Kuby's Commentary

End of Quarter Lyft

2019-04-01T13:33:40-05:00April 1st, 2019|

Last Week:

The previous Friday the market had dropped sharply as the Ten-Year Treasury rate reach a yield less than the Three-Month Treasury rate, stoking recessionary concerns and triggering sell programs. By Monday afternoon, those concerns were old news, and the focus returned to the dovish pivot by the Fed and the prospects for an impending trade deal with China. Following meetings late in the week, U.S. officials said China had made proposals on a range of issues that go further than it has before, including on forced technology transfer. The S&P 500 gained 1.2% and closed out the quarter with its best showing since 2009 and its best start to a year since 1998. The animal spirits seemed to have been “lyfted” by the excitement over the ride sharing company’s IPO, which was priced above the range and then opened for trading 20% higher. The bond market, on the other hand, continued to signal economic sluggishness, as the yield on the Ten-Year Treasury slipped 4 basis points to 2.41%.

This Week:

First quarter earnings reports are right around the corner, which means we are in preannouncement season, and the bar has already been lowered by 7.2% during the quarter to forecast a 3.6% decline in composite S&P 500 earnings. The good news is that it is now likely that actual results will compare favorably to the estimates.

There is a slew of economic data being released, with retail sales and manufacturing ISM on Monday, durable goods and auto sales on Tuesday, services PMI and non-manufacturing ISM on Wednesday, and the jobs report on Friday. The consensus for all the reports is for data to indicate a stable economy. If the porridge is too cold, then Goldilocks might have a tantrum leading to lower bond yields and stock prices.

The market will get off to a good start as China released surprising strong economic data for March on Sunday, heating up the porridge and perhaps changing the impending global recession narrative.

Stocks on the Move:

Movado Group, Inc. (MOV) +12.86%: Movado Group designs develop, sources, markets, and distributes fine watches in the United States and internationally. Fourth quarter net sales increased 33.6% to $199.4 million and Adjusted operating income grew to $19.9 million compared to $14.4 million in the prior year period. Efraim Grinberg, Chairman and Chief Executive Officer, stated, “Our positive momentum continued in the fourth quarter, representing a strong end to a robust year of sales and profit growth for Movado Group. We experienced significant gross margin expansion in the fourth quarter, both with and without MVMT. Fiscal 2019 marked another year of progress on our strategies – to deliver innovation across our portfolio of powerful brands in an omni channel market, capitalize on our strong balance sheet and cash flow to acquire new brands and develop our digital presence. These activities fueled topline growth of nearly 20% with strong growth in operating income and net income for the year while we continued to invest for the long term. During the year, we acquired MVMT, which together with Olivia Burton, which we acquired last year, allows us to increase our presence in the global fashion watch market and will help to fuel our ecommerce expansion as well as leverage our global distribution capabilities.”

We are enjoying watching (pun intended) this Company deliver these terrific results. MOV is a 3.55% holding in the North Star Micro Cap Fund.

Collectors Universe, Inc. (CLCT) + 10.05%: Collectors Universe provides authentication and grading services to dealers and collectors of coins, trading cards, event tickets, autographs and historical and sports memorabilia. The Company’s shares advanced all five trading days, without any specific news. Peter and I did visit their headquarters the previous week and were very impressed by the wide moat around the business, as well as the passion for the business exhibited by the management team and employees. CLCT is a 3.63% holding in the North Star Dividend Fund and a 3.01% holding in the North Star Micro Cap Fund.

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