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Kuby’s Commentary

Chameleon on the Run

Feb 18, 2019

Last Week:

Where have all the Bears gone? Or perhaps the long-established visual of Bulls and Bears should be replaced with a cluster of chameleons (it’s actually a starship of chameleons according to Wikipedia, but that sounds made-up). The same chameleons that were relentlessly selling stocks from October through Christmas Eve have been buying ever since. They are strange computer-generated animals who seem to be almost entirely motivated by “blending in” to the actions of their fellow chameleons. Apparently, nobody wants to be a seller when everyone else is a buyer, and vice versa. Fourth quarter earnings season has been mildly disappointing, with the blended forecast falling to 13.1% growth, down from 13.2% the previous week. The economic data was discouraging, with a shocking drop in December retail sales and industrial production for January declining. The outlook for a first quarter earnings decline worsened to 2.4% from 1.9% the previous week, which is a long way from the consensus of a 6.7% profit increase back on September 30. Nevertheless, the S&P rose 2.5% and the Russell 2000 surged 4.2%, as our lizard friends focused on the reported progress of the U.S.-China trade talks and the perception that the Fed has gone from hawkish to dovish (lizards are rightfully fearful of hawks). The yield on the Ten-Year Treasury spent the whole week between 2.64% and 2.71% — settling at 2.67% —while the Dollar and Gold both inched higher.

The steep decline in equity prices during the October-December period was puzzling given that the economy was humming along, and corporate profit reports were stellar. The recent rally has also been curious given the storm clouds on the horizon. Let’s hope there are no cloud bursts that triggers a change in the chameleon’s colors, because momentum is a fickle friend.

This Week:

Trade will continue to dominate the headlines in holiday- shortened trading, as the March 1 deadline for a tariff increase approaches. President Trump has indicated that the deadline would be extended if negotiations were making progress. Minutes from the Federal Reserve’s most recent meeting will be closely scrutinized when released on Wednesday to support the new narrative of an accommodative Fed. Earnings season will wind down with 49 S&P 500 companies reporting results for the fourth quarter.

Stocks on the Move:

Blue Bird Corp. (BLBD) +11.7%: The Company’s shares recovered all its losses from the previous week following an earnings report that we thought looked fine, but the market didn’t seem to like. Blue Bird is an American bus manufacturing company headquartered in Fort Valley, Georgia. It manufactures and designs school buses. Other than manufacturing school buses, it also manufactures other types of buses including transit buses, motorhomes, and specialty vehicles.  BLBD is a 1.6% holding in the North Star Opportunity Fund.

Brooks Automation, Inc. (BRKS) +10.8%: Investors needed some time to digest the Company’s earnings report from the previous week, as there were many moving pieces. Brooks has two core business segments: Brooks Semiconductor Solutions Group, which primarily provides wafer handling robotics and systems, semiconductor contamination control solutions, cryogenic pumps and compressors, and support services; and Brooks Life Science Systems, which mainly provides automated cold-storage systems, sample management services, consumables, instruments and devices, informatics, and support services. In the previous quarter, the Company made two significant changes-the announced sale of their cryogenics vacuum business and the acquisition of GENEWIZ, a fast growing highly capable genomics and molecular biology company. According to Chief Executive Officer Steven Schwartz, “Either of these transactions alone would have been transformative but the near simultaneous implementation simply accelerates the transition of our business toward high-growth sectors in the semiconductor and life sciences markets. We’re pleased with the progress that we’ve made in our transformation as GENEWIZ met our expectations for growth and exceeded our forecast for profitability in the first half quarter of ownership. And our semiconductor business meaningfully outperformed in a challenging market environment.” Apparently after reflection the market agreed with that upbeat assessment of the quarter. BRKS is a 2.01% holding in the North Star Dividend Fund.

Boot Barn Holdings, Inc. (BOOT) +10.9%: Given the surprising weakness in overall retail sales for December, the Company’s very strong holiday results released the previous week looked even better in comparison. Boot Barn Holdings operates specialty retail stores. The company sells western and work‑related footwear, apparel and accessories in the United States. It is a single operating segment, which includes net sales generated from its retail stores and e-commerce websites. BOOT is a 3.74% holding in the North Star Micro Cap Fund.

NTN Buzztime, Inc. (NTN) +14.2%: Another week with a double-digit move for NTN, without any specific news. As previously discussed, the Company is exploring its strategic alternatives with a very wide valuation range of possible outcomes. NTN Buzztime delivers interactive entertainment and innovative dining technology to bars and restaurants in North America. It licenses its customizable solution that offers guests trivia, card, sports and single player games, nationwide competitions, and by offering self-service dining features including dynamic menus, touchscreen ordering, and secure payment. NTN is a 0.54% 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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