salem Communications (SALM), which we launched on with a BUY and a $13 target price (versus a price at initiation of $8.38).

Our top five performers in February include companies from a variety of industries. The top performer was Edgewater Technology, up 27.6%. The company had a strong earnings report marked by accelerating service revenue and improved gross margins. SELL-rated Angie’s List was down 22.5%in February (for a positive return on our recommendation). The company reported disappointing membership additions and increasing churn. Flexsteel was up 20.5%, also the result of a solid earnings report which noted continued record sales. Bacterin was up 21.2%. Although the company is not due to report earnings until March, management presented at multiple conferences, likely fueling increased interest in the shares. Anika Therapeutics was up 18.3% as its Arthritis drug Monovisc was approved by the FDA.

Our worst performers in February are from a variety of industries and included one of our SELL-rated companies. Despite the adverse moves in the near term, we believe our theses are sound on all of them, offering significant alpha from here. University General Health System was down 36.6%in February. The company reported earnings early in the month while also getting up to date on its financials but the shares faded nonetheless. NetSol Technologies was down 16.1% as the market was disappointed with the company’s earnings report. Orion Energy Systems was also down 16.0% following its Q3:14 earnings report. Aceto was down 14.2%, continuing the trend of companies seeing negative reactions following earnings. SELL-rated Solar City was up 14.6% in February. The company had several announcements which lent a positive bias to the shares.

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.

Sincerely,

Jeremy Hellman, CFA
Chief Operating Officer

Director’s Letter February 2014: A New Year Brings a New Equity Market

Director’s Letter February 2014

A New Year Brings a New Equity Market

As is always the case, opinions ran the gamut on whether the market could continue the strong run it had in 2013, with the preponderance of opinion seeming to side with the thought that markets were due for a breather. Particularly in the case of small caps, which comprise the overwhelming majority of our coverage universe, there was a decent likelihood that shareholders sitting on sizable gains may have been waiting for January to lock in gains. By doing so the resulting tax impact is deferred a year, which, given the big year that was 2013, may be consequential for many.

Beyond that issue, concerns over emerging markets coupled with the FED looking to stay with the course with its tapering of QE have also acted to depress equity markets. Even so, we remain of the opinion that the US economy will continue to expand, with the most recent Chicago PMI lending credence to this thought.

 For January, the S&P 500 was down 3.4%, the Russell 2000 was down 2.7% and the aggregate Singular List was down 7.0%. For trailing twelve months, the S&P was up 19.0%, the Russell 2000 was up 25.4%, and the Singular Research List was up 17.3%.

We initiated coverage on with two companies during January, Orion Energy Systems (OESX) and Flexsteel Industries (FLXS). We launched on OESX with a BUY and a $10 target price; FLXS with a BUY and $42.50 target.

Our top five performers in January include companies from a variety of industries. The top performer in January was Seabridge Gold, up 11.0%. With the company having no news during the month, the share price improvement was likely due to a rise in gold prices during the month. Bacterin was up 10.5%in January. The company recently announced preliminary results for Q4:13 which point to a return to growth. Cover-All Technologies was up 9.3%. Shares continued to maintain an uptrend that has been in place since early fall. Nova Measuring Instruments was also up 9.3% in January. The company announced $20mn of new business awards. PhotoMedex was up 7.4% for the month, continuing a rebound from December 2013 lows.

Our worst performers in January are from a variety of industries and included two of our SELL-rated companies. Despite the adverse moves in the near term, we believe our theses are sound on all of them, offering significant alpha from here. SELL-rated Pandora was up 35.6%in January. While there were no financial updates from the company during the month, positive chatter looks to have served as a catalyst. Solar City was also up 30.3% for a negative return on our SELL rating. The stock is very volatile and continues to have significant short interest, lending the shares to large up and down moves in the short term. University General Health System was down 23.0% in January. With no news from the company we attribute the slide to the overall negative month for the broader markets along with the company’s continued delay in filing financials. VOXX was down 20.0%. The company reported Q3:14 results in the first half of the month which included reduced top-line guidance, although EBITDA guidance was increased. LSB Industries was down 19.2% in January. The company reported that it will be taking down an anhydrous ammonia plant due to safety concerns.

As we move into the 2014, 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.  With the Fed tapering in 2014 and concerns about growth in China, we anticipate 2014 to be a stock pickers market. We thank our clients for your support of independent equity research.

Sincerely,

Jeremy Hellman, CFA
Chief Operating Officer

Director’s Letter January 2014: A New Year Brings a New Equity Market

Director’s Letter January 2014

A New Year Brings a New Equity Market

After a strong finish to 2013, the equity markets initially took pause at the beginning of the year, and have recently begun to sell off more indiscriminately. Has the world changed that quickly? We don’t believe so, but perceptions change, and valuations metrics did not describe much upside to the market averages in 2014 even as Wall Street strategists were bullish. We anticipate more volatile equity markets this year but not an end to the bull market. US economic growth is poised to lead the world, and small cap companies with a focus on the US are likely to perform well in 2014.

The employment data for December took a respite from its strong performance in prior months, but we do not perceive this as a harbinger of weakening growth. We anticipate the Fed will continue to cut back on quantitative easing, driven by its belief the US economy is healthy enough to stand on its own. We do not believe the reduced monetary stimulus will be detrimental to the US economy, but equity markets typically respond to such policy changes with more volatility. The underlying strength of the US economy is evident by the positive US Manufacturing PMI and general health in retail sales.

The_Index_2014_01_clip_image001

For December, the S&P 500 was up 2.4%, the Russell 2000 was up 1.8% and the aggregate Singular List was up 4.2%. For calendar 2013, the S&P was up 29.6%, the Russell 2000 was up 37.1%, and the Singular Research List was up 33.9%.

We changed the rating on one name in December. We increased our rating on Hudson Technologies (HDSN) to BUY from BUY-LT as a result of the proposed EPA rulings for virgin R-22 allocations for 2015 through 2019. The proposal was far more favorable for HDSN than we had expected, and our analyst has increased the price target.

Our top five performers in December include companies from a variety of industries. The top performer in December was LSB Industries, up 27.9%. The company has noted that production utilization is increasing and the stock is rebounding after reporting a weak Q3. Reed’s was up 22.8%in December. The company has announced agreements with additional retail chains in the past few months that significantly broaden distribution of its premium products. Bacterin was up 21.9% in December. The company recently hired a new CEO with a marketing focus and is re-vamping the sales force. Arabian American Development was up 21.6% in December. The company reported a strong Q3 and our analyst has increased estimates for 2014. Newtek Business Services was up 19.9% in December. The company has exceeded its previous goal for loan servicing assets in 2013.

Our worst performers in December are from a variety of industries, and we believe they all have significant upside from here. University General Health Systems was down 17.0%in December. The company missed its self-imposed target to complete its tardy SEC filings, but outlined healthy trailing EBITDA and growth prospects in a recent conference call. Angie’s List was down 16.4% as a short. The stock has bounced after a strong decline and news about the partial nature of its web based information is expected to drive higher membership churn rates. Rocky Mountain Chocolate Factory was down 13.4% in December. The company has reported good quarters recently and international licensing activity is improving. Nymox Pharmaceutical was down 13.3%. The company recently completed the first half of its Phase 3 clinical trials for BPH, but information from this study may not be released until the second half is completed in April 2014. INTL FCStone was down 11.1% in December. The company benefits from greater volatility in agricultural commodities and metals, which is likely to increase in the coming quarters.

As we move into the 2014, 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. With the Fed tapering in 20104 and concerns about growth in China, we anticipate 2014 to be a stock pickers market. We thank our clients for your support of independent equity research.

Sincerely,

Greg Garner, CFA
Senior Equity Analyst

New Year, Same Fears, New Market Direction

New Year, Same Fears, New Market Direction

After completing a year where it was difficult for equity investors to post positive returns, we enter 2012 with the same macro issues that affected 2011 equity markets.  Concerns over European sovereign debt are likely to remain for most of 2012, albeit with slow progress.  Countering this are attractive valuations for US equities.  Add in a presidential election year with its potential for policies supporting economic growth and we have a mixture that can swing investor sentiment.  The volatility caused by these and other macro items in 2011 resulted in negative returns for the small cap indexes.  Our focus on bottom-up fundamental analysis enabled us to post positive returns that were significantly above our benchmark.

We expect Europe to muddle through their debt issues in 2012, which may cause a mild European recession this year.  But we are more confident than ever that a US double dip will not occur.  Supporting our positive thesis on the US economy is the stronger than expected labor report for December.  Although traditionally a lagging indicator, in this weak recovery marked by slow labor growth, any positive labor trends in hours worked and new job creation provide the fuel for improving consumer behavior.  Positive consumer activity has been generally weak in the economic recovery from the Great Recession, and that is why we look at changes in consumer sentiment for insight into changing consumer behavior.

As the chart above indicates, consumer sentiment is close to post recession highs after recording a low in mid 2011.  With fewer new unemployment claims, those employed are witnessing less layoffs; and after tightening household budgets for the past few years, we expect higher growth in consumer spending during 2012.  However, given the high unemployment rate, such a change in consumer activity is likely to be imbued with setbacks.  Ahhh, more fuel for volatile investor sentiment this year.

We expect the major driving forces for equity markets in 2012 to be the improving US economy with greater consumer participation, the potential for job creating economic policies and strength in non-European trading partners.  We may even witness the passing of the European debt concerns in the second half of 2012.

We are delighted to post performance of 664 basis points above the Russell 2000 benchmark in 2011, for our fully invested Singular List model portfolio.  Two names on the Singular List were acquired in 2011, and many outperformed due to better than expected earnings.  For December, the S&P 500 was up 0.85%, the Russell 2000 was up 0.47% and the aggregate Singular List was down 2.3%.  The Long-Only Singular List was also down 2.3% in December.  For 2011, the S&P500 was virtually flat at -0.02%, the Russell 2000 was down 5.5% and the aggregate Singular List was up 0.82%.  The Long Only Singular List was up 1.2% in 2011.

We added one new name and dropped one name from the Singular List in December.  We dropped coverage of BioSante Pharmaceutical (BPAX) after release of disappointing results from the Phase 3 clinical trials.  The new compound worked as expected, but the placebo effect was very strong such that the likelihood of FDA approval was significantly diminished.  Other compounds under development for cancer indications are more than a year from the initiation of a Phase 3 clinical trial.

We initiated coverage of PhotoMedex (PHMD) with a BUY rating.  PHMD designs and manufactures laser and light based products for use in healthcare and personal care.  The company has been successful in the professional healthcare market and has merged with Radiancy, which has similar technologies but is very successful in the consumer market.  We expect the product synergies along with complimentary end-market expertise will lead to new innovative new product development and consistent revenue growth.

Our top five performers in December were from a variety of industries, and most beat recent earnings estimates.  The top performer in December was Synovis, up 47.7%.  Earnings were well above our analysts forecast and the company agreed to be acquired by Baxter and traded up to the acquisition price.  Arabian American Development was up 30.5% in December.  Revenues and earnings in Q3 were both well above our analysts’ forecast, and the new mining operation remains on target.  Our analyst increased the price target.  Orchids Paper Products was up 21.3% in December.  Revenues and earnings were stronger than expected in Q3, and the company raised the dividend.  REX American Resources was up 20.3% in December.  Q3 earnings beat our analyst’s expectations on lower than forecasted revenues.  Cover-All Technologies was up 20.0% in December.  The company missed our analysts earnings forecast in Q3 due to a delay in booking license revenues.  The company remains well positioned for a strong 2012 with the growing pipeline of license revenues.

Our worst performers in December were from a diverse set of sectors.  BioSante Pharmaceutical was down 81.3%.  The company reported Libigel clinical study results that met expectations, but the placebo effect was very strong.  As a result we do not expect FDA approval and we dropped coverage.  CrowdGather was down 35.3%.  Earnings met our analyst’s estimate in Q3 and website traffic increased 20% from Q2.  Seabridge Gold was down 29.3%.  The company missed our analyst’s Q3 earnings estimate due to non-cash charges.  Seabridge recently completed a compliant resource estimate at one project, resulting in an 18% increase in indicated gold resources.  PhotoMedex was down 16.5%.  The company announced completion of the merger with Radiancy.  OYO Geospace was down 15.0%.  The company reported earnings below our analyst’s expectations in its Q4.  Our analyst remains positive on the company given the new wireless GSR product and strong demand for efficient seismic work in the oil & gas industry.

Our top five performers for 2011 were Arabian American Development, up 117.4%; PriceSmart was up 83.0%; Synovus was up 72.8%; US Home Systems was up 57.6%; Market Leader was up 56.3%.  We continue to look to improve our equity research performance, and as we enter 2012, we perceive attractive valuations for a number of companies in a variety of sectors.  We are diligently completing our work to present these names in the first quarter.  We believe the European debt concerns have caused market valuations to remain low, and we expect economic growth in the US to tick up during 2012.  We expect there may be several potential positive surprises in 2012 including better than expected US growth, improving consumer and manufacturing activity, eventual resolution of European debt issues, and better than expected growth in China.  We look forward to another year of above benchmark performance, and we thank our clients for your support of independent equity research in the small cap space.

Sincerely,

Greg Garner, CFA

Senior Equity Analyst