Last Week:

The employment report for April released on Friday indicated that there were 266,000 new jobs added, versus the approximately one million that was forecasted.  Additionally, March’s number was reduced by 246,000 jobs, suggesting that there are approximately one million less Americans with jobs than the consensus forecast Thursday night. That is a historic miss equal to the total of every employed person in Wyoming, Vermont, and North Dakota combined. The market shrugged off this shocker, and the S&P 500 advanced 1.23% to close at another record high. Technology stocks continued their recent underperformance, shedding 1.51%, while small caps essentially treaded water. The dollar declined over 1% and is once again threatening to sink below its lowest level since 2015. The demand for dollars based on its role as the global reserve currency is the foundation upon which our current extraordinarily expansive monetary policy is built. As such, the weakness in the greenback is a warning sign that should be carefully monitored, particularly versus China’s yuan. Gold gained over 3.5% during the week and has now rallied over 8% since bottoming at the end of March. We still believe an allocation to gold belongs in portfolios to hedge against further dollar debasement. Cryptocurrencies seem to have been benefiting from investors’ anti-sovereign currencies sentiment, but we believe the risks associated with that strategy are significant. It will be interesting to see if Elon Musk’s Saturday Night Live episode this past weekend will mark the beginning of the deflation of that absurd speculative bubble. Speaking of potential bubbles that might pop, the bond market remained inflated for another week as the Ten-Year Treasury inched down a few basis points to 1.58%.

Earnings, Earnings, Earnings! The incredible growth in corporate earnings gives us some comfort that the stock market at an elevated 22 times forward earnings estimates is not in bubble territory. Following another week of earnings beats, the S&P 500 is now reporting an earnings growth rate for the first quarter of 49.4%, compared to an earnings growth rate of 45.8% last week and an earnings growth rate of 23.8% at the end of the first quarter (March 31). Positive earnings surprises reported by companies in multiple sectors (led by the Financials, Consumer Discretionary, and Health Care sectors) were responsible for the improvement in overall earnings for the index during the past week. If 49.4% is the actual growth rate for the quarter, it will mark the highest year-over-year earnings growth reported by the index since the rebound from the financial crisis in the first quarter of 2010 (55.4%). The June quarter will likely top that record growth as the economy laps the quarter when the economy was largely shut down.

On the Chicago sports scene, the 2020-2021 Bulls and Blackhawks seasons are fading away. Summer is approaching, hopefully, a respite from Covid-19 will allow us to enjoy a few ball games at Guaranteed Rate Field (still Comiskey Park to me 30 years after being demolished) watching the championship-caliber Chicago White Sox in action.

Happy Mother’s Day to Alma Kuby, who not only took me to my first White Sox game, bought me cool rock and roll records but also shared with me the lessons she learned while getting her MBA from the University of Chicago when I was in High School. Perhaps the most useful lesson was that “sunk costs are sunk”. True in business and in life in general.

This Week:

The economic calendar is headlined by April’s Consumer Price Index report on Wednesday, which could jolt the bond market and disrupt the complacency of equity speculators if it exceeds the 3.6% year-over-year estimate. The Producer Price Index, which has been running hot the last few months, comes out the following day.

The consumer is in focus on Friday with spending data from April as well as The University of Michigan Sentiment Index for May. Both of those readings were very strong last month.

Earnings season will wind down with only 18 S&P 500 companies reporting results for the first quarter.

Stocks on the Move:

Companies with news…

-13.5% 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. Last week, CarParts.com was named the winner of two Gold Stevie Awards for Achievement in Finance and Achievement in Organizational Recovery in the 19th Annual American Business Awards.

PRTS is a 3.7% position in the North Star Micro Cap Fund and a 2.4% position in the North Star Opportunity Fund.

+11.4% CVS Health Corporation (CVS) is an integrated pharmacy health care provider. The Company’s offerings include pharmacy benefit management services, mail order, retail and specialty pharmacy, disease management programs, and retail clinics. CVS runs approximately 9,900 retail and specialty drug stores. Last week, CVS reported Q1-2021 results with GAAP EPS of $2.04, which beat by $0.32, and revenue of $69.1B, which beat by $750M. CEO Karen Lynch attributed the results to strong performance in the Health Care Benefits segment, fueled by continued growth in government services. Membership across Medicare business lines increased, and the Company outperformed with dual eligible members, delivering over 30% growth, and adding 14 new states to its geographic reach.

CVS is a 2.9% position in the North Star Opportunity Fund.

+24.4% Rocky Brands Inc (RCKY) designs, develops, manufactures, and markets men’s and women’s footwear. Its footwear brands, which are sold in retail sporting goods and outdoor stores, include Rocky, Georgia Boot, Creative Recreation, Durango, Lehigh, and licensed brand Michelin. Last week, RCKY reported Q1-2021 results with Non-GAAP EPS of $1.19, which beat by $0.60, and revenue of $87.67M, up 57.3% year-over-year. CEO Jason Brooks attributed the results to strong growth in both the wholesale and retail segments, as well as the “on fire” western business.

RCKY is a 5.0% position in the North Star Micro Cap Fund and a 6.9% position in the North Star Dividend Fund.

+13.1% Consolidated Communications Holdings Inc (CNSL) offers telecommunications services. The Company offers local and long-distance telephone, high-speed internet access, and digital television services to individuals and businesses in the States of Illinois, Pennsylvania, and Texas. Last week, Consolidated Communications recently announced $20,000 in grants awarded to eight K-12 schools in support of innovative, technology-focused learning programs. As a part of the program’s inaugural grant cycle, the grants will focus on funding projects that address virtual learning resource gaps.

CNSL is a 1.3% position in the North Star Micro Cap Fund.

+14.8% Hamilton Beach Brands Holding Company (HBB), through its subsidiaries, markets and designs electric household and specialty houseware appliances, as well as commercial products for restaurants, bars, and hotels. Last week, Hamilton Beach Brands reported Q1-2021 results with GAAP EPS of $0.21 and revenue of $149.2M, up 23.5% year-over-year. CEO Greg Trepp attributed the results to the rebound in foodservice and hospitality markets, as well as the Company’s leadership position in the small appliance e-commerce channel.

HBB is a 1.1% position in the North Star Micro Cap Fund.

+11.9% Phibro Animal Health Corporation (PAHC) operates as an animal health and mineral nutrition company. The Company offers antibacterials, anticoccidials, anthelmintics, vaccines, and nutritional products for the treatment of animals. Phibro Animal Health serves personal care, industrial chemical, and chemical catalyst industries worldwide. Last week, PAHC reported FQ3-2021 Non-GAAP EPS of $0.34, which beat by $0.02, and revenue of $212M, which beat by $5.61M. Jack Bendheim, CEO, announced the approval for a new vaccine facility in Sligo, Ireland. The Company will continue to build its companion animal pipeline after finalizing an agreement that adds two early-stage oral care projects.

PAHC is a 1.1% position in the North Star Micro Cap Fund.

Companies without news…

+16.9% 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 1.0% position in the North Star Micro Cap Fund and a 2.4% position in the North Star Dividend Fund.

 +12.3% Flexsteel Industries Inc (FLXS) manufactures and sells wooden and upholstered furniture for the retail, contract, and recreational vehicle (RV) furniture markets. The Company’s products are sold to furniture dealers, department stores, and RV manufacturers. There was no significant company news last week.

FLXS is a 3.2% position in the North Star Dividend Fund.

 +11.4% Ethan Allen Interiors Inc (ETH) designs, manufactures, sources, sells, and distributes a range of home furnishings and accessories. Through its portfolio of ten furniture factories, one sawmill, one lumberyard, as well as 300 Ethan Allen Stores, the Company offers a variety of products including beds, dressers, tables, chairs, buffets, entertainment units, home office furniture, and wooden accents. There was no significant company news last week.

ETH is a 1.8% position in the North Star Micro Cap Fund. +16.3% 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 the use in surface preparation and installation of ceramic tile, carpet, marble, and drywall. There was no significant company news last week.

QEPC is a 2.6% position in the North Star Micro Cap Fund.

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