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Kuby’s Commentary

Bull Bear or Tiger

Apr 15, 2019

Last Week:

The market treaded water until Friday morning, when a flurry of positive news stories invigorated Wall Street. Strong Chinese exports and money supply growth, record earnings form JPMorgan, a well-received DIS streaming analyst meeting, and a big $50B oil merger all contributed to the bullish mood. Earlier in the week trading volume was at its lowest level of 2019, as Sports betting provided more excitement than the stock market with the NCAA finals (congratulations to Brooke Kuby for picking Virginia and winning her pool), NHL and NBA playoffs, and the countdown to the Masters capturing speculators interest. Friday’s rally lifted the S&P 500 to a 0.51% gain for the week, while the bond market maintained a positively sloped yield curve, as the Ten-Year Treasury rate rose to 2.56%, safely above the yield of the three-month bill. The market is now within 1% of its all-time high set in September, and the VIX (aka the “fear index) is at its lowest level since early October.

The lack of fear worries us, as there is a laundry list of troubling issues that remain unresolved in the global economy. On the other hand, the U.S. economy is continuing to perform well, with near full employment, very low interest rates, subdued inflation (both CPI and PPI last week were below target levels) and record corporate profits. The current multiple of 17 on 2019 earnings seems reasonable in this context. Neither bullish nor bearish, perhaps a tigerish (particularly after watching the Masters) best describes our current animal spirits, as we patiently wait for specific opportunities to present themselves.

This Week:

Monday is a dark day indeed, as taxes are due. Earnings season will kick into gear, with 49 S&P 500 companies reporting results for the first quarter. Consensus estimates call for a decline of 4.3% in earnings on 4.8% revenue growth. Foreign exchange as a result of the strong U.S. dollar and higher labor costs are the two main contributors to the expected downturn in earnings. March Retail Sales on Thursday might be interesting, given the recent volatility in that measure. The market will be closed for Good Friday.

Stocks on the Move:

The Walt Disney Company (DIS) +13.10%: Walt Disney owns the rights to some of the most globally recognized characters, from Mickey Mouse to Luke Skywalker. These characters and others are featured in several Disney theme parks around the world. Disney makes live-action and animated films under studios such as Pixar, Marvel, and Lucasfilm, and operates media networks including ESPN and several TV production studios. During their Investor Day presentation, the Company unveiled a first look at the Disney+ offering, which will launch in the U.S. on November 12, 2019 at $6.99 per month. The service will offer fans of all ages a new way to experience the unparalleled content from the Company’s iconic entertainment brands, including Disney, Pixar, Marvel, Star Wars, and National Geographic, and will be available on connected TV and mobile devices. I agree with CNBC’s Jim Cramer opinion when he stated that “I doubt any parent, cord cutter or not, will question if he or she would buy this,” he said. “In fact, I can see where you might tell your kids: ‘This is your channel, period.'” He added that CEO Robert Iger “gave you a $6.99-a-month package that is a huge bargain vs. you yourself as a parent trying to get content to your kids in a piecemeal way. The new content [and] the price point make it a must.” Cramer lauded Disney’s other businesses as well. “Theme parks? On fire and getting hotter,” he said. “Cruises? Fantastic.”  DIS is a 0.49% holding in the North Star Opportunity Fund.

Orion Energy Systems, Inc. (OESX) + 21.97%: Orion is a developer, manufacturer, and seller of lighting and energy management systems. The Company’s shares have been rallying since their April 3 announcement of a $35 million LED lighting installation contract. In the (slightly altered) words of the Grateful Dead, “turn on your Orion light, let it shine, let it shine, let it shine”.  OESX is a 1.97% holding in the North Star Opportunity Fund and a 0.90% holding in the North Star Micro Cap Fund.

Build-A- Bear Workshop, Inc. (BBW) -11.06%: Build-A-Bear is a U.S.-based specialty retailer of customized stuffed animals and related products. There was no company specific news to account for the share price decline. BBW is a 0.18% holding in the North Star Micro Cap Fund.

NAPCO Security Technologies (NSSC) +16.54%: NAPCO Security Technologies Inc manufactures security products, encompassing access control systems, door-locking products, intrusion and fire alarm systems and video surveillance products. There was no company specific news to account for the share price increase. NSSC is a 2.43% 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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