Singular Research List up 2.2% Despite Falling Energy Prices, Plus Two New Initiations
The big story in September was falling energy prices. After a huge run-up in the price of both oil and natural gas over the last couple of years, September saw a retrenchment. After getting as high as $15 at the end of last year, natural gas futures contracts now trade a tad above $6. Oil, after reaching almost $80 a barrel, has now dropped back to below $60. While falling energy prices are great for the economy, they did take a toll on our energy stocks, accounting for three of the four worst performing stocks on our list in September. Overall, the Singular Research List was up 2.2% in September, just short of the S&P 500’s 2.48% return for the month. Year to date, our research list is up 13.8% versus 6.9% for the benchmark.
The top performing stock on our list in September was one of our shorts, NeuroMetrix (NURO:SELL), up 29.9%. A competitor highlighted the potential risk to the company of not getting reimbursed by health insurance companies for its NC-Stat system. It remains to be seen if the company will be denied coverage, but we had argued it was priced for perfection and that any bad news could seriously deflate its lofty multiple. This is exactly what happened. Since we launched on the stock just over a year ago, it has returned 38.4%.
Hansen Natural Corp. (HANS:BUY) was our second best performing stock. After suffering a recent 40% correction the prior month based on only meeting analysts’ expectations rather than beating them, the stock was up 17.9% in September. A competitor put Hansen on its recommended list which led to the price spike. We felt the earlier correction was overdone, and continue to believe HANS remains an excellent investment opportunity. The company is growing both its top and bottom lines by better than 80%, yet trades at just 23x our estimated 2007 EPS.
Premier Exhibitions (PRXI:BUY) rose 17.5% in September. For those lucky enough to see company management give a rare presentation in New York at our first annual “Best of the Uncovered” conference, they already know why the stock is up. The company restructured its deal with JAM to co-present Bodies exhibitions. Now Premier will assume all expenses for more of these upcoming shows, but will also get to keep all of the revenue. We expect both sales and EPS guidance to rise when the company reports Q2:07 earnings in the next two weeks. Despite the recent run-up in the stock, we’d note it is just about at the level of where we initiated on the company with a BUY rating and remains an excellent growth story.
IRIS International, Inc. (IRIS:BUY) also had a good September, rising 17.2% for the month. The stock had been under pressure and we felt it was oversold. A competitor agreed and launched new coverage on Iris with a BUY rating which helped propel the stock higher. 2006 remains a transition year as Iris digests its Leucadia acquisition, and strengthens its domestic sales effort. Our price target implies 39% upside. Universal Security Instruments, Inc. (UUU:BUY) rose 16.3% last month after the company announced a 4-3 stock split and a new acquisition. Our analyst believes the company can achieve better than 20% earnings growth in FY:07, yet the stock trades at just a trailing PE of 9.8x.
On the down side, our biggest loser was Bolt Technology (BTJ:BUY) down 24.6%. We view this selloff as overdone and a great buying opportunity. Bolt makes air guns for use in underwater seismic surveys used by oil companies to find new oil reserves. The deep water oil exploration boom is just beginning and will likely continue even with oil prices half of what they are currently. Demand for equipment is intense with waiting lines for everything from rigs to seismic survey ships. Bolt just finished a year where it grew sales by 73% and profit by 187%. Our analyst expects revenue and earnings growth of 29% and 35% respectively for FY:07, yet the stock trades at just 16x trailing earnings and 11.4x our FY:07 earnings estimate. The second biggest decliner was CREDO Petroleum Corp. (CRED:BUY) down 22.7% in September. While lower energy prices, especially lower natural gas prices, will negatively impact CREDO, the company is making up for some of this through higher production and several joint venture relationships.
On Track Innovations Ltd. (OTIV:BUY) declined 16.7% in September. It appears that investors are becoming impatient with the company as the large contactless payment market seems further off than originally anticipated. That said, the company did announce several customer wins in the month, including Chevron, although the initial deployment with them will be in Cameroon, not exactly the place where fortunes are made. While we are also disappointed at the slower than expected path to profitability for OTIV, the opportunity is so large that we are willing to wait a while longer. Our price target implies 73% upside from current levels.
September also included two new initiations, Cuisine Solutions (FZN:BUY) and ACS Motion Control (ACSEF:BUY). Cuisine Solutions makes sous-vide food. This is a cooking technique which cooks food in air tight bags at low temperatures for a long time. The result is excellent tasting easy to serve frozen food. Customers include everyone from the US Military, planes and trains to banquet halls and Costco. FZN is a robust growth story with 20%+ sales and earnings growth forecasted. Cuisine Solutions was up 14.8% in September. ACS Motion Control is a turnaround story. The maker of motion control products lost a major customer earlier in the year, but the stock more than reacted dropping from over $10 a share to less than $4. We believe the selloff was overdone. ACS has a strong core business, and no debt. Moreover, its cost structure is highly flexible to better deal with changing customer demand. ACS was up 12.2% in September, but our price target implies another 75% upside.
Other double digit movers for September include American Software Inc. (AMSWA:BUY) up 11%, CTRP International (CTRP:SELL) up 12.9% on the up side, and McDermott International (MDR:BUY), another oil related stock, down 13.3%, Hardinge, Inc. (HDNG:BUY) down 13.1%, and Baidu.com, Inc. (BIDU:SELL) down 12.7%.
As alluded to above, during September we hosted our first conference featuring six of our companies, PRXI, ACTG, RIMG, SPAN, ACU, and AMSWA. For those who attended, thank you so much for coming. We got some great feedback and intend to make it even better next year. We believe our conference is truly unique due to our truly unique business model. Many of the companies which present at our conference are only covered by us, and cannot be seen at other venues. Secondly, we have prescreened the companies who present at our conference as among the best investment ideas in the MicroCap space. This prescreening aspect means our clients do not need to waste their time with companies that might be great investment banking clients or investor relations clients, but may not be the most attractive investment opportunities. We are focused on only one thing, finding the most compelling and attractive investments in the Micro to small cap space for our clients. Thank you for your support.