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Kuby’s Commentary

Hopes, Concerns, and Stimulus

Oct 12, 2020

Last Week:

From Stimulus (stim-yuh-luhs), noun.

In economics, a stimulus is a government injection of money into an economy and intended to spur (stimulate) economic growth. If William Shakespeare were around in 2020 he might have penned “to stimulate, or not to stimulate, that is the question”. Indeed that has been the question for the last few months, and it certain dominated the narrative last week.

On Tuesday Federal Reserve Chair Jerome Powell warned that a tentative recovery from the pandemic recession could falter unless the federal government supplies additional economic support. The market rallied on this unprecedented political pressure from the Fed to influence fiscal policy.

Four hours later, President Donald Trump announced that he was cutting off talks with Democrats over a new economic aid package until after the November elections. The market dropped approximately two percent in the next five minutes.

Before the market opened Wednesday, President Trump tweeted urging Congress to pass aid in a series of standalone bills, an idea that was immediately rejected by House Democrats. The next three trading days saw a sizable stock rally as it became increasingly evident that sooner or later a stimulus package somewhere in the $2 trillion neighborhood was inevitable. Trump’s apparent recovery from COVID-19, and his endorsement of the three drugs he took to lessen the severity of the Virus, probably helped fuel the optimism on Wall Street. Additionally contributing to the upbeat tone were a number of large merger announcements and a civil debate between Vice-President Mike Pence and Senator Kamala Harris.

Small cap stocks were the biggest winners with the Russell 2000 surging 6.38%, as those companies are most sensitive to the domestic economy and therefore perceived as the biggest beneficiaries of additional fiscal stimulus. The S&P 500 gained 3.84% and the Dow Jones Industrial Average went positive for 2020. The inflation warning signals were flashing, with the yield on the Ten-Year Treasury advancing 8 basis points to 0.77%, gold rising 1%, and the dollar declining 0.8%.

This Week:

As it says on the shampoo bottles, “lather, rinse, repeat”. In other words, we can expect the same patterns to be operational: stimulus hopes, COVID-19 concerns, and politics as usual.

The big banks will be kicking off earnings season, and those reports will offer valuable insights into the state of the economy; consumer credit losses trends will be among the main focus points of these early-earnings season reports. Inflation will be in focus on Tuesday and Wednesday with the CPI and PPI readings for September forecasted to show slight upticks from August. Friday is all about the consumer with retail sales for September and The Consumer Sentiment Index for October on the calendar.

Stocks on the Move:

There is mounting evidence that the market is broadening out from the lengthy period when the buying was directed at a handful of high-profile tech stocks. We experienced this broadening out in our portfolios with 97.4% of our holdings producing positive returns last week.

LRN +13.8%: K12, Inc. is a technology-based educational company, which offers proprietary and third-party curriculum, software systems and educational services. It also offers online curriculum and career services to middle and high school students, under the Destinations Career Academy brand name. The company was founded by Ronald J. Packard in 2000 and is headquartered in Herndon, VA. This week, the Arkansas Department of Education announced its “Explore Success” Career Day will be held virtually through Nepris, one of K12’s premier divisions.  LRN is a 2.18% holding in the North Star Micro Cap Fund and a 1.49% holding in the North Star Opportunity Fund.

OESX +19.2%: Orion Energy Systems, Inc. engages in the design, development, and trade of lighting systems, and retrofit lighting solutions. It operates through the following segments: U.S. Markets (USM); Orion Engineered Systems (OES), and Orion Distribution Services (ODS). The company was founded in April 1996 and is headquartered in Manitowoc, WI. This week, the company unveiled a new video tour of its production facility which – no pun intended – shed some light on the development of their operations. OESX is a 6.25% holding in the North Star Micro Cap Fund and a 6.19% holding in the North Star Opportunity Fund.

APOG +19.3%: Apogee Enterprises, Inc. engages in the design and development of architectural products and services. It also provides architectural glass, aluminum framing systems and installation services for buildings, as well as value-added glazing products for custom picture framing. The company operates through the following segments: Architectural Framing Systems, Architectural Glass, Architectural Services, and Large-Scale Optical Technologies. This week, the company declared a $0.1875/share quarterly dividend and announced it would resume share buybacks after it suspended repurchases in April. APOG is a 1.12% holding in the North Star Dividend Fund and a 0.94% holding in the North Star Micro Cap Fund.

CLCT +14.4%: Collectors Universe, Inc. engages in the provision of authentication and grading services for collectibles. It serves dealers and collectors of coins, trading cards, event tickets, autographs, and historical and sports memorabilia. The firm operates through the following segments: Coins, Trading Cards and Autographs, and Other Collectibles. The Other Collectibles segment comprises of certified coin exchange (CCE),,, and expos and product sales. The company was founded in 1986 and is headquartered in Santa Ana, CA. This week, the company announced a facility expansion to support its growth and capacity. CLCT is a 3.30% holding in the North Star Dividend Fund and a 3.25% holding in the North Star Micro Cap Fund.

FLXS +19.7%: Flexsteel Industries, Inc. engages in the manufacturing, import and marketing of residential and commercial upholstered and wood furniture products. Its products include sofas, loveseats, chairs, reclining and rocker-reclining chairs, swivel rockers, sofa beds, convertible bedding units, occasional tables, desks, dining tables and chairs and bedroom furniture. The company was founded in 1893 and is headquartered in Dubuque, IA. There was no significant company news this week.  FLXS is a 2.69% holding in the North Star Dividend Fund.

WTFC +13.1%: Wintrust Financial Corp. is a bank holding company, which engages in the provision of banking and financial services. It operates through the following segments: Community Banking, Specialty Finance, and Wealth Management. This week, there was no significant company news.  WTFC is a 1.51% holding in the North Star Dividend Fund.

TACO +14.6%: Del Taco Restaurants, Inc. engages in developing, franchising, owning, and operating restaurants featuring made-to-order cuisine, including both Mexican inspired and American classic dishes. It offers Mexican-inspired food, such as tacos and burritos, and American classics, such as Double Del cheeseburgers, crinkle-cut fries, and milkshakes. The company is headquartered in Lake Forest, CA. This week, the company rolled out new menu items in collaboration with Cholula Hot Sauce.  TACO is a 2.21% holding in the North Star Micro Cap Fund. 

ETH +10.6%: Ethan Allen Interiors, Inc. is engaged in manufacturing home furnishings and accessories. The firm offers a full complement of home decorating and design solutions through its home furnishing retail networks. It operates through two segments: Wholesale, and Retail. The company was founded in 1932 and is headquartered in Danbury, CT. There was no significant company news this week.  ETH is a 1.35% holding in the North Star Micro Cap Fund. 

GLDD +11.6%: Great Lakes Dredge & Dock Corp. provides dredging services. It operates through the following segments: Dredging and Environmental and Infrastructure. The Dredging segment engages in the enhancement or preservation of navigability of waterways or the protection of shorelines through the removal or replenishment of soil, sand or rock. The environmental and infrastructure segment provides construction services on soil, water and sediment for clients in both the public and private sectors. The company was founded in 1890 and is headquartered in Oak Brook, IL. This week, there was no significant company news.  GLDD is a 1.96% holding in the North Star Micro Cap Fund.

 GBRK +13.3%: Green Brick Partners, Inc. engages in residential land development and homebuilding. It operates through the Builder Operations and Land Development segments. The Builder Operations segment consists of the Builder operations Southeast and Builder operations Central segments. It offers customization options and builds energy-efficient homes located in the metropolitan areas of Dallas, Texas, and Atlanta, Georgia. The Land Development segment sells finished lots or option lots from third-party developers to their controlled builders for homebuilding operations and provides them with construction financing and strategic planning. This week, Green Brick Partners hit a new 52-Week High of $1.85 and received optimistic ratings from JPMorgan and B. Riley.  GBRK is a 1.22% holding in the North Star Micro Cap Fund.

QEPC +84.4%: Q.E.P. Co., Inc. engages in the provision of flooring and industrial solutions. The firm manufactures, markets and distributes hard surface flooring and carpet tile, flooring installation tools, adhesives and flooring related products. It operates through the following geographical segments: North America, Europe, and Australia or New Zealand. It offers its products through the QEP, ROBERTS, Capitol, HarrisWood, Fausfloor, Vitrex, Homelux, TileRite, PRCI, Nupla, HISCO, Plasplugs, Ludell, Porta-Nails, Tomecanic, Bénètiere, and Elastiment brands. The company was founded by Lewis Gould in 1979 and is headquartered in Boca Raton, FL. There was no significant company news this week. QEPC is a 2.30% 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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