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Kuby’s Commentary

Wild Ride

May 17, 2021

Last Week:

Mr. Market, like Disneyland’s Mr. Toad, had a wild ride. Toad, borrowed from “The Wind in the Willows”, regularly becomes obsessed with current fads, only to abandon them abruptly. That sounds like a reasonably good description of most of the trading community. May has provided a particularly bumpy road for the recently popular SPAC, Electric Vehicles, Clean Energy, and Cannabis sectors.

The most pronounced sharp twists in the road last week came from a cyber-attack, a surge in inflation, soft economic data, and a surprise relaxing of COVID-19 safety protocol from the CDC. Colonial Pipeline Co., the operator of a critical gasoline pipeline to the Eastern U.S., became a DarkSide victim this week and paid close to $5 million to the hackers, according to people familiar with the matter. The company shut down the pipeline the previous Friday, leading to a spike in prices and long lines at the gas stations. The pipeline resumed operations on Wednesday, but that same morning the U.S. Bureau of Labor Statistics reported that over the last 12 months the Consumer Price Index surged 4.2 percent, representing its largest 12-month increase since a 4.9-percent increase for the period ending September 2008. The back half of the week also saw soft economic data from retail sales and an unexpected drop in consumer sentiment. In the midst of the worst market sell-off in 6-months, the Centers for Disease Control and Prevention said on Thursday that fully vaccinated people could start taking off their masks indoors, leading to a “reopening” rally that cut the losses in half.  Mega cap tech stocks finished with the worst performance, with the Nasdaq declining 2.34%, small caps lost 2.07%, and the S&P 500 shed 1.39%. The dollar and gold were largely unchanged, while the yield on the Ten-Year Treasury recouped the 5 basis points it lost the previous week to finish at 1.63%.

We prefer less thrilling stock market rides, and as such continue to favor time-tested valuation rationales based on cash flow metrics and stable balance sheets in the North Star Funds – in fact, we LOVE discussing our admittedly nerdy obsession with cash flow-based valuation metrics. That said, we do believe that for risk-tolerant investors with long-term time horizons, the clean energy and cannabis themes are worth consideration for small investment positions. Concerning crypto securities, we continue to prefer gold as a hedge against the debasement of the dollar and other sovereign currencies. If Led Zeppelin alters the lyrics of “Stairway to Heaven” to “all that glitters is Bitcoin” then we might have to reassess our position.

This Week:

It is Tax Day on Monday, and also the deadline for contributions into most retirement plans. Earnings season winds down with the retail sector moving into the spotlight as Walmart, Target, Home Depot, Lowe’s and Macy’s all report quarterly results. The economic calendar is light with updates on the Empire State Index, the NAHB Housing Market Index, housing starts, leading indicators, and PMI all expected to show modest softening from the previous month. The Federal Open Market Committee releases the minutes from its April meeting, and investors will scour the transcript for any cracks in the Fed’s conviction to keep short-term rates near-zero for the foreseeable future.

Stocks on the Move:

Companies with news…

-14.8% 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, Rocky Brands declared a $0.14/share quarterly dividend, in line with previous quarters.

RCKY is a 6.0% position in the North Star Dividend Fund and a 4.2% position in the North Star Micro Cap Fund.

Companies without news…

-11.2% 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 2.9% position in the North Star Dividend Fund.

+16.1% Build-A-Bear Workshop Inc (BBW) is an interactive and entertainment mall-based retailer that invites guests of all ages to create their own customized stuffed animals with clothing, shoes, and accessories through a bear-making process. There was no significant company news last week.

BBW is a 1.4% position in the North Star Micro Cap Fund.

+10.6% 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.

+11.2% 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. There was no significant company news last week.

CNSL is a 1.4% position in the North Star Micro Cap Fund.

-11.3% Green Brick Partners Inc (GRBK) operates as a homebuilding and land development company. The Company develops residential homes, complexes, and communities. Green Brick Partners invests in a range of real estate investments, as well as provides land and construction financing to its controlled builders. There was no significant company news last week.

GRBK is a 1.0% position 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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