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Kuby’s Commentary

The Dialogue Continues

Sep 30, 2019

Last Week:

The S&P 500 declined 1.01% and the Russell 2000 sank 2.52% as trade, IPO, impeachment, and economic concerns dictated the mood on Wall Street. The yield on the Ten-Year Treasury slipped 9 basis points to 1.68% and the Dollar gained 0.5% to test its recent highs.

  • The U.S.-China trade “dialogue” (I think it’s a mistake to call it a “war”) seemingly took a turn for the worse as a report suggested that the Trump administration is considering limiting pension funds’ holdings of Chinese stocks and delisting those shares from U.S. exchanges. The tweets and leaks seem to generally get more combative as negotiating sessions approach, so I think it is safe to say that this news flow is part of the administration’s negotiating strategy. High-level trade negotiations are scheduled to take place in Washington on October 10-11.
  • Peloton Interactive was the latest high-profile IPO that traded down from its offer price. At North Star we focus on profitable companies with long operating histories that are valued at reasonable multiples of earnings, so we welcome a shift an investor sentiment away from money-losing start-ups trading at high multiples of revenues.
  • A number of clients have asked if we should be getting more defensive now that the impeachment process is underway. History doesn’t offer much of a guide with a sample size of two. In one case (Nixon) the market performed poorly, but in the other (Clinton) the market traded higher. I think the jury is out on the impact of the current impeachment on the market, but so far it does not seem to be creating any significant selling pressure.
  • The U.S. economy continues to display signs of slowing growth. Consumer spending rose 0.1% in August, the smallest gain in six months, while the University of Michigan’s sentiment index rebounded to 93.2 in September from August’s plunge to 89.8. The Consumer comprises over 2/3 of the economy, and the Index was as low as 55.3 during the 2008 financial crisis and recently has been as high as 101.4 (March 2018).

This Week:

The U.S.-China trade dialogue will continue to affect the markets, albeit to a diminishing degree of volatility. The tone is better going into the week, as the White House has issued a partial denial to Friday’s reports about limiting U.S. investment in Chinese companies and financial markets. Politics will certainly be dominating headlines if not the markets, as the impeachment drama unfolds. The economic calendar is fairly busy, with the jobs reports for September on Friday clearly the highlight.

Trading might be light, as it is Rosh Hashanah (the Jewish New Year) on Monday. Shana Tova to those celebrating!

Stocks on the Move:

(CNSL) +10.6%: Consolidated Communications Holdings Inc., is a leading broadband and business communications provider serving consumers, businesses, and wireless and wireline carriers across rural and metro communities and a 23-state service area. Leveraging an advanced fiber network spanning 37,000 fiber route miles, Consolidated Communications offers a wide range of communications solutions, including: high-speed Internet, data, phone, security, managed services, cloud services and wholesale, carrier solutions. Zacks Equity Research upgraded CNSL to a “Strong Buy”, based on the upward trend in earnings estimates.  CNSL is a 0.94% holding in the North Star Dividend Fund.  CNSL corporate bonds are a 2.78% holding in the North Star Bond Fund and a 1.10% holding in the North Star Opportunity Fund.

(NSSC) -11.5%: NAPCO Security Technologies Inc., manufactures security products, encompassing access control systems, door-locking products, intrusion and fire alarm systems and video surveillance products. There was no news to account for the price decline. NSSC is a 2.0% holding in the North Star Micro Cap Fund.

(NTN) +48.8%: NTN Buzz time Inc., delivers interactive entertainment and innovative dining technology to bars and restaurants in North America. The shares have rallied off a very depressed level following the resignation of CEO Ram Krishnan on September 17. NTN is a 0.67% holding in the North Star Micro Cap Fund.

(HEAR) +13.03%: Turtle Beach Corp., operates in the technology sector primarily in the United States. It is a leading gaming audio and accessory brand, offering a wide selection of cutting-edge, award-winning gaming headsets. Analysts are expressing confidence in the upcoming holiday season for sales of new games, which should result in improved spending on accessories. HEAR is a 1.23% 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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