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Kuby’s Commentary

Cold Porridge

Mar 11, 2019

Last Week:

The temperature of the global economic data porridge was cold enough to nudge the stock market pendulum towards risk-off, as the ECB and China both reduced growth forecasts while the U.S. jobs report was downright frigid. Concerns shifted from monetary tightening by the big bad Fed to the prospects of an impending global recession. Things were not all quiet on the eastern front, as North Korea has rebuilt its main rocket launch site and satellite images suggests an imminent launch of either a satellite or a missile. Meanwhile, China and the United States are still working day and night to achieve a trade deal that both sides view as equal and fair. In a symbolic sign of progress, China Vice Premier Liu had a hamburger while U.S. Trade Representative Lighthizer had eggplant and chicken. At the risk of seeming like a cynic, I suspect that the ultimate trade deal will be similar to that symbolic food swap in nature, with hopefully the recently imposed tariffs eliminated.

The S&P 500 declined every trading session, posting a 2.2% loss even after yet another Friday afternoon rally minimized the damage. The yield on the Ten-Year Treasury dropped 13 basis points to 2.62%, essentially moving from the high-end of the 2019 range to the low-end. The U.S. Dollar reached its highest level of the year, before retreating modestly on Friday.

This Week:

Earnings season is essentially over and the economic calendar is pretty light. Retail sales on Monday could be interesting after the confusing drop reported in the previous month. CPI on Tuesday would only be relevant if it comes in higher than expectations, thereby undermining the Fed’s recent dovishness. The University of Gottlieb (Michigan) sentiment survey on Friday could also be interesting. There are so many complicated and conflicting plot lines in the news. Is the American consumer feeling confident or concerned?

Across the pond, the Brexit vote is on Tuesday night. So far the market has largely ignored the political upheaval in Europe.

Stocks 0n the Move:

Blue Bird Corp. (BLBD) -11.05%: Blue Bird Corp is an American bus manufacturing company headquartered in Fort Valley, Georgia. It manufactures and designs school buses closed. Other than manufacturing school buses, it also manufactures other types of buses including transit buses, motorhomes, and specialty vehicles. The Company’s share price has been quite volatile since reporting first quarter results on February 6 without any incremental news. BLBD is a 0.97% holding in the North Star Opportunity Fund and a 3.35% holding in the North Star MicroCap Fund.

Haymaker Acquisition Corp. (HYAC) +13.64%: Haymaker Acquisition Corp is the United States based blank check company. It is formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or similar business combination with one or more businesses. The Company and OneSpaWorld (“OSW”), the pre-eminent global provider of health and wellness products and services onboard cruise ships and in destination resorts around the world, announced that the business combination was approved by Haymaker’s stockholders. The transaction is expected to close on or prior to March 31, 2019 subject to the satisfaction of customary closing conditions. HYAC is a 1.12% holding in the North Star Micro Cap Fund.

Healthcare Services Group Inc. (HCSG) -12.32%: Healthcare Services Group Inc is a provider of housekeeping and facility-management services to the healthcare industry. The company operates two business segments: housekeeping and dietary. Housekeeping includes management of clients’ housekeeping departments, cleaning, disinfecting and sanitizing, laundry, and bed linen and uniform services. Dietary consists of food purchasing, meal preparation, and providing dietitian consulting services. The Company disclosed that it will be late filing its 2018 10-K due to an SEC inquiry into its EPS calculation practices. It received a subpoena from the agency a year ago requesting information and documents related to the matter. HCGS is a 1.5% holding in the North Star Dividend Fund.

Psychemedics Corp. (PMD) -21.5%: Psychemedics Corp is a US-based company which provides testing services for the detection of drugs of abuse through the analysis of hair samples.  The Company’s revenue for the quarter ended December 31, 2018 was $9.9 million versus $9.8 million for the quarter ended December 31, 2017, an increase of 2%. Pre-tax income for the quarter was $1.5 million versus $2.0 million for the comparable period last year. Raymond C. Kubacki, Chairman and CEO, commented “In prior quarters press releases, we reported that effective September 2018, under Brazilian law, professional drivers would be required to renew their license every 2 ½ years, instead of the current every 5 years. As of now, the Brazilian government has not yet implemented this legally mandated testing. The national elections and now the change in government were major causes for the delay in implementation. Our best estimate now is that the 2 ½ year requirement, which will almost double the market size, will be implemented in the fourth quarter of 2019.”  PMD is a 1.0% holding in the North Star Dividend Fund.

Transact Technologies, Inc. (TACT) -12.02%: Transact Technologies, Inc. develops and sells software-driven technology and printing solutions for restaurant solutions, POS automation and banking, casino and gaming, lottery, mobile and oil and gas. The Company generated 2018 fourth quarter net sales of $11.8 million compared with 2017 fourth quarter net sales of $13.2 million. Net income in the 2018 fourth quarter was $1.0 million, or $0.12 per diluted share, compared to a net loss of $0.4 million, or a net loss of $0.06 per diluted share, in the prior-year period. Bart Shuldman, Chairman and Chief Executive Officer of TransAct, commented, “Throughout 2018 and to-date in 2019, the TransAct team has focused on building towards the transformational launch of BOHA!. This new ecosystem of cloud-based apps and companion hardware solutions is designed to address what we believe is a very large sales opportunity in providing critical back-of-house automation solutions to restaurant and foodservice operators.  TACT is a 1.26% holding in the North Star Dividend Fund.

PetIQ Inc.(PETQ) -15.17%: PetIQ Inc is a manufacturer and distributor of health and wellness products for dogs and cats. The company offers veterinarian-grade pet Rx medications, OTC flea and tick preventatives, vitamins treats, nutritional supplements, and hygiene products. It also provides third party products to retailers which for a long time were primarily available from veterinary clinics only. Its proprietary brands include Advecta, Betsy Farms, Mimi’s Market, PetAction and TruProfen. The Company will be reporting earnings after the market close on March 11. Apparently, some investors are expecting a disappointing result. PETQ is a 0.53% holding in the North Star Opportunity 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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