Singular Research Director’s Letter: October performance 2019
Singular Research’s October 2019 Director’s Letter
Amidst a prolonged trade war with China, slowing European economies, domestic signs of a recession, and overall positive third quarter results (80% of companies in the S&P 500 surprising net income to the upside), investors are faced with mixed signs. To add to the confusion in the month of October, the Fed lowered the federal funds rate by 25 basis points to 1.75% and initiated a fourth quantitative easing program. The October Purchasing Managers Index (PMI) registered 48.3 percent, an increase of 0.5 percentage points from the September reading of 47.8 percent. The Conference Board Leading Economic Index® (LEI) for the U.S. declined 0.1 percent in October to 111.7 (2016 = 100), following a 0.2 percent decline in both September and August, and a 0.4 percent increase in July. On a positive note, the unemployment rate remained stable at 3.6%, one of the lowest rates since December 1969.
For the month of October, the Singular coverage list outperformed the S&P 500 and Russell 2000 by 295 and 247 basis points, respectively. Year-to-date, the Singular coverage list has outperformed the S&P 500 and the Russell 2000 by 1,206 and 1,688 basis points, respectively. As the trade war with China continues and European markets falter, there appears to be an apparent shift to domestic small cap stocks that are not affected by international affairs.
ROKU, ANIK, and TRNS all performed well as investors were thrilled from continued growth stories. Investors realized the September sell-off of ROKU was largely over-done and the stock price appreciated 45% for the month. Transcat has continued to rebound as their recent acquisitions have increased revenue and bolstered margins. ANIK, IRMD, and EHTH all added significant alpha for the month as investors cheered the growing global demand of their drugs and medical equipment.
FSTR took the largest hit for the month of October, posting a 16% decline, as a slowdown in the U.S. agriculture market and European economies have lowered revenue expectations looking ahead. HBIO was also lower due to lower quarterly revenue results (-4% YoY), but the company’s adjusted operating margin increased 90 basis points, signifying a potential turnaround story for 2020. ALG’s quarter ending results were similar to that of FSTR’s, showing signs of a slowdown from the U.S. agriculture market and a decreasing backlog; however, the company recently acquired Morbark, a leading manufacturer of forestry and tree maintenance equipment that we believe will support revenue growth in 2020.
For October, we launched coverage on eHealth, Inc. (EHTH), the parent company of eHealth Insurance Services, Inc. the leading online source of health insurance for individuals, families, and small businesses. We wish to thank our clients for their support and belief in our process. For a complimentary report for new subscribers, to provide feedback, or to share some valued insights, please e-mail me using the link below.
Limited discount offer through December 30th, 2019.
Robert Maltbie, CFA
Singular Research, President