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Kuby’s Commentary

Glass Half-Full Again

Mar 12, 2018

Last Week:

Like following a well-written television series, one needs to watch all the previous episodes to appreciate the nuances of the plot twists in “Trumpworld” (no disrespect intended, the POTUS would probably like the title anyway). In August, rumors of Gary Cohn’s resignation roiled the markets. In February, an unexpectedly strong jobs report triggered a 10.8% “correction” in stock prices and pushed interest rates to a four-year high. Last week, President Trump created market havoc by announcing tariffs of 25% on steel, and 10% on aluminum. Also last week, Gary Cohn did resign, and nonfarm payrolls posted the largest monthly gain since July 2016. In response, the S&P 500 rallied 3.5%, and the yield on the Ten-Year Treasury only inched up 3 basis points. Two plot developments seemed to change the narrative from the glass being half-empty to being half-full. First, Trump signed tariff proclamations, inviting our military allies to seek negotiations over exemptions, as well as excluding Canada and Mexico from the duties altogether. Second, the average hourly earnings for all private sector workers rose 2.6%, from a year earlier, smaller than the 2.9% increase in the prior month. That more moderate increase in wages calmed fears that bigger paychecks would lead to higher inflation and pressure the Fed to raise rates more rapidly.

This Week:

Diplomats from our military allies will be applying for the tariff exemptions, which should provide many interesting subplots. The other nations (our enemies?), will also be responding, most notably China. There will also be a lot of attention paid to President Trump’s upcoming meeting with North Korean leader Kim Jong Un (clearly our enemy?), possibly as early as May to address a range of military, economic, and civil liberties issues. On the economic front, the release of February CPI on Tuesday, and PPI on Wednesday, will be closely watched for signs of any renewed inflationary pressures.

Stocks on the Move:

Alamo Group, Inc. (ALG) +8.8%: The shares had a delayed reaction after the Company’s strong fourth quarter earnings (net income up 42% on 18.4% sales growth) from the previous week had been overshadowed by the Tariff news. Ron Robinson, Alamo Group’s President and CEO commented, “Our fourth quarter results nicely capped off a very strong year for Alamo Group and we are proud of our total organization that delivered these results. Starting in 2015 and throughout most of 2016 we commented on a variety of headwinds that were constraining our results. These included weak overall agricultural market conditions; the negative effects on our snow removal products due to consecutive mild winters; declines in sales of certain Industrial Division products, mainly vacuum trucks to non-governmental end-users; generally soft economic conditions in our European markets; and, the negative effects of the strong U.S. dollar on the translation of our non-U.S. dollar denominated sales and earnings. Throughout 2017, we saw improvement in all five of these areas. Alamo Group Inc., is engaged in the design and manufacturing of agricultural equipment and infrastructure maintenance equipment. Its products include tractor-mounted mowing and other vegetation maintenance equipment, among others. The North Star Micro Cap Fund holds a 2.5% in ALG.

Myers Industries, Inc. (MYE) +10.5%: Fourth-quarter net sales increased $16.8 million or 13.6% (13.0% excluding currency fluctuation) to $140.1 million, compared to the fourth quarter of 2016. Adjusted income per diluted share from continuing operations was $0.09, compared to $0.01 for the fourth quarter of 2016. President and Chief Executive Officer Dave Banyard commented, “We are excited about the pace of our strategic execution and the growth we achieved in the fourth quarter. This past year was transformational for Myers Industries. We focused the enterprise on the key niche markets where we deliver the strongest value. That focus resulted in double-digit revenue growth in our food and beverage and consumer end market products, and high single-digit growth in our vehicle end market. Myers Industries Inc., manufactures a range of polymer products for industrial, agricultural, automotive, commercial and consumer markets. It also manufactures plastic reusable material handling containers and pallets. The North Star Dividend Fund holds a 3.1% position in MYE.

NTN Buzztime, Inc. (NTN) -22.5%: Total revenues were $5.3 million, compared to $6.0 million for the fourth quarter of 2016 due to lower site count and fewer advertising programs. Net loss was $639,000, or $0.25 per share compared to a net loss of $459,000, or $0.22 per share, for the fourth quarter of 2016. EBITDA was $117,000 compared to $390,000 in the same period last year. “In 2017, we expanded our gross margin and maintained positive EBITDA, invested in product development, while reorganizing our marketing and sales team to drive scale,” said Ram Krishnan, NTN Buzztime CEO. “In the fourth quarter, we completed the Buffalo Wild Wings software integration and delivered the first batch of new tablets with magnetic swipe, EMV and NFC capabilities. Then, in December, we initiated order and pay rollout at select locations. In January, we signed a contract with a service provider in another market for several thousand tablets, showing again the value of our platform and its broader market appeal. We anticipate several follow-on tablet orders and believe that this is an exciting recurring revenue opportunity that scales. NTN Buzztime Inc., 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. The North Star Micro Cap Fund holds a 0.9% position in NTN.

Transact Technologies, Inc. (TACT) -11.8%: TransAct generated 2017 fourth quarter net sales of $13.2 million compared with 2016 fourth quarter net sales of $13.6 million. Adjusted net income per diluted share, which excludes the $1.3 million charge to tax expense from earnings per share, was approximately $0.12 per diluted share for the 2017 fourth quarter, compared to $0.18 in the year-earlier period. Bart Shuldman, Chairman and Chief Executive Officer of TransAct, commented, “The fourth quarter concluded a year of strong operating performance and growing momentum as we delivered our highest-ever quarterly gross profit margin and established a foundation for 2018 growth. Fourth quarter and full year results highlight our ongoing initiatives to transition our business mix towards revenue generated from the sale of technology enabled solutions for the restaurant solutions market that also include related recurring revenues. We expect momentum for our restaurant solutions terminal sales along with recurring maintenance revenue and sales of related proprietary labels and services to build going forward. Transact Technologies, Inc., is engaged in developing and selling software-driven technology and printing solutions for restaurant, POS automation and banking, casino and gaming, lottery, mobile and oil and gas. The North Star Dividend Fund holds a 1.3% position in TACT.

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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