Despite enthusiasm on Monday morning over the new U.S.-Mexico-Canada Agreement (take note that the word “Trade” disappeared from the agreement formally known as NAFTA), as the week progressed the trade and interest rate headwinds once again intensified. On the trade front, U.S. Commerce Secretary Wilbur Ross told Reuters on Friday that the US and China probably won’t resume trade negotiations until after the November mid-term elections. It is becoming clear that not only does the Trump administration not believe in free trade, moreover that they might not view international trade as worthwhile endeavor at all (I understand this view might be central to the new Michael Lewis book “The Fifth Risk”). Meanwhile, strong economic data combined with rather hawkish comments from Fed Chair Jerome Powell contributed to a 17-basis point rise in the Ten-Year Treasury, to settle at 3.23%, its highest level since February 2011. These stiff winds pushed all equity markets lower, with the S&P 500 declining 0.97%, the NASDAQ down 3.18%, and the Russell 2000 sliding 2.44%. The Russell is now down 4.8% in the last month and 3.66% over the last 3 months, as the small cap rally has for the time being stalled out, despite the strong US economy. Outside of the U.S., the markets continue to struggle with the Emerging Markets Index down 13.1% and the EAFE (Europe, Australia, Far East) down 6.03% YTD.
The U.S. bond market will be closed on Monday for the Columbus Day holiday. There will be lots of news about the Chinese economy, and additional dialogue about our trade “war” with them. I don’t know if we are “winning” this battle, but the Chinese certainly seem to be “losing”. U.S. inflation data will be out on Wednesday (PPI) and Thursday (CPI). Later in the week, bank earnings will be reported by the big money centers, Citigroup, J.P. Morgan, and Wells-Fargo.
Stocks in the News:
Advanced Micro Devices, Inc. (AMD) -11.2%: The analyst community turned bearish on AMD, citing valuation concerns following a six-month period during with the share price tripled. The Company will be reporting third quarter earnings on October 24th. Advanced Micro Devices designs and produces microprocessors and low-power processor solutions for the computer, communications, and consumer electronics industries. AMD is a 3.5% holding in the North Star Opportunity Fund, and AMD corporate bonds are a 2.7% holding in the North Star Bond Fund.
American Airlines Group, Inc. (AAL) -11.8%: Airlines stocks continued their descent, as rising fuel costs have created turbulence for the carriers. Legendary investor Warren Buffett has established a sizeable stake in AAL, which will be reporting quarterly results on October 26th. The shares trade at a modest 7.8x the consensus earnings estimate for the next 12 months. American Airlines Group Inc operates over 6,000 flights per day to more than 300 destinations across the world from hubs in Charlotte, Chicago, Dallas/Fort Worth, Los Angeles, Miami, New York, Philadelphia, Phoenix and Washington, D.C. AAL is a 2% holding in the North Star Opportunity Fund.
Artesian Resources Corp (ARTNA) -10.5%: There was no news to account for the decline. The Company recently reported solid results and modestly increased its quarterly dividend. Artesian Resources through its subsidiaries offers water, wastewater and other services on the Delmarva Peninsula. It distributes water for public and private fire protection, to residential, commercial, industrial, municipal and utility customers. Artesian Water Company, the principal subsidiary, is the oldest and largest regulated water utility on the Delmarva Peninsula and has been providing water service since 1905. Artesian supplies 7.9 billion gallons of water per year through 1,293 miles of water main to nearly a third of Delaware residents. ARTNA is a 1% holding in the North Star Dividend Fund.
Century Casinos, Inc. (CNTY) -13.1%: The Company’s shares reached a 52-week low on no news. Earlier in the year, the Company experienced a licensing delay in Poland and costs associated with opening a casino in the U.K., which reduced earnings. Having absorbed those expenses, CEO Peter Hoetzinger expressed the following upbeat commentary during the last quarterly conference call, “It was clearly a transitional quarter, a quarter which saw our entry into the U.K., with the opening of the Century Casino in the city of Bath; a quarter which laid the foundation to a land-based presence in Asia, with our project on the Vietnam-China border; and a quarter which contributed a great deal to creating long-term stability in Poland, as we now hold 8 casino licenses compared to 7 previously. Considering these achievements, it was a good and very important quarter for the long-term success of our company.” The shares now trade right around book value. Century Casinos is a casino entertainment company that develops and operates gaming establishments, as well as related lodging, restaurant and entertainment facilities around the world. CNTY is a 1.9% holding in the North Star Micro Cap Fund.
Kewaunee Scientific Corp (KEQU) -13.7%: There was no news to account for the decline in the share price. Kewaunee Scientific is engaged in designing, manufacturing, and installation of laboratory, healthcare, and technical furniture products. Its products include fume hoods, casework, safety cabinets, exhaust systems, and energy saving controls. KEQU is a 2.5% holding in the North Star Dividend Fund.
Monmouth Real Estate Investment Corp (MNR) -10.4%: The REIT issued 8 million new shares at $15, which represented a 7.3% discount to the previous closing price. It is an unfortunate aspect of the REIT structure that to grow new shares need to be issued. Monmouth Real Estate Investment Corp is engaged in the ownership and management of industrial buildings subject to long-term net leases, mainly to investment grade tenants. MNR is a 3.1% holding in the North Star Dividend Fund and MNR preferred stock is a 1.2% holding in the North Star Bond Fund.
Myers Industries Inc (MYE) -25.8%: Shares reached a 52-week low after the Company provided preliminary third quarter results that reflected softness in the RV market affecting their Material Handling segment, as well as a charge associated with their 2015 sale of their Lawn and Garden segment as the acquiring company has asked to restructure the debt owed to MYE. Myers Industries manufactures a range of polymer products for industrial, agricultural, automotive, commercial and consumer markets. It also manufactures plastic reusable material handling containers and pallets. MYE is a 2.3% holding in the North Star Dividend Fund.
Orion Energy Systems, Inc. (OESX) +16.7%: There was no news to account for the strength in the shares. Orion Energy Systems Inc researches, develops, designs, manufactures, markets, sells and implements energy management systems consisting of energy efficient commercial and industrial interior and exterior lighting systems and related services. OESX is a 1.5% holding in the North Star Opportunity Fund.