I could just repost last week’s commentary and just change the specific numbers as the storyline was essentially a rerun. In fact, I will:
The stock market party was disrupted as the Coronavirus upset the apple cart. Corporate earnings reports were strong and interest rates moved lower, but the S&P 500 declined 1.03% 2.12% and the Russell 2000 fell 2.2% 2.89%. It was the biggest one-week drop in the market since August, with most of the damage coming on Friday.
Positive earnings surprises recorded by companies in the Information Technology sector were mainly responsible for a decrease in the projected overall earnings decline for the quarter to –1.9% 0.3%from -2.4% 1.9% during the week. The yield on the Ten-Year Treasury fell 16 basis points to 1.68% 1.52% its lowest level since early October. Crude oil and Energy sector stocks had a particularly difficult week, with WTI sliding 7.4% 2.97% and the industry shares posting a 4.43% 2.92% loss. The Dollar fell .57% and Gold both inched up modestly.
Concerns over the outbreak of the Coronavirus emanating from China dominated the headlines. Unfortunately, the rest of this paragraph needed to be significantly edited as this story got much worse. As of Sunday night, the number of cases jumped by more than 17,000 with 360 deaths, and most countries restricting travel to China. The economic impact remains unknown, but Citigroup cut its full-year GDP forecast for China to 5.5% from 5.8%. Chinese policy makers have instituted procedures to shore up the financial system and capital markets in anticipation of a steep sell-off when the markets re-open on Monday after being closed since before the Coronavirus outbreak for the Lunar New Year holiday.
In the world of politics, the Senate voted against calling witnesses, essentially ending the impeachment trial of Donald Trump. Meanwhile Bernie Sanders surged in the polls in Iowa with the caucus finally upon us.
In the world of football, the Chicago Bears were on holiday again this past weekend.
It’s the second half of earnings season, after excellent performances by J. Lo and Shakira, 94 S&P 500 companies are scheduled to report quarterly results. The forward guidance will likely be of particular interest, as the Coronavirus has renewed concerns about the health of the global economy on 2020. Central banks in Brazil and the Philippines are expected to cut rates to fend off economic slowdowns with inflation benign.
The economic calendar is full, bookended by ISM Manufacturing PMI on Monday and the Employment report on Friday. Goldilocks would prefer some slightly hotter porridge from those reports to stave off recessionary concerns that have started to resurface over the past week.
Stocks on the Move:
LEE +71.1%: Lee Enterprises is a leading provider of local news and information, and a major platform for advertising, with daily newspapers, rapidly growing digital products and more than 200 weekly and specialty publications serving 50 markets in 20 states. Lee entered into a definitive agreement with Berkshire Hathaway to acquire BH Media Group’s (“BHMG”) publications and The Buffalo News for $140 million in cash. Berkshire Hathaway is providing approximately $576 million in long-term financing to Lee at a 9% annual rate. The proceeds from the Berkshire financing will be used to pay for the acquisition, refinance Lee’s approximately $400 million of existing debt, and provide enough cash on Lee’s balance sheet to allow for the termination of Lee’s revolving credit facility. Subsequent to the deal closing, Berkshire Hathaway will be Lee’s sole lender. Warren E. Buffett, Berkshire Hathaway’s Chairman and CEO, said, “My partner Charlie Munger and I have known and admired the Lee organization for over 40 years. They have delivered exceptional performance managing BH Media’s newspapers and continue to outpace the industry in digital market share and revenue. We had zero interest in selling the group to anyone else for one simple reason: We believe that Lee is best positioned to manage through the industry’s challenges. No organization is more committed to serving the vital role of high-quality local news, however delivered, as Lee. I am confident that our newspapers will be in the right hands going forward and I also am pleased to be deepening our long-term relationship with Lee through the financing agreement.” LEE is a 1.31% holding in the North Star Opportunity Fund and LEE Corporate Bonds are a 2.58% holding in the North Star Bond Fund.
OESX +10.8%: Orion Energy Systems, inc. is a provider of LED lighting and turnkey energy project solutions designed to reduce energy consumption and enhance business performance and efficiency. The Company announced that it has received a commitment to further expand the retrofit of a major national account customer’s lighting systems with Orion’s state-of-the-art LED lighting and wireless Internet of Things (IoT) enabled control solutions at additional locations nationwide. Orion anticipates additional revenue of $18M – $20M under this next phase, which is dependent on the customer’s issuance of purchase orders. Installations for this phase are slated for completion during Orion’s fiscal 2020 fourth quarter ending March 31, 2020 and its fiscal 2021 first quarter ending June 30, 2020. In light of this additional customer commitment, Orion is increasing its fiscal 2020 revenue goal to a range of $150M to $155M from a prior range of $135M to $145M. OESX is a 4.4% holding in the North Star Dividend Fund and a 5.38% holding in the North Star Opportunity Fund.
COHR -14.3%: Coherent, Inc. is one of the world’s leading providers of lasers and laser-based technology for scientific, commercial and industrial customers. There was no company specific news to account for the share price decline in front of the upcoming February 5 quarterly earnings release. COHR is a 0.75% holding in the North Star Opportunity Fund.
FLXS -13.8%: Flexsteel Industries, Inc., one of the oldest and largest manufacturers, importers and marketers of residential and contract upholstered and wooden furniture products in the United States, reported disappointing fiscal second quarter 2020 results. Net sales were $102.9 million for the quarter compared to net sales of $118.4 million in the prior year quarter, a decrease of 13%, and the Company posted a net loss of $5.4 million or $0.68 per diluted share. The reported net loss for the quarter ended December 31, 2019 included a $5.1 million pre-tax restructuring expense. Excluding this item, the Company reported an adjusted net loss of $1.5 million, or $0.19 per diluted share. FLXS is a 0.94% holding in the North Star Dividend Fund.
BSET -13.3%: Bassett Furniture Industries, Inc. is a leading manufacturer and marketer of high-quality home furnishings, with 70 company-owned and 33 licensee-owned stores. Bassett has leveraged its strong brand name in furniture into a network of corporate and licensed stores that focus on providing consumers with a friendly environment for buying furniture and accessories. Bassett also has a traditional wholesale business with more than 700 accounts on the open market, across the United States and internationally and a logistics business specializing in home furnishings. The share price continued its slide following the Company’s earnings report on January 23 that fell far short of expectations. BSET is a 1.74% holding in the North Star Dividend Fund.
LRN -18.1%: K12 Inc. takes a personalized approach to education by removing barriers to learning, reaching students where they are, and providing innovative, high-quality online and blended education solutions, curriculum, and programs to charter schools, public school districts, private schools, families, and in post-secondary settings. In total, this work serves more than 70 public and private schools, more than 2,000 school districts, and students in all 50 states and more than 100 countries. The company, which has delivered millions of courses over the past decade, is taking a leadership role in career readiness education through K12-powered Destinations Career Academies, programs which combine traditional high school academics with Career Technical Education (CTE), and in adult and professional development education. The Company announced second quarter revenues of $257.6 million, compared to revenues of $254.9 million, and income from operations of $30.3 million, compared to $33.3 million in the prior year second quarter. K12 also announced it closed its acquisition of Galvanize Inc., a leader in developing talent and capabilities for individuals and corporations in technical fields such as software engineering and data science and updated its financial guidance. LRN is a 1.24% holding in the North Star Dividend Fund.
MOV -11%: Movado Group, Inc. designs develop, sources, markets, and distributes fine watches in the United States and internationally. Shares have been under pressure after reporting quarterly results and lowering guidance for the rest of the year on November 26. There was no company specific news last week. MOV is a 2.77% holding in the North Star Dividend Fund.
SGC -16.3%: Superior Group Of Companies, Inc. is engaged in designing, manufacturing, and distribution of uniforms to major domestic retailers, foodservice chains, transportation, and other service industries. The share price reached its lowest level since 2014 and have now declined over 50% since acquiring CID Resources, Inc. for $88 million in May 2018. There was no company specific news last week. SGC is a 0.62% holding in the North Star Dividend Fund.