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Kuby’s Commentary

Holiday Mixed Bag

Nov 22, 2021

All Eyes on Inflation

Investors were concerned by COVID-19 related developments in Europe, where Austria announced a full national lockdown due to a spike in cases, and Germany mandated new restrictions for unvaccinated people. In the U.S. the number of daily new cases continued to trend higher, reaching the highest levels since early October. The market responded to these renewed concerns by punishing European shares, air carriers, and other travel-related firms, as well as the economically sensitive energy companies and small-cap stocks. The Nasdaq rose 1.2%, the S&P 500 edged up 0.3%, while the Russell 2000 sank 2.8%, and the Energy sector drilled down 4.8%.

Despite the recent plunge in consumer sentiment, retail sales for October increased 1.7% from the previous month, and 16.3% from October 2020. The economy might be getting a boost as goods shortages and rising prices are motivating shoppers to accelerate their purchases. This dynamic could influence monetary policy, as Federal Reserve Vice Chair Richard Clarida said fourth-quarter growth likely will be very strong, and the Fed may need to discuss the pace of its tapering bond purchases. The yield on the Ten-Year Treasury dropped 5 basis points to 1.53%, signaling a less optimistic economic outlook from the bond market. This morning, news broke out of the White House that President Joe Biden would be giving Jerome Powell a second term as Fed Chair while nominating Dr. Lael Brainard to Vice-Chair as Clarida’s replacement. While Powell and Brainard share consistent views on ultra-easy monetary policy, they differ on bank regulation.

More government spending could be on the way, as the House passed the Biden Administration’s $2 billion economic plan, from which it moves to the Senate for possible revisions. The math being presented suggests that better tax collection enforcement will largely be able to pay for these new programs. Enquiring minds wonder whether we could collect the trillions of unpaid taxes, without necessitating a plan to spend it?

The top could be in for crypto as Staples Center in Los Angeles will change its name to the Arena this Christmas, the latest signpost of cryptocurrency’s push toward the mainstream., a Singapore-based crypto trading platform, and non-fungible token marketplace, will be paying AEG $700 million in a 20-year naming rights deal. Companies that put their names on sports stadiums have a poor track record of performance in the following years. While it’s not always a precursor to an eventual bankruptcy filing, it’s usually not money well spent. Enron, Chesapeake Energy, CMGI, Air Canada, National Car Rental, PSINET, United Airlines, Adelphi Communications, MCI, Citi, Wachovia, Fruit of the Loom, all come to mind. Rest assured, there are no plans for a North Star Center.

Turkey Time

It should be a slow news week with holiday-shortened trading. The economic calendar includes updates on existing home sales, durable goods, and GDP. The release of FOMC minutes from the last central bank meeting will be scrutinized for any hints of changes in monetary policy.

Enjoy your turkeys and football games. The 3-7 Bears will be visiting the 0-9-1 Lions in Detroit. Enough said.

Stocks on the Move

+65.3% Sono Group N.V. (SEV) manufactures and sells electric cars with integrated solar cells and panels. In addition, the Company monetizes its variable battery technology for integration in numerous types of vehicles, including buses, trucks, camper vans, trains, and boats, as it aims to reduce carbon emissions and provide clean and affordable transportation for the masses. Sono Motors is a new position in the North Star Opportunity Fund and saw a strong public debut last week.

SEV is a 1.8% position in the North Star Opportunity Fund.

-10.1% Madison Square Garden Entertainment Corp (MSGE) produces, presents, and hosts various live entertainment events, including concerts, family shows, and special events, as well as sporting events, in its venues including New York’s Madison Square Garden, Hulu Theater, Radio City Music Hall, the Beacon Theater, and The Chicago Theater. Last week, an open letter to investors was published by Chris McIntyre, founder and CIO of McIntyre Partnerships, in which he detailed intense conviction for Madison Square Garden Entertainment and its future growth potential.

MSGE is a 0.6% position in the North Star Opportunity Fund.

+12.2% Qualcomm Incorporated (QCOM) operates as a multinational semiconductor and telecommunications equipment company. The Company develops and delivers digital wireless communications products and services based on code-division multiple access (CDMA) technology. Last week, Qualcomm announced at its Investor Day a deal to provide Snapdragon chips, vision perception technology, and central controllers in the next line of BMW’s automated driving systems.

QCOM is a 2.3% position in the North Star Opportunity Fund.

+10.0% Tesla Motors Inc (TSLA) designs, manufactures, and sells high-performance electric vehicles and electric vehicle powertrain components. The Company’s portfolio includes solar generation and storage products, more than five fully electric cars, and a growing global network of industrial-grade vehicle chargers called “Superchargers.” Last week, Wedbush Securities Analyst Dan Ives published a note raising the bull case price target to $1,800 and estimating Tesla will account for $2.5T of the potential $5.0T auto/software market dollars.

TSLA is a 0.9% position in the North Star Opportunity Fund.

+10.4% Delta Apparel Inc (DLA) designs, markets, and manufactures branded and private label active and headwear apparel. The Company’s products are sold to boutiques, department stores, outdoor and sporting goods retailers, college bookstores, screen printers, and the US military. Last week, Delta Apparel reported FQ4 earnings of $0.96/share and revenue of $114.73M which beat by $0.53M. Chairman and CEO Robert Humphreys attributed the quarter’s performance to brand awareness and consumer engagement being at an all-time high, strong demand from retailers and retail license accounts, and record-level manufacturing output.

DLA is a 2.0% position in the North Star Micro Cap Fund.

-12.0% Westwood Holdings Group Inc (WHG) provides investment advisory services to a broad range of institutional clients. The Company also offers trust and custodial services to institutions and high-net-worth individuals. There was no significant company news last week.

WHG is a 0.9% position in the North Star Micro Cap Fund.

-11.1% Evolution Petroleum Corporation (EPM) explores for and produces oil and gas. The Company focuses on acquiring established oil and gas fields and applying specialized technology to increase production rates. There was no significant company news last week.

EPM is a 1.3% position in the North Star Micro Cap Fund and a 3.4% position in the North Star Dividend Fund.

-10.8% CarParts.Com Inc (PRTS) retails automobile parts online. The Company offers mirrors, engines, headlights, brakes, interior and exterior accessories, tools, wheels, lighting, bumpers, and other aftermarket autobody parts in its network of over 1.2 million SKUs. There was no significant company news last week.

PRTS is a 3.3% position in the North Star Micro Cap Fund and a 1.8% position in the North Star Opportunity Fund.

-10.8% Orion Energy Systems Inc (OESX) designs, manufactures, and implements energy management systems for commercial and industrial customers. The Company’s management system is comprised of high-intensity fluorescent lighting systems, InteLite intelligent lighting controls, and Apollo Light Pipes. There was no significant company news last week.

OESX is a 2.6% position in the North Starr Micro Cap Fund and a 1.8% position in the North Star Opportunity Fund.

-13.2% Q.E.P. Co Inc (QEPC) manufactures, markets, and distributes tools and related products for the home improvement market. The Company’s brand names include QEP, O’Tool, and Roberts. Products include trowels, floats, tile cutters, wet saws, spacers, nippers, and pliers that are marketed for use in surface preparation and installation of ceramic tile, carpet, marble, and drywall. There was no significant company news last week.

QEPC is a 1.7% position 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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