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Kuby’s Commentary

End of Quarter Lyft

Apr 1, 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.

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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