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Kuby’s Commentary

G20 Relief Party with Fireworks

Jul 8, 2019

Last Week:

The G20 Relief Party lasted through the Independence Day Holiday, with the market advancing for six straight days to reach a new record high on Wednesday. The very light volume suggested that many traders headed to their beach houses early in the week, and perhaps were in too high spirits to be disturbed by the surprisingly strong jobs report on Friday that pretty much eliminated the chance of a 50 basis point cut in rates at the upcoming Fed meeting. “No worries, 25 basis points is in the bag, pour me another Long Island Iced Tea please. What time do we tee off?” The yield on the Ten-Year Treasury, which had reached a multi-year low on Wednesday,  jumped 10 basis points to 2.05% after the jobs report, as the bond traders seemed a bit more sober. The S&P 500 posted a very modest loss on Friday and finished the week up 1.65%. The Dollar rallied, while Gold and Oil both declined.

This Week:

The economic calendar is light, with Thursday’s release of June CPI forecasted to show an annual rate of core inflation to remain unchanged at 2.0%. Any surprises on that reading could influence the upcoming Fed decision on interest rates, particularly if there is an increase above the 2% level. Earnings season will begin with a trickle as four S&P 500 companies will report results. Overall results for the quarter are expected to be negatively affected by the uncertainty over supply chain and trade issues, with an estimated earnings decline for the S&P 500 of -2.6%. If earnings actually decline for the quarter, it will mark the first time the index has reported two straight quarters of year-over-year declines in earnings since Q1 2016 and Q2 2016.

Trade issues will continue to grab headlines, as China and the U.S. are expected to hold more talks via teleconference and a high-level U.S. trade delegation will be visiting India.

Stocks on the Move:

(PPSI) +17.89%: Pioneer Power Solutions Inc., manufactures, sells and services a broad range of specialty electrical transmission, distribution, and on-site power generation equipment for applications in the utility, industrial, commercial and backup power markets. The Company announced that it has reached an agreement to sell its liquid filled and dry type transformer businesses to Mill Point Capital, a middle-market private equity firm, for $65.5 million in cash and notes. Nathan Mazurek, Pioneer’s Chairman and Chief Executive Officer, said, “Our belief that our assets were worth more individually than the market valuation of our combined organization is validated by this transaction, wherein we will divest a portion of our business for approximately 1.5x our current market capitalization, while retaining two exciting businesses and our status as a publicly traded Nasdaq listed company. Following the closing of this transaction, we plan to focus on streamlining and enhancing our Titan business in Minneapolis and our switchgear business in Los Angeles. With a strong balance sheet, we should be well positioned to assess our retained businesses, potential opportunities and the allocation of resources to best benefit shareholders. I am excited about phase two of Pioneer.” PPSI is a 1.45% holding in the North Star Micro Cap Fund and a 2.13% holding in the North Star Opportunity Fund.

(LYTS) + 11.51%: LSI Industries Inc., 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. There was no news to account for the share price rise. LYTS is a 1.36% holding in the North Star Dividend Fund and a 1.22% holding in the North Star Micro Cap Fund.

(BSET) -14.69%: Bassett Furniture Industries Inc., is a manufacturer, importer, and retailer of home furnishings products in the United States. Net income for the quarter was $0.4 million or $0.04 per diluted share as compared to $4.3 million or $0.40 per diluted share for the prior year quarter. Revenues declined 7.5% to $108.2 million for the quarter. The second quarter of fiscal 2019 was tough,” commented Rob Spilman, Chairman and CEO.  “The overall retail home furnishings sector was sluggish and sales in our corporate store network were down sharply on both a written and delivered sales basis.  The significant declines in our written sales around President’s Day and the month of April resulted in the reported delivered comparable sales shortfall for the quarter.  These trends coupled with store startup losses in new stores opened less than a year and a markedly negative comparison to the hurricane fueled sales and profits generated in Houston in 2018 were significantly detrimental to our bottom line.  Relatively strong sales around our quarter ending Memorial Day Sale provided a much-needed boost to our order backlogs as we entered the third quarter.  In addition, sales trends for the June promotions were slightly better than last year.  Positively, we generated $6.8 million of operating cash flow for the period, keeping our balance sheet in a solid position with $34.2 million of cash and short-term investments, over $22 million available on our credit facility, and no long-term debt.” BSET is a 1.32% holding in the North Star Micro Cap Fund.

(NSSC) – 13.65%: NAPCO Security Technologies Inc., manufactures security products, encompassing access control systems, door-locking products, intrusion and fire alarm systems and video surveillance products. There was no news to account for the decline, so let’s call it profit-taking as the shares advanced 80% in 2018 and another 62.7% so far in 2019. NSSC is a 2.57% holding in the North Star Micro Cap 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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