Singular Research Director’s Letter: December performance 2019
Singular Research’s December 2019 Director’s Letter
In December, markets trended higher as the first phase of a trade deal between the U.S. and China was reached. Similarly, the Fed has opted out of an interest rate cutting stance, as they believe the U.S. economy is resilient and sound. However, investors remain cautious as manufacturing data and business confidence indicators say otherwise. The December Purchasing Managers Index (PMI) registered 47.2 percent, a decrease of 0.9 percentage points from the November reading of 48.1 percent. This reading is the lowest PMI reading since June 2009 when the index was at 46.3 percent. Similarly, the Conference Board Leading Economic Index® (LEI) for the U.S. was unchanged in November at 111.6 (2016 = 100) following a 0.2 percent decline in both September and October. On a positive note, the unemployment rate remained stable at 3.5%, one of the lowest rates since December 1969.
For the month of December, the Singular coverage list underperformed the S&P 500 and Russell 2000 by 250 and 235 basis points, respectively. For 2019, the Singular coverage list has outperformed the S&P 500 and the Russell 2000 by 904 and 1,367 basis points, respectively. As the U.S./China trade war shows positive signs combined with better than expected earnings results from domestic corporations, investors may be favorably looking to 2020’s growth prospects.
GEOS was our top performer in December after the company reported fiscal Q4 revenue growth of approximately 40%. The company appears to be on track for a strong recovery in 2020 as demand for their rental equipment increases. ALG, ACU, and ZEUS were all strong performers for the month as easing trade talks with China have provided revenue clarity and relief for investors.
ROKU was our worst performer for the month after the CFO, Steve Louden, stepped down. Investors remain cautious of ROKU’s growth prospects amidst weakening gross margins and increased competition. We believe the company still has a first mover advantage and will continue to surprise investors to the upside in 2020. HNNA reported a weak fiscal year-end with adjusted revenue and net income for 2019 decreasing 21.8 and 33.6 percent from the prior year. The company is navigating through industry headwinds and has done so while increasing their dividend and repurchasing six percent of their total outstanding shares. Lastly, AMRK decreased roughly 13 percent as a result of a mutual fund selling approximately 200,000 shares. Because of this sale, we believe AMRK’s stock price is undervalued and does not truly represent the operational improvements underway at this time.
For December, we initiated coverage on Comtech Telecommunications Corporation (CMTL). Comtech Telecommunications is a leading provider of secure wireless communications systems for both commercial and government customers worldwide. The products include satellite earth station modems, troposcatter systems, and wireless 911 systems. The company is looking to take advantage of the transition to 5G and has made several 2019 acquisitions that have positioned the company for strong growth in 2020 as a market leader. 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.
Robert Maltbie, CFA
Singular Research, President