The headline in “The Trader” section of Barron’s was “The Market Did Nearly Nothing This Week”, as the S&P 500 dipped 0.1% in holiday-shortened trading. What little action there was in the market was focused on the IPOs of “Unicorns” (companies with private market valuations over a $1 billion). It seems like an incredible leap of faith to assign multi-billion-dollar valuations on those high-growth money-losing companies. I must have missed the class in the Business School when they taught us how to value money-losing companies (depending on your assumptions you can create pretty much any value you want including $0). As for the boring companies that make money, earnings season is off to a ho-hum start. Modest positive earnings surprises reported by companies in the Financials sector were mainly responsible for a decrease in the overall expected decline for the first quarter to -3.9% from -4.3% last week. The yield on the Ten-Year Treasury was unchanged at 2.56%.
The Health Care sector was under pressure, as politicians promote Medicare For All. I feel like we have seen this movie before.
Earnings season will be in full swing, with 150 S&P 500 companies reporting results. The forward guidance will be the most important factor, particularly if EPS estimates for 2019 and 2020 can reverse the recent trend and start inching higher. On the economic front, the Commerce Department’s release of GDP data for the first quarter on Friday will be closely watched. The Federal Reserve recently lowered its growth estimate to 2.1% which is a full percentage point below the Trump administration’s forecast.
It’s possible that there could be an announcement of a U.S.-China trade deal. An immediate removal of all current tariffs would provide a nice upside surprise. The economic momentum continues to improve in China, which has helped quell fears over a global recession. On the other hand, it may also strengthen China’s hand in the current trade negotiations.
Japan might be in focus, with the BOJ policy decision Thursday morning, and Prime Minister Shinzo Abe visiting the White House on Friday.
Stocks on the Move:
Consolidated Communications Holdings, Inc. (CNSL) -19.2%: Consolidated Communications provides communication services for business and residential customers across 11 states in the U.S. through its network with more than 14,000 fiber route miles. Its residential products include broadband Internet access, digital TV and over-the-top video, and phone services. The Company will be reporting quarterly results on Thursday. Speculators have relentlessly battered the shares based on the assumption that the current dividend pay-out is unsustainable. CNSL is a 1.81% holding in the North Star Dividend Fund and a 1.56% holding in the North Star Opportunity Fund. CNSL corporate bonds are a 2.94% holding in the North Star Bond Fund and a 1.06% holding in the North Star Opportunity Fund.
LSI Industries, Inc. (LYTS) +16.2%: LSI Industries provides corporate visual image solutions to the petroleum and convenience store industry. Its products and services include digital signage, printed and structural graphics, and electrical signage capabilities, indoor and outdoor lighting products, lighting control systems, and related professional services. LSI also reports earnings on Thursday. LYTS is a 1.18% holding in the North Star Dividend Fund and a 1.06% holding in the North Star Micro Cap Fund.
Salem Media Group, Inc. (SALM) -12.0%: Salem Media Group is a domestic multimedia company with integrated operations including radio broadcasting, digital media, and publishing. There has been no company specific news to account for the recent decline. SALM is a 0.99% holding in the North Star Dividend Fund. SALM corporate bonds are a 2.42% holding in the North Star Bond 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.