Last Week:
The Stock market seems to have become comfortably numb to good news, as equities essentially treaded water despite a plethora of good news from economic data, monetary policy, and corporate earnings.
The S&P 500 reached another record high on Thursday after robust U.S. growth figures, as the first-quarter GDP expanded at 6.4%, beating estimates of a 6.1% annualized rate. That left the world’s largest economy within 1% of its peak reached in late 2019, just before the coronavirus pandemic came to the United States. The Labor Department also revealed that 553,000 new weekly jobless claims were filed in its latest report, marking another pandemic low, although still double the longer-term average rate. Profit-taking erased the weekly gains on Friday after the U.S. government said it would bar most travel between the U.S. and India beginning next Tuesday. Dallas Fed President Robert Kaplan said signs of excessive risk-taking in financial markets show it is time for the Federal Reserve to consider reducing its massive bond purchases. Powell addressed the topic of financial stability in his statement Wednesday noting that he is “seeing things in the capital markets that are a bit frothy. That’s a fact. I won’t say it has nothing to do with monetary policy, but it also has a tremendous amount to do with vaccination and reopening of the economy.” He also reiterated that any increases in inflation are likely to be transitory and showed no sign that the central bank would change monetary policy anytime soon due to the “uneven and far from complete” recovery. “It will take some time before we see substantial further progress,” Powell added, choosing not to focus on steps that would be needed to eventually withdraw monetary support. The yield on the Ten-Year Treasury inched up 6 basis points to 1.63%, as the bond market embraced Chairman Powell’s forecast.
Let the good times roll. The Conference Board’s consumer confidence index raced to a reading of 121.7 this month. That was the highest level since February 2020, just before the onset of the COVID-19 pandemic, and followed a reading of 109.0 in March. It was the fourth straight monthly increase in the index. The survey’s present situation measure, based on consumers’ assessment of current business and labor market conditions, soared to a reading of 139.6 from 110.1 last month. But the expectations index, based on consumers’ short-term outlook for income, business, and labor market conditions, ticked up to 109.8 from 108.3 in March. We believe the expectations index provides a good gauge for the tone of the stock market.
Earnings, earnings, earnings. Due to the number and magnitude of positive earnings surprises during the week, the earnings growth rate for the first quarter growth rate increased to 45.8%, compared to an earnings growth rate of 33.8% 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 Information Technology, Communication Services, and Consumer Discretionary sectors) were responsible for the significant improvement in overall earnings for the index during the past week. The current June quarter is expected to show 58.3% growth as we lap the June 2020 quarter when most of the economy was shut down. Valuations are high, with the S&P 500 trading at 22 times those very robust forward earnings estimates.
Bears fans are celebrating in the Windy City following the surprise maneuver of drafting Quarterback Justin Fields in the NFL draft. Could the 70-year QB drought be over! Stay tuned, and Bear down.
This Week:
Earnings season will continue in full swing, with 133 S&P 500 companies scheduled to report results for the first quarter.
The Institute for Supply Management will release its April Manufacturing Index on Monday and its Services Index on Wednesday. Both are expected to tick up from 40-year record readings in March.
On Friday, the Bureau of Labor Statistics releases the jobs report for April, with expectations for a gain of nearly one million jobs.
Stocks on the Move:
Companies with news…
+13.5% The Eastern Company (EML) manufactures and markets a variety of locks and other specialty industrial hardware. The Company primarily offers locks and latches for truck bodies, computers, office equipment, and various applications for the electrical, automotive, and construction industries. Last week, The Eastern Company reported Q1 earnings of $0.93 per share and revenue of $73.1M or up 11.9% year over year. The quarter’s results were attributed to the launch of new products at Big 3 Precision and Velvac.
EML is a 3.2% position in the North Star Micro Cap Fund.
+33.3% 1-800-Flowers.Com Inc (FLWS) is an e-commerce provider of floral products and gifts. The Company’s product offerings include fresh-cut and seasonal flowers, plants, floral arrangements, home and garden merchandise, and gift baskets. 1-800-Flowers reported strong results last week with FQ3 earnings of $0.02 per share and revenue of $474.2M up 70.1% year over year. The Company anticipates its double-digit revenue growth will continue in its next fiscal year mostly due to e-commerce growth.
FLWS is a 3.0% position in the North Star Micro Cap Fund.
+14.3% Unitil Corporation (UTL) conducts a combination electric and gas utility distribution operation in north-central Massachusetts and electric utility operations in the seacoast and capital city areas of New Hampshire. The Company is also involved in energy planning, procurement, marketing, and consulting services. Last week, Unitil declared a $0.38 per share quarterly dividend, in line with previous distributions.
UTL is a 1.2% position in the North Star Dividend Fund.
-13.0% Pitney Bowes Inc (PBI) sells, finances, rents, and services integrated mail and document management systems. The Company offers a full suite of equipment, supplies, software, and services for end-to-end mail stream solutions. Last week, Pitney Bowes reported Q1 earnings of -$0.18 per share, missing by $0.22. Revenues for the period were $915.2M, up 14.9% year over year. President and CEO Marc Lautenbach commented, “…every business improved its EBIT performance from the prior year, and we strengthened our balance sheet.”
PBI is a 0.8% position in the North Star Micro Cap Fund.
+21.3% 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. Last week, FLXS reported strong results with Q3 earnings of $0.67 per share and revenue of $118.41M, up 19.8% year over year. The Company is seeing continued strong demand for home furnishings products and as such reported 33% organic sales growth for the period.
FLXS is a 3.0% position in the North Star Dividend Fund.
+13.9% United Parcel Service Inc (UPS) delivers packages and documents throughout the United States and in other countries/territories. The Company also provides global supply chain services and less-than-truckload transportation; primarily in the United States, UPS’s business consists of air and group pick-up and delivery networks. Last week, UPS reported Q1 earnings of $5.47 per share and revenue of $22.91B up 164% year over year. The sale of UPS Freight is expected to close in the second quarter and the Company is planning another $1B in long term debt repayments.
UPS is a 1.5% position in the North Star Opportunity Fund.
Companies without news…
-10.5% 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. There was no significant company news last week.
RCKY is a 4.1% position in the North Star Micro Cap Fund and a 5.8% position in the North Star Dividend Fund.
+16.7% 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. There was no significant company news last week.
DLA is a 2.3% position in the North Star Micro Cap Fund.
+23.1% Century Casinos Inc (CNTY) operates as an entertainment company. The Company owns casinos, hotels, and luxury cruise vessels. There was no significant company news last week.
CNTY is a 1.3% position in the North Star Micro Cap Fund.
-18.0% AstroNova Inc (ALOT) designs, develops, manufactures, and distributes a broad range of specialty printers and data acquisition and analysis systems, including both hardware and software. Its target markets are apparel, automotive, avionics, chemicals, computer peripherals, and communications. There was no significant company news last week.
ALOT is a 0.6% position in the North Star Micro Cap Fund.
-11.6% LSI Industries Inc (LYTS) designs, manufactures, and markets a variety of lighting fixtures, menu board systems, and graphic products. The Company sells its products to the petroleum and convenience store market, the multi-site retail market such as restaurants and automobile dealerships, and the commercial and industrial lighting market. There was no significant company news last week.
LYTS is a 1.6% position in the North Star Dividend Fund.
Note: There were three classic rock songs riffed on in this week’s blog post. If you identify all three and email info@nsinvest.com with the titles you will win a sleeve of North Star golf balls!