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Kuby’s Commentary

And Then There Was a Rally…

Jun 27, 2022

When Stocks Go Low…

As is frequently the case in the stock market, just when it seems clearly to be the worst of times, suddenly it is the best of times. Against the bear market beat, the verse of impending recession, and the chorus of soaring inflation, the S&P 500 rebounded 6.5%. Stocks opened higher on Tuesday, as investors returned from the long weekend whistling a more upbeat tune. Wednesday and most of Thursday saw an interlude of seesaw trading, but the rally mode reestablished itself in the final hours on Thursday, and was in full force Friday, which proved to be the best day since May 2020. The Health Care, Technology, and Consumer Goods sectors led the charge, with only the Oil & Gas sector suffering a decline. Crude Oil prices fell approximately 2% and have now retreated over 10% from the level reached in early June. The yield on the 10-year and 2-year Treasuries both slipped 11 basis points to 3.13%, and 3.01% respectively. Those yields flirted with 3.5% just two weeks ago.

The economic releases were mixed, with a surprisingly strong bump in new home sales, and an expected  record low reading from University of Michigan consumer sentiment survey. As we have mentioned in recent commentaries, we added XHB (S&P Homebuilders) to our equity ETF model, as we believe that pessimism related to the “home” is overstated. In last week’s blog, “Are Consumers Gassed”,  we discussed the relationship between consumer sentiment and gas prices. On Wednesday,  President Biden asked Congress to suspend the federal gas tax for three months, through September, without taking any money away from the Highway Trust Fund. The President also called on states to take similar action to provide some direct relief, whether suspending their own gas taxes or helping consumers in other ways. The federal government currently charges an 18-cent tax per gallon of gasoline and a 24-cent tax per gallon of diesel. We share the commonly held belief that the cure for high commodity prices is high commodity prices, as those higher prices reduces demand and encourages more supply. Throughout history, oil prices have been particularly volatile, and for those with short memories, were actually briefly negative in the spring of 2020. For those with a much longer-term perspective, we note that Exxon Mobil CEO Darren Woods in a CNBC interview over the weekend  predicted that by 2040 every new passenger car sold in the world will be electric.

The other economic release  showed that initial claims for state unemployment benefits fell 2,000 to a seasonally adjusted 229,000 for the week ended June 18. Economists polled by Reuters had forecast 227,000 applications for the latest week. Claims have been treading water since tumbling to more than a 53-year low of 166,000 in March amid signs of some cooling in the labor market, however, there still remains almost 2 unfilled jobs for each unemployed person.

For lack of a better explanation for the big rally, we turn to a slogan that North Star Summer Intern Team Member Sadie Heller coined (channeling Michelle Obama): “When stocks go low, we go buy.”

The Environment Remains Difficult

The economic calendar is busy in front of another holiday weekend. May Durable orders on Monday, June Consumer Confidence on Tuesday, May Construction spending and the ISM Manufacturing Managers’ Index for June on Friday are all expected to show slight softening. The BEA report on Thursday will be the most significant item on the calendar, as it contains the Fed’s favorite inflation gauge, the core PCE. The consensus estimate calls for a 4.9% year over year increase in May, equal to April’s rise. Any signs that inflation is decelerating would send investors to their July 4th BBQs in great spirits.

Earnings season will be on deck when we return from the holiday weekend, with composite earnings for the quarter expected to show modest growth of 4.3%. Citing the well-publicized headwinds, 71 of the S&P 500 companies have issued negative EPS guidance, while 32 have issued positive guidance. The common theme that the North Star research team has heard from our calls with the management groups from our portfolio companies is that costs are elevated, but demand remains strong. Despite the strong current demand, many companies are preparing for a more difficult environment through labor force and other cost management initiatives.

Stocks on the Move

Companies with news…

+10.2% AbbVie Inc (ABBV) researches and develops pharmaceutical products. The Company produces pharmaceutical drugs for specialty therapeutic areas such as immunology, chronic kidney disease, hepatitis C, women’s health, oncology, and neuroscience. AbbVie also offers treatments for diseases including multiple sclerosis, Parkinson’s, and Alzheimer’s disease. AbbVie declared a $1.41 quarterly dividend last week in-line with previous payouts.

+10.9% Pfizer Inc (PFE) operates as a pharmaceutical company. The Company offers medicines, vaccines, medical devices, and consumer healthcare products for oncology, inflammation, cardiovascular, and other therapeutic areas. Pfizer declared a $0.40 quarterly dividend last week in-line with previous payouts.

+11.9% Apogee Enterprises Inc (APOG) designs and develops value-added glass products. The Company offers glass and aluminum windows, storefront and curtainwall systems, and glass for framed art and pictures. Customers include architects, general contractors, glazing subcontractors, and building owners.

+15.1% Accuray Inc (ARAY) designs, develops, and sells advanced radiosurgery and radiation therapy systems for the treatment of tumors throughout the body. B. Riley initiated coverage of Accuray last week with a Buy rating and a $7.50 price target.

Companies with no news…

+10.1% Alphabet Inc (GOOGL) operates as a holding company. The Company, through its subsidiaries, provides web-based search, advertisements, maps, software applications, mobile operating systems, consumer content, enterprise solutions, commerce, and hardware products.

+13.3% ABM Industries Incorporated (ABM) is a facility services contractor. The Company provides air conditioning, engineering, janitorial, lighting, parking security, and other outsourced facility services to commercial, industrial, and institutional customers.

+11.2% Flexsteel Industries Inc (FLXS) manufactures and sells wooden and upholstered furniture for the retail, contract, and recreational vehicle (RV) furniture markets. The Company’s products are sold to furniture dealers, department stores, and RV manufacturers.

+10.1% Innovative Industrial Properties Inc (IIPR) owns and leases industrial real estate assets. The Company focuses on the acquisition, disposition, construction, development, and management of industrial facilities leased to tenants in the regulated medical-use cannabis industry.

+20.9% Oil-Dri Corporation of America (ODC) develops, manufactures, and markets sorbent products to the grocery products industry, mass merchandisers, warehouse clubs, and pet specialty retail outlets. The Company’s cat litter products are marketed under the Cat’s Pride and Jonny Cat brands; additionally, ODC manufactures the Fresh Step brand exclusively for Clorox.

+16.8% Resources Connection Inc (RGP) is a professional services firm. The Company provides accounting and finance, human resources management, and information technology professionals to clients on a project-by-project basis. Resources assists its clients with discrete projects requiring specialized expertise, compensation program designs, and transitions of management information system.

+11.3% Rocky Brands Inc (RCKY) designs, develops, manufactures, and markets men’s and women’s footwear. Its footwear brands, which are sold in retail sporting goods and outdoor stores, include Rocky, Georgia Boot, Creative Recreation, Durango, Lehigh, Honeywell, XTRATUF and licensed brand Michelin.

+10.6% Barrett Business Services Inc (BBSI) provides outsourced solutions addressing the costs and complexities of employment related issues for businesses. The Company provides payroll processing, employee benefits and administration, worker’s compensation coverage, risk management and workplace safety programs, and human resource administration services. BBSI operates through about 65 branch offices in 10 states.

+10.1% Green Brick Partners Inc (GRBK) operates as a homebuilding and land development company. The Company develops residential homes, complexes, and communities. Green Brick Partners invests in a range of real estate investments, as well as provides land and construction financing to its controlled builders.

+23.2% Hamilton Beach Brands Holding Company (HBB), through its subsidiaries, markets and designs electric household and specialty houseware appliances, as well as commercial products for restaurants, bars, and hotels.

+11.4% Napco Security Technologies Inc (NSSC) manufactures electronic security devices, fire detection products, access control systems, and digital lock equipment used in residential, commercial, institutional, and industrial installations.

+13.2% Nathan’s Famous Inc (NATH) owns and franchises restaurants under the Nathan’s Famous brand name, as well as sells products bearing the Nathan’s Famous trademarks. The Company also has license agreements for the manufacture, distribution, marketing, and sale of Nathan’s Famous branded hot dogs, sausages, and corned beef products in refrigerated consumer packages to be resold through retail channels, such as supermarkets, groceries, mass merchandisers, and club stores. Nathan’s Famous was founded in 1916 and is based in Jericho, New York.

The stocks mentioned above may be holdings in our mutual funds. For more information, please visit

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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