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Kuby’s Commentary

7 Day Rally

Apr 8, 2019

Last Week:

The porridge heated up enough to nourish the Goldilocks rally for another week. Stronger than expected economic data from China on Monday and a solid U.S. jobs report on Friday were the bookends to continued perceived progress on the trade front during the week. The S&P 500 gained 2.06% to close at 2892, which is less than 2% short of its all-time high set in September. Although trading volume has been light, the S&P 500 has now posted seven straight days of gains. Crude oil climbed to a five-month high on Friday, while the U.S. dollar rose to one of its highest levels of the year. This economic growth optimism was also reflected in a 9-basis point rise in the yield on the Ten-Year Treasury to 2.50%, which resulted in the yield curve no longer being in a recession forecasting inversion.

This Week:

The Bureau of Labor Statistics releases its consumer price index for March on Wednesday and its producer price index on Thursday. Consensus estimates are for a 1.8% year-over-year rise for both indices. Too hot of a number might burn the tongue of the Fed, causing it to rethink its recent dovish pivot. Earnings season kicks off with the mega cap banks reporting results on Friday, with the flat yield curve providing a stiff headwind.  In his annual letter to shareholders JPMorgan’s CEO Jamie Dimon indicated that the bank is prepared for a recession but does not expect one in 2019.  Composite S&P 500 earnings are expected to decline for the first quarter, but the market will likely focus more on the outlook for the rest of the year. The University of Michigan (Gottlieb) releases its Consumer Sentiment Index for April. Expectations are for reading of 98, which would be slightly below its highest level in a decade.

What a terrific NCAA tournament! The Kuby family is rooting for Virginia as my daughter Brooke picked them to win it all. We found ourselves rooting for Texas Tech, as a few other brackets had Michigan State winning it all, with the rest of the non-busted brackets having picked Duke. Little known fact: Michigan State entered the Big 10 replacing the University of Chicago which withdrew from the conference in 1946. In Hyde Park it is commonly believed that the Spartans are just borrowing the Maroons spot while we rebuild the program.

Stocks on the Move:

Advance Micro Devices (AMD) +13.56%: Advanced Micro Devices designs and produces microprocessors and low-power processor solutions for the computer and consumer electronics industries. Nomura Instinet initiated coverage with a “buy” rating and a $33/share price target. Analyst David Wong sees potential for AMD to pick up market share in both microprocessors and GPUs. He predicts that the company could achieve greater than 10% share in x86 datacenter processors, 15% to 20% share in desktops and notebooks and greater than 30% share in desktop and mobile GPUs. AMD is a 2.09% holding in the North Star Opportunity Fund.

Acme United Corporation (ACU) +20%: Acme United is a US based company engaged in the supply of cutting devices, measuring, first aid, and sharpening products. It primarily offers these products to the school, home, office, hardware, sporting goods, and industrial markets. Zack’s research had positive comments about ACU, citing the Company’s 10% long-term earnings growth. ACU is a 2.05% holding in the North Star Dividend Fund, a 2.91% holding in the North Star Micro Cap Fund and a 1.94% holding in the North Star Opportunity Fund.

Orion Energy Systems, Inc. (OESX) +49.07%: Orion Energy System is a developer, manufacturer, and seller of lighting and energy management systems. The Company announced that it has expanded the retrofit of a major national account customer’s lighting systems with Orion’s state-of-the-art LED lighting and wireless IoT enabled control solutions at additional locations nationwide. Orion anticipates additional revenue of $35 million under the contract, which is dependent on the customer’s issuance of purchase orders. The contract builds upon an earlier letter of intent for Orion to provide approximately $11 million in turnkey LED lighting retrofit services, most of which were completed in Orion’s fiscal 2019 fourth quarter ended March 31, 2019. The two analyst who follow Orion both upgraded the shares following the announcement. North Star says, “let there be light”!  OESX is a 0.73% holding in the North Star Micro Cap Fund and a 1.61% holding in the North Star Opportunity Fund.

Escalade, Inc. (ESCA) +11.01%: Escalade manufactures and distributes sporting goods for a varied range of activities. These sports include archery, table tennis, basketball goals, trampoline, play systems, fitness, game tables like hockey and soccer, billiards, darting, and other outdoor games. There was no company specific news during the week. ESCA is a 3.52% holding in the North Star Dividend Fund and a 3.49% holding in the North Star Micro Cap Fund.

LSI Industries, Inc. (LYTS) +15.59%: LSI Industries provides corporate visual image solutions to the petroleum and convenience store industry. Its products and services include digital signage, printed and structural graphics, and electrical signage capabilities, indoor and outdoor lighting products, lighting control systems, and related professional services. There was no company specific news during the week, but industry leader Acuity Brands reported better than expected earnings, and during their quarterly conference call CEO Vernon J. Nagel stated that the lighting is “a robust industry, it’s growing. It brings a lot of value.”  LYTS is a 1.00% holding in the North Star Dividend Fund and a 0.91% holding in the North Star Micro Cap Fund.

Portfolio holdings are subject to change and should not be considered investment advice.

North Star Investment Management Corp. is the Advisor for the North Star Family Mutual Funds.

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.

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