Singular Research Director’s Letter: June performance 2020

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Singular Research Director’s Letter: June performance 2020

 

 In the first half of June, states continued to reopen, but those that reopened early and had relaxed their social distancing guidance faced an exponential increase in new cases and hospitalization rates.  On June third, Texas reopened bars, indoor seating at restaurants, and gyms when there was roughly 1,400 new cases per day; however, Texans did not follow correct social distancing habits, leading to the escalation of new cases to nearly 6,000 per day on June 26, which then forced Governor Greg Abbott to again close bars and other businesses that had once reopened.  By the end of the month, new cases in Texas had reached 8,000 per day.  Other states such as California, Arizona, and Florida have seen dramatic increases in new Corona virus cases.  However, new deaths from the Corona virus have not been as pronounced as they were in New York City which leads many to believe that we are now in a new stage of the Corona virus battle.    

The June Purchasing Managers Index (PMI®) rebounded to expansion territory, registering 52.6 percent, an increase of 9.5 percentage points from the May reading of 43.1 percent.  Similarly, the Conference Board Leading Economic Index® (LEI) increased 2.8 percent in May to 99.8 (2016 = 100), following a 6.1 percent decrease in April and a 7.5 percent decline in March.  Although both the PMI and LEI are still in a weak state, investors saw optimism in the results as they showed sequential growth.  The unemployment rate fell to 11.1% (13.3% in May) as businesses have started the rehiring process.

 For the month of June, the Singular coverage list outperformed the S&P 500 and the Russell 2000 by 232 and 76 basis points, respectively.  Year-to-date, the Singular coverage list has underperformed the S&P 500 and outperformed the Russell 2000 by 806 and 127 basis points, respectively.  Over the last twelve months, the Singular coverage list has underperformed the S&P 500 and outperformed the Russell 2000 by 851 and 451 basis points, respectively.  As new Corona virus cases dramatically increased from states relaxing social distancing measures, markets wavered in June.  Investors were enthusiastic over an increase in general economic activity and did not appear to favor one specific sector.

top 5 performance june 2020

 The month of June’s performance was based mainly on positive investor sentiment of economic reopening throughout the United States.  All five of our top performers had no major press releases to identify a reason for growth; however, the top five performers are all based in the U.S. and Canada.  Investors with long term vision are looking past the Corona virus and are investing in domestic companies like SALM and IEC that will not be affected by further trade tension with China.  Furthermore, SA is a safe haven play in case of times of increased economic uncertainty while HBIO and ANIK are investments that are tied to positive outcomes with Corona virus treatments. 

ZM, a short position, was our worst performer for the month as the company reported great results with revenue up 169% year-over-year and a 354% increase in new customers.  We continue to believe that demand and usage of the ZM platform will wane as the Corona virus fades and other companies enter the cloud-based video communications market.  EHTH had a rough month after being a top performer in May.  The company issued a report that the average unsubsidized family of four could face average annual deductibles and insurance premiums of $25,000 in 2020, which could lower the demand for EHTH’s product. 

For June, we initiated coverage on Meridian Bioscience (VIVO).  Meridian is a fully integrated life science company that develops, manufactures, markets, and distributes a broad range of innovative diagnostic products.

june 2020 new initiation

 

 

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Thank You

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