MMI March 2019
(Below 50 is bearish, above 50 is bullish)
Is this a bull rally in a bear market? Until markets indices make new highs and breadth improves, we are still technically in a bear market. Less than 50% of all stocks are still below their 200 day moving averages, reaching a high of 46% recently. The S&P 500, having experienced a failure to penetrate 2820 several times since last September is attempting to break this level again. At a 51 score, there is not much conviction that a breakout will occur this time. Save a surprise trade deal with China, near term catalysts are not clear cut.
S&P 500 stalling at 2820
Market sentiment :negative this indicator is slightly bearish, the bull/bear ratio below 1x, is our only positive sentiment indicator while Citibank’s Greed / fear indicator is mild but still slightly too zealous. The VIX and VXN in at mid-teens, not at last summer’s complacency levels but reflecting a bullish attitude. Bond spreads are normalized again and TRIN/ARMS index are mildly overbought. MACD shows upside momentum is waning.
As S&P 500, QQQ and DJA averages are above 200 day moving averages, confirmed by unweighted S&P 500. Meanwhile, the Russell 2000 small cap index was just turned back below its 200 day moving average.
QQQ above its 200 day Moving average
The mystery of what sources of funds has powered to rally off the Christmas Eve bottom remains to be wholly solved, but it looks like a combination of share buybacks, inflows from money markets funds and some short covering were the catalysts. This indicator shows only $4-5 billion of net inflows over the last four weeks. This is below our minimum threshold of $20 billion to generate a bullish reading. Contributing positive factors are 1) a high level of money market assets, currently over $3.3 trillion, representing over 12% of total US equity market cap and 2) closure of IPO & SPO markets due to the recent government shutdown which prevented SEC review of these offerings.
Valuations : Positive
Based on 2019 S&P 500 eps estimates, the market is +/- 5% of fair value at 16x. The ftm eps yield is 6.09% vs BAA corp. Bond yield of 4.95% protecting the argument that growth is undervalued.
The market is slightly above fair value vs GDP at 1.42 x and replacement value is not cheap at approximately 1.2x. Assuming a PE at parity of bond yields, discounted by 10% multiplied by eps of $169 for 2019, which assumes a modest + 3.5% eps increase, we derive 3070 as fair value, this represents +12% total return potential.
Earnings momentum: Negative
We are uncomfortable with the assumption that the “market” has priced this in at press time. Most revisions are trending steadily down. Q1 2019 eps has been cut by 6.6% to a -3.4% estimate for Q 1 2019. Negative guidance on individual company estimates is -74% vs. a historical -71% average. It is the largest y/y decline since q2 2016. Similarly, the market bottomed ahead of this in Feb 2016. Q2 2019 eps estimates is +0.2%, with revenues +4.6%, Q3 2019 eps estimate is +1.7% with revenues +4.5%, Q4 2019 eps estimate is +8.1% with revenues +4.8%. CY 2019 e is + 3.9% with revenues + 5.0%. CY 2020 eps is forecast at a robust + 11.5%. Meanwhile, net profit margins continue to rise, from 10.7% of revenue in q4 2017 to 11.4% in q4 2018. The largest sector declines in eps in q1 2019 are expected in energy, materials, technology and info tech. The source of the slowdown is Europe and Asia, while domestic US companies are expected to be positive +6%. Fully 38% of S&P 500 revenues are derived from abroad.
Monetary Indicators: Positive
Our proprietary excess liquidity indicator is now bullish, showing a Fed that is again stimulating the economy. Our excess liquidity indicator, which compares monetary growth adjusted for velocity vs GDP weighs in at +115 bps. The yield curve spread ratio, comparing the 2 year treasury to the 10 year treasury is .95 which is still positive, below 1 but very flat at only +12 bps. High yield is just a hair below attractive at +396 bps to the 10 year treasury. +400 bps is considered attractive. Finally, as mentioned, the level of liquidity representing potential buying power in money market is over $3.3 trillion or nearly 12% of total domestic equity value. Over 10% is generally bullish.
Addendum to the 1%
Underscoring a call for higher taxes and wealth redistribution are these data points: Median Household income in 2000 = $61,279 vs $ 60,714, in 2018 adjusted for inflation. And a lower proportion of public equity as % of total net worth at 29% vs 40-45% in the 70-& 80’s, reflecting the effects of more wealth being owned privately.
Robert Maltbie Jr. CFA
ROKU Q4 update: Increasing our price target
Singular Research Director's Letter: November 2018
November 2018 Director’s Letter
The Correction Deepens
The market continued its sell off despite a couple strong rebound attempts. The China trade war fears and fed tightening continued to loom ominously over the market as investors de-risked and reduced exposure to equities.
Major market indices such as the S&P 500 in the DJIA struggled to stay in positive territory as the yield curve continue to flatten, triggering a recession fear sell-off as the three-year bond inverted above the five-year bond. Save a slightly tepid employment reports most economic series continued to display strength. But, as we know, the market is a forward-looking indicator, portending trouble ahead for 2019.
Top performers for November
Bottom performers for November
We initiated coverage with a buy on Olympic Steel, (ZEUS), an operator of U.S based metals service centers with a growing focus on higher value- added, engineered products. We are very constructive on long term prospects for this beneficiary of Trump’s steel tariffs.
We wish our clients and friends and their families a joyous holiday season and thank all our subscribers for their continued support.Singular Research Staff
Singular Research Director's Letter: October 2018
October 2018 Director’s Letter
Lowlights: a triumvirate. of negatives overcomes bull market
Nowhere to hide from the claw of the bear, or the wrath of the Fed. The new Fed chief Powell indicated that the Fed plans on more hikes this year and next, a hawkish tone that spooked investors in October. The sell -off was deep and swift knocking most major indices approximately 10%, and individually issues 20-30%. The FAANG was hit hard for a 20% drop
Investors are concerned about trade wars and declining earnings momentum as S&P500eps growth is expected to taper from 15% to 5% over the next two quarters. Meanwhile, GDP continues to steam ahead at 3.5% GDP growth in Q3.
OUR INTERNAL MARKET INDICATORS ARE MILDLY BULLISH
Singular best & worst in Oct.
Underscoring the bearish environment in October the best/worst list dominated by negative returns.
Thank you for support.of our quest to discover forgotten,forlorned and mispriced, undercovered small and micro cap equities. We look forward to finding much more attractively valued coverage candidates in the months ahead. Happy holidays !
Singular Research Staff…
Singular Research Director's Letter: September 2018
September S& P 500 defying gravity
In September, U.S. equity markets bucked the historical trends and another rate hike by the Fed while edging slightly higher. However, the Russell 2000 index and the Singular Research coverage list were both slightly lower in September.
Perhaps distracted by the battle regarding the Kavanaugh appointment, it seems many market participants didn't read the fine print in the FED minutes showing a shift to a more hawkish stance toward raising rates very soon.The Fed hinted at up to five more hikes between now and the end of 2019, actions that may appear to be too aggressive. And a tone that likely as of this writing in mid-October has initiated a sharp correction in US Equity markets.
Our top performers for September were an Eclectic group of stocks.
The list was led by Seabridge Gold (SA), up 14.6% benefiting from a recovery and a possible bottoming of gold related equities in September. Our second top performer was Olympic Financial (OLY .TO) up 14.3%. Olympic was bolstered by a better-than-expected earnings report spurring our analyst to his raise his price Target.
Are third best top performer was Emerging Biosolutions ( EBS), up 6.2%. Emergent benefited from the announcement of a significant acquisition marking their entrance in the opioid treatment business acquiring a top private company with a remedy for overdoses called Narcan.
Singular three bottom performers were led by Huttig Building Products, (HBP), off 18.5% Huttig was hurt by the recent hike in interest rates which slows down demand for housing. Our second worst performer was Harvard Bioscinces, (HBIO), down 11.8%. Harvard appeared to be impacted by uncertainties caused by the departure of its CFO and light profit-taking. Are Third worst performer was Salem Media Group (SALM) down 11-75. Salem has been struggling most of the year adjusting is portfolio of stations ridding itself of lower-performing stations while focusing on top performers.
We hosted our Midwestern values conference in Dallas on September 20th featuring ten exciting growth and value ideas. In attendance were top local and regional fund managers, the conference was viewed as an outstanding success.
We thank our clients for their support and input as we move forward in the fourth quarter and toward what we believe will be a strong finish to 2018.
Market Indicators & Strategy Report Feb. 1, 2015
Singular Research Director’s Letter : August 2018
An Unheralded Record
Singular list tops S&P 500 but lags Russell 2000 in August.
Trailing 12 Mo’s
Meanwhile, the S&P 500 set a record for duration of a bull market exceeding 10 years. In August, measured from its lows at 666 this represents an eye-popping 330 % return.
However, if you were among the unfortunate whom invested in the tech bubble in the year 2000 when the S&P 500 floated at the 1500 level your returns are a much less impressive + 90%. Or a price appreciation of about 4% per year.
Despite near-record optimism and employment on top of a record bull market, professional money managers believe this is the peak. More than 58% of them believe that 2019 will be a down year.
Many seem to be underestimating the earnings power that has been unleashed by tax cuts and deregulation.
TOP 5 PERFORMERS FOR THE MONTH
|Beat & raise, provides year end guidance|
|Beat & raise, raises year end guidance|
|Rebound from post eps report sell-off|
|Makes announcement of large acquisition|
|Better than expected revenues|
In August, our top performer was Control 4 (CTRL) + 27.4% an emerging leader in smart home technology topped earnings forecasts and guided for solid numbers into 2019. NV5 (NVEE), popped + 17.5%. NV5, an environmental and energy Focused E&C firm topped expectations and guided higher. NVEE, one of our top picks over the last two years nearly tripling. New initiation, Quinstreet, a leader in digital marketing (QNST) ticked up 14.4%.
WORST 5 PERFORMERS FOR THE MONTH
|Gives back prior month’s gain on weak earnings report|
|Misses estimates ,higher than expected costs|
|Aum outflows offset small acquisition|
|Lower backlogs projected|
Salem Media (SALM) lead to the downside falling – 22.2%, reversing much of the gains from the previous two months as earnings disappointed again. Banco Latino Americano (BLX) was off 13% as lower spreads from higher interest rates hurt net income. HNNA fell 7.4% as continued Capital outflows pressured earnings.
Please join us September 20th in Dallas for our Midwestern values conference where will be focusing on several of the names mentioned above and other under covered, under followed and misunderstood situations that we believe can perform exceptionally well over the next 12 months. Visit www.singularresearch.com
At singular research we wish to thank our clients and followers for their continued commitment and support of our unbiased Independence research.
Singular Research Staff