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Kuby’s Commentary

Twists and Turns and Kicks to the Left

Jan 7, 2019

Last Week:

Alongside the Chicago Bears, the Wall Street bears were major losers this week.

It was the best of times, as there was news that moderated the bear market narrative driven by concerns over the economy, fed policy, and the trade war. As for the economy, job-growth surged in December, as nonfarm payrolls increased by 312,000 — the strongest reading since February. As to fed policy, in a panel interview with former Fed Chairs Ben Bernanke and Janet Yellen, Jerome Powell indicated that the current Fed still is data dependent and will not ignore signals of a slowing economy and blindly raise rates. Finally, on the trade front, U.S. delegation will be heading to China for talks with hopes rising of an end to this disastrous stand-off.

It was the worst of times, as well, as partial shutdown of the government continued; 800,000 workers furloughed, while our elected officials in Washington argued about the Wall. Meanwhile, soft Chinese economic data, alongside the Apple (AAPL) earnings warning and the biggest drop since 2008 in the Institute of Supply Management’s Manufacturing Index all fostered the festering recessionary concerns.

Wall Street responded with another incredibly volatile week with regular wild swings, but with a rally leaving the S&P 500 up 1.9% for the week by the closing bell. The yield on the Ten-Year Treasury dropped 9 basis points to 2.65%, its lowest reading in almost a year.

The Chicago Bears season ended with a thud, as kicker Cody Parkey hit the left goal post on a field goal attempt that would have secured a play-off victory for the Monsters of the Midway. Whereas it is tempting to blame the loss on #1, we should remember the lesson from Michael Lewis’ book “The Undoing Project”, which teaches us that countless other random events culminated in the missed kick. For example, if the holder had tilted the ball at a slightly different angle, or if the long-snapper had delivered the ball an inch longer or shorter, and on and on. In football, like in the stock market, and life for that matter, outcomes are unpredictable and more complicated than the simple explanations we gravitate towards. Give Cody a break; there’s always next year.

This Week:

There’s not much on the economic calendar, so it’s likely that focus will remain on the China talks, as well as the Wall debate. Given the unexpected weakness in the ISM Manufacturing Index last week, the release on Monday of the ISM Non-Manufacturing Index will be closely watched. Economic activity in the non-manufacturing sector has grown for 106 consecutive months, so a reading near the contracting level of 50 would be of serious concern. Economists forecast a reading of 58.7, down from November’s 60.7. On Friday, December CPI will be released with expectations of a tame decline of 0.1%. Any unexpected spike in inflation would put the Fed in quite a pickle.

Stocks on the Move:

There was no specific news on most of the highlighted companies.

A H Belo Corp (AHC) +17.2%: A H Belo Corp is a local news and information publishing company with commercial printing, distribution and direct mail capabilities, as well as expertise in emerging media and digital marketing. AHC is a 2.69% holding in the North Star Dividend Fund and a 2.87% holding in the North Star Micro Cap Fund.

Alaska Communications` Systems Group, Inc. (ALSK) +11.7%: Alaska Communications provides integrated communications services in Alaska. It provides local, long-distance, and wireless telephone services, Internet access, and data services to residential and business customers. ALSK is a 0.96% holding in the North Star Micro Cap Fund and a 2.40% holding in the North Star Opportunity Fund.

ARC Document Solutions (ARC) +35.5%: ARC Document Solutions Inc engaged in providing document management solutions to businesses, including non-residential segment of architecture, engineering & construction industry. Its offerings include; onsite, digital, color & traditional reprographics. ARC is a 0.94% holding in the North Star Micro Cap Fund.

Celgene Corp (CELG) +36.0%: Celgene is a biotech company that discovers, develops, and commercializes therapies designed to treat cancer and immune-inflammatory related diseases. Its registered brands are Abraxane, Istodax, Otezla, Pomalyst, Revlimid, Thalomid, Vidaza. Last week, Bristol-Myers Squibb Co (BYM.N) made plans to purchase Celgene for around $74 billion, making it the biggest biopharma deal ever. CELG is a 1.62% holding in the North Star Opportunity Fund.

Consolidated Communications Holdings Inc (CNSL) +11.1%:  Consolidated Communications is a provider of telecom services in the United States. The company’s offering spans local and long-distance services, broadband Internet access and cloud data services. Consolidated announced it would be teaming up with SimpliSafe, a home security firm, to provide wireless security to its customers.  CNSL corporate bonds are a 2.76% holding in the North Star Bond Fund. CNSL is a 2.19% holding in the North Star Dividend Fund and a 2.94% holding in the North Star Opportunity Fund.

Crown Crafts Inc (CRWS) +10.9%: Crown Crafts operates in the infant and toddler products segment within the consumer products industry. It designs and distributes, infant and toddler bedding and blankets, bibs, disposable products and accessories. CRWS is a 3.19% holding in the North Star Dividend Fund and a 2.78% holding in the North Star Micro Cap Fund.

Flexsteel Industries Inc (FLXS) +12.5%: Flexsteel manufactures, imports and markets residential and commercial upholstered wooden furniture products. The products offering include sofas, loveseats, chairs, rockers, desks, tables, convertible bedding units, and bedroom furniture. FLXS is a 1.69% holding in the North Star Dividend Fund and a 2.88% holding in the North Star Micro Cap Fund.

Landec Corp (LNDC) -11.6%: Landec Corp designs, develops, manufactures, and sells differentiated health and wellness products for food and biomaterials markets, and license technology applications to partners. Landec reported second quarter revenues of $124.9 million, consistent with the low end of their revenue guidance, but earnings per share was below guidance because of acquisition-related costs. LNDC is a 1.53% holding in the North Star Micro Cap Fund.

LSI Industries Inc (LYTS) +14.9%: LSI Industries provides corporate visual image solutions. Its products include digital signage, printed and structural graphics, electrical signage capabilities, indoor and outdoor lighting products, and others. LYTS is a 1.17% holding in the North Star Micro Cap Fund and a 0.96% holding in the North Star Dividend Fund.

National CineMedia Inc (NCMI) +10.1%: National CineMedia is a holding company. The company through its subsidiary, operates digital in-theatre media network in North America, through which it sells in-theatre and online advertising and promotions.  NCMI is a 1.84% holding in the North Star Dividend Fund, a 2.76% holding in the North Star Opportunity Fund and NCMI corporate bonds are a 2.79% holding in the North Star Bond Fund.   

Orion Energy Systems Inc (OESX) +17.8%: Orion Energy researches, develops, designs, manufactures, markets, sells and implements energy management systems consisting of energy efficient commercial and industrial interior and exterior lighting systems and related services. OESX is a 0.42% holding in the North Star Micro Cap Fund and a 1.04% holding in the North Star Opportunity Fund.

U.S. Auto Parts Network Inc (PRTS) +10.6%: U.S. Auto Parts is an online provider of automotive aftermarket parts and repair information. Its products are classified into three subcategories: collision parts, engine parts, and performance parts and accessories.  PRTS is a 1.86% holding in the North Star Micro Cap Fund.

Salem Media Group Inc (SALM) +16.2%: Salem Media is a domestic multimedia company with integrated operations including radio broadcasting, digital media, and publishing. The Company has three operating segments, Broadcast, Digital Media, and Publishing. SALM is a 1.22% holding in the North Star Dividend Fund.  SALM bonds are a 2.59% holding in the North Star Bond Fund.

Unique Fabricating Inc (UFAB) +10.0%: Unique Fabricating is a United States-based company, which is engaged in the engineering and manufacturing of components for customers in the automotive and industrial appliance market. UFAB is a 0.74% holding in the North Star Dividend 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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