Enthusiasm over progress on trade negotiations early in the week, gave way to concerns over a myriad of geopolitical concerns (Turkey, Italy, Iran, Spain, Venezuela, Brazil, North Korea), leaving the equity markets fractionally higher by the close on Friday. Crude prices declined almost 5%, after producers said they’re looking to boost output as the global glut seems to have been cleared and prices have rebounded. Shares of Energy companies were the worst performers, with the Oil and Gas sector declining 4.56% for the week. With all those negatives in the background, accompanied by a relatively dovish reading of the Federal Open Market Committee minutes, led to a rally in the Treasury market, with the yield on the Ten-Year declining 14 basis points to 2.93%.
Trading Places was my favorite movie when I first got into the business in 1983. The climax of the movie is the release of the government orange crop report, with all the traders eagerly waiting to buy or sell based solely on the expected impact of the weather on the crop. Of course, that was a commodity market. As traders have replaced investors in the stock market, the price action looks more and more like orange juice futures, rather than valuing businesses. It’s a world of winners and losers based on the most recent news. This binary process seemed particularly apparent last week in the Retail sector, as there were massive moves in the stocks based on their respective quarterly results, with Lowe’s, Tiffany, and Ralph Lauren leading the winners with double digit gains, and Gap a big loser down over 10%.
I was wrong about LeBron James, as the Cleveland Cavaliers dispensed of the Boston Celtics to move on to the NBA finals. Terry Rozier gets my “are you out of your mind?” award for trying to dunk over the King in what was probably the turning point in the game.
The U.S. employment report for May is due Friday. The consensus forecast is for 190,000 new jobs and the unemployment rate to hold steady at 3.9%. Wage growth will be closely analyzed, as it is an important factor in the Fed’s interest rate decisions. News of the on again off again summit with North Korea also tends to move the markets a bit, as do some of the Trade tweets.
Stocks on the Move:
BG Staffing, Inc. (BGSF) -10.6%: Priced an underwritten public offering of 1.1 million newly issued shares of common stock at $18 per share for gross proceeds of approximately $20.3 million. The Company reported record earnings on April 30th, and their share price had reached an all-time high the day prior to the underwriting. I find it very curious that the deal was done at such a substantial discount. BG Staffing provides temporary staffing services in the U.S. in Multifamily, Professional, and Commercial. Its temporary staffing services consist of on-demand or short-term staffing assignments, contract staffing, & on-site management administration. BGSF is a 2.2% holding in the North Star Dividend Fund.
Brooks Automation, Inc. (BRKS) + 9.9%: Announced the launch of a 21,000-square-foot biorepository in partnership with Cleveland Clinic to enhance researchers’ study of human tissue samples and advance personalized medicine for an array of conditions – including cancer, heart disease, and epilepsy. Brooks Automation is a provider of automation and cryogenic solutions for multiple applications and markets. The company serves the semiconductor capital equipment market and sample management market for life sciences. BRKS is a 1.8% holding in the North Star Dividend Fund.
Compass Diversified Holdings (CODI) +8.1%: The Company has recently gotten some attention as a cannabis-related investment because of their stake in Manitoba Harvest, a company which uses hemp, a type of cannabis which does not contain THC, to create hemp-based foods, oils, and supplements. Compass Diversified Holdings is a diversified businesses conglomerate. Through its holdings in multiple companies, it provides waste management services, baby products, hemp-based foods, printed circuit boards and others. CODI is a 1% holding in the North Star Dividend Fund.
Hawaiian Telcom Holdco Inc (HCOM) -9.4: Shares fell in sympathy with Cincinnati Bell after a Morgan Stanley analyst cut his rating on Cincinnati Bell, which is acquiring HCOM in a stock-based deal. Hawaiian Telcom provides communications services and products such as local telephone, network access and data transport, long distance, Internet, television and wireless phone service to residential and business customers. HCOM is a 1% holding in the North Star Micro Cap Fund.
The information provided in this commentary is not an offer to sell or the solicitation of an offer to purchase any security, product, or brokerage service. The information is not intended to be used as the basis for investment decisions, nor should the information be construed as advice designed to meet the particular needs of any investor. This commentary is presented to illustrate examples of the securities that North Star Investment Management Corporation and/or its affiliates (“North Star”) may have bought for client accounts and the diversity of markets in which North Star Investments may invest, and may not be representative of current or future investments. You should not assume that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this commentary will be profitable or will be equal to any corresponding performance levels that might be indicated. Past performance is no guarantee of future results. Investments in securities involve risks including the possible loss of the principal invested. North Star and others associated with it, including employees, may have positions in and effect transactions in securities of companies mentioned or indirectly referenced in this commentary. North Star may buy, sell or hold these securities in proprietary or client accounts. North Star will not be providing regular updates or advising you of any changes in the views expressed herein. Investors should consider their investment objectives, risk tolerance, and financial situation and needs before investing in any security. Tax considerations, commissions, fees and other costs should be carefully evaluated with one’s investment and/or tax advisors. Information provided is obtained from sources deemed to be reliable, but North Star cannot guarantee the accuracy or completeness of the information. This material may not be reproduced, distributed or transmitted to any other person in whole or in part without the prior written consent of North Star. A copy of North Star Investment Management Corporation’s Form ADV Brochure, Privacy Notice and Business Continuity Plan summary can be obtained by calling 312-580-0900.