Singular Research Director’s Letter: August performance 2020

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Singular Research Director’s Letter: August performance 2020

 

In August, there have been signs of hope in slowing cases and decreasing deaths in the Corona virus pandemic fight.  Specifically, in the U.S., New York city saw infection rates below one percent for three consecutive weeks, and California, the state with the most Corona virus cases, saw its seven day moving average for new cases per day reduce from 7,800 on August 1 to 5,200 by August 31.  However, as schools re-open, there has been considerable debate as to the most safe and effective way possible.  Interestingly, on August 15, Russia came out with a vaccine; however, the safety and effectiveness of this vaccine is not well understood.  

The story in the stock market was mega cap technology momentum.  The top five companies by market cap in the S&P 500 are Apple, Microsoft, Amazon, Facebook, and Google.  These five companies alone make up roughly one quarter of the index.  So, when these companies have favorable momentum to the upside, the index will also have an upward skew.  Investors continued to buy regardless of any factual news; a good example of this behavior was on August 31 when Apple’s shares traded post-split.  The shares were up 3% at the start of the day simply because the share price was cheaper.  This momentum buying suggests an overextended market with the S&P 500 forward P/E ratio at 21.9, above the historical average of 19.4.

The August Purchasing Managers Index® (PMI) rebounded to expansion territory, registering 56.0 percent, an increase of 1.8 percentage points from the July reading of 54.2 percent.  Similarly, the Conference Board Leading Economic Index® (LEI) increased 1.4 percent in July to 104.4 (2016 = 100), following a 3.0 percent increase in June and a 3.1 percent increase in May.  Both the PMI and LEI gained strength from July and investors saw optimism in the results.  The unemployment rate fell to 10.2% in July (11.1% in June) as businesses have started the rehiring process.  The August unemployment rate was not available at the time of this writing.

singular monthly performance aug 2020

For the month of August, the Singular coverage list underperformed the S&P 500 and the Russell 2000 by 733 and 582 basis points, respectively.  Year-to-date, the Singular coverage list has underperformed the S&P 500 and the Russell 2000 by 1,984 and 543 basis points, respectively.  Throughout Singular’s sixteen-year performance track record, there have been many periods of over and underperformance relative to the S&P 500 and Russell 2000.  We want to emphasize that the month of August was an impressive month for the Dow and the S&P 500, both posting their best August returns in 36 years as investors were most likely encouraged by slowing Corona virus cases and vaccine progression.  We do not want this month to blur Singular’s since inception performance which has outperformed the S&P 500 and Russell 2000 by an annualized 195 and 254 basis points, respectively. 

top 5 performers aug 2020

For August, MGNI had a strong month as the company had its first quarter of combined financials from RUBI’s merger with TLRA.  MGNI reassured investors that the new company’s growth plans were not over-exaggerated as management saw MGNI’s CTV business grow 50% YoY.  Similarly, SAMG had a strong month as earnings and assets under management continued to grow even during tough conditions.  LUNA also reported a strong quarter and reaffirmed year-end guidance.  Finally, QNST posted better-than-expected earnings results and is narrowing their focus on more profitable business segments; QNST divested its mortgage and education client verticals.

worst 5 performers aug 2020

VIVO was our worst performer for the month even though the company reported record earnings results; on VIVO’s earnings call, management pointed to lower demand in the fourth quarter as supply chain issues led companies to secure more inventory in the third quarter.  SALM was another weak performer as the company had weak quarterly earnings with revenue and EBITDA decreasing 18 and 72% YoY, respectively.  ZM, a short position, posted a record quarter with revenue up 355% YoY. 

For August, we did not have any new initiations.

We wish to thank our clients for their support and belief in our process.  To learn more about Singular Research and register for a 14-day trial offer, please follow the link below.  

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Thank You

Robert Maltbie, CFA
Singular Research, President
818-222-6234(office)
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