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Kuby’s Commentary

Downward Drift

Nov 19, 2018

Last Week:

The market resumed its downward trend, with the S&P 500 shedding 1.61% and the Russell 2000 declining 1.42%. All ten sectors experienced losses, with Oil & Gas shares faring the worst as crude oil prices dropping for a record 12 straight days to settle at $56.46 down 26% since Oct. 3. The sharp decline in energy prices have stoked concerns over a global slowdown, but a feature article in Barron’s suggests that supply and geopolitics appear to be the main drivers. The tone of the overall market improved somewhat later in the week as optimism over the possibility of a China/U.S. trade truce surfaced in front of the upcoming G20 meeting, and comments from Fed officials suggested a less hawkish policy outlook. This recent sell-off in the market seemed to have been kickstarted by the combination of the escalation of the trade war on September 24 with the imposition of 10% tariffs on $250 billion of Chinese goods along with the Fed two days later eliminating “accommodative” from the policy statement. The short-term bull case is that those headwinds could abate quickly, as they are both products of policy decisions rather than economic forces. On the interest rate front, the yield on the Ten-Year Treasury settled down 12 basis points at 3.07%, its lowest level since the beginning of October. Additionally, the odds of a December rate hike are now down to 68.9%, and the likelihood of 2 hikes rather than 3 in 2019 is also growing. On the trade front, both Trump and Xi would benefit from a coming away from the G20 with a face-saving agreement, although the rhetoric over the weekend suggested that the divide between the two countries was continuing to widen. Stay tuned.

This Week:

European news might be in focus with Brexit and the Italian budget negotiations sharing the headlines. So far, the U.S. market has ignored those developments, but an economic slowdown in Europe could lower the forecast for global growth. Trading volume will likely be light, as people turn their attention to turkey and football rather than stocks and bonds (Bear down Chicago Bears!). Retail stocks might be the exception, as there will be a slew of earnings reports early in the week followed by the Black Friday hype later in the week.

Stocks in the News:

During this recent sell-off, many companies shares are under a great deal of pressure without any specific news. Tax loss selling could be partially to blame.

Acme United, Corp. (ACU) -10.7%: The only news was that their Board authorize an increase in the quarterly dividend by 9%, resulting in a current yield of 3.13%. Their share price has fallen 25.7% since reporting disappointing earnings on October 19. Acme United is a supplier of cutting, measuring, first aid and sharpening products to the school, home, office, hardware, sporting goods and industrial markets. ACME is a 1.58% holding in the North Star Dividend Fund and a 2.16% holding in the North Star Micro Cap Fund and North Star Opportunity Fund.

AMC Entertainment Holdings, Inc. (AMC) -10.1%: There was no specific news. Their share price has fallen 22.5% since reporting mixed results on November 8. AMC Entertainment Holdings is engaged in theatrical exhibition. It is principally involved in the theatrical exhibition business and owns, operates or has interests in theatres located in the United States. AMC corporate bonds are a 2.23% holding in the North Star Bond Fund and a 2.10% holding in the North Star Opportunity Fund.

Boot Barn Holdings, Inc. (BOOT) -16%: There was no news. Boot Barn Holdings operates specialty retail stores that sell western and work boots and related apparel and accessories. The Company operates retail locations throughout the U.S. and sells its merchandise via the Internet. BOOT is a 2.15% holding in the North Star Micro Cap Fund.

Build-A-Bear Workshop. Inc. (BBW) -10.8%: There was no news. Build-A-Bear Workshop is a specialty retailer which offers “make your own stuffed animal” interactive entertainment experience in which guests visit a variety of stations to make and customize a stuffed animal. BBW is a 2.85% holding in the North Star Micro Cap Fund.

Heritage-Crystal Clean, Inc. (HCCI) +13%: Momentum can work both ways, as the Company’s share price reached a 52-week high on no news. Heritage-Crystal Clean, Inc provides parts cleaning, used oil re-refining and hazardous and non-hazardous waste services to small and mid-sized customers in both the manufacturing and vehicle service sectors. HCCI is a 1.79% holding in the North Star Micro Cap Fund.

NTN Buzztime, Inc. (NTN) -11.7%: The Company’s shares reached a 52-week low on no news. The previous week NTN reported solid results but announced that the expected major product roll-out with their largest customer had been cancelled. NTN Buzztime provides interactive entertainment and dining technology to bars and restaurants in North America. Its main products are Buzztime, Playmaker, Mobile Playmaker, BEOND Powered by Buzztime and Play Along. NTN is a 0.51% holding in the North Star Micro Cap Fund.

Orion Energy Systems, Inc. (OESX) -14.8%: The Company announced that Q2’19 revenue decreased to $13.2M vs. $15.4M in Q2’18, while the EBITDA loss narrowed to ($1.8M) in Q2’19 from ($3.0M) in Q2’18. Mike Altschaefl, Orion CEO, commented, “Principally due to lower sales through the distribution channel and customer-driven delays on a few projects, our Q2’19 revenue fell below expectations, however, our ongoing cost disciplines enabled us to deliver improved bottom line results. Importantly, Orion made significant strides in advancing our pipeline of revenue opportunities for the balance of fiscal 2019 and into fiscal 2020. As a result, we now have even greater confidence in Orion’s ability to deliver improved revenue performance in the second half of fiscal 2019 and beyond. Orion Energy Systems Inc researches, develops, designs, manufactures, markets, sells and implements energy management systems consisting of energy efficient commercial and industrial interior and exterior lighting systems and related services. OESX is a 0.41% holding in the North Star Micro Cap Fund.

Sharps Compliance. Corp. (SMED) -12.9%: There was no news. Sharps Compliance Corp is a provider of waste management services including medical, pharmaceutical and hazardous. It serves customers in multiple markets such as home health care, retail clinics and pharmaceutical manufacturers. SMED is a 1.11% holding in the North Star Micro Cap Fund.

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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