December 2018 was one of the worst months in history for the stock market, with the toxic combination of tax-loss selling and momentum trading driving stock prices down relentlessly.
So far, the “January effect” in 2019 has been dramatic, as beaten down shares have bounced handsomely, recouping about half of the losses from December. There were no narrative-changing developments during the week, as fed policy remains data dependent, trade talks with China are encouraging, the global economies are slowing, and the partial government shutdown is continuing.
There has been a bit of “bad news is good news” in the market action, as the softening results by retailers and Apple have given the Fed a non-political rationale for backing off its tightening rhetoric. On the other hand, with growing concerns over a 2019 recession, there is also a bit of “good news is good news” in the market as well. Against that backdrop, the winning streak continued through Thursday, before taking a breather on Friday, with the S&P 500 gaining 2.5% and the Russell 2000 4.8% for the week. The bond market remained quiet, with the yield on the Ten-Year Treasury inching up 5 basis points to 2.70%.
Earnings season will kick off with Citigroup releasing 4th quarter results on Monday. The tone of earnings reports from the major banks could provide a good read on the near-term outlook for the economy. Even though the partial shutdown of the government hasn’t affected the markets, a resolution would be welcome, as would any positive developments on the trade issues. China economic data could also be in focus, as recent weakness has stoked concerns over a global slowdown that could lead to a U.S. recession.
Stocks on the Move:
BorgWarner, Inc. (BWA) +10.8%: Auto Parts stocks rallied in response to signs of progress in the trade talks with China. Also in the mix was some partnership announcements from the consumer electronics show in Las Vegas. BorgWarner is a supplier of auto parts. Its products comprise technologies for combustion, hybrid and electric vehicles. The company operates in two business segments that are Engine and Drivetrain. The Engine segment generates maximum revenue. BWA is a 1.05% holding in the North Star Opportunity Fund.
Orion Energy Systems, Inc. (OESX) + 20.0%: The Company announced that it secured a $3.6 million order for LED lighting solutions for U.S. Government facilities. Orion Energy Systems 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 0.35% holding in the North Star Micro Cap Fund and a 0.88% holding in the North Star Opportunity Fund.
Owens & Minor, Inc. (OMI) + 13.2%: The Company announced that it has signed a multi-year medical and surgical supply distribution agreement with Scripps Health, a $3.2 billion private, nonprofit, integrated health system based in San Diego, California. Owens & Minor is a healthcare logistics firm distributing low-tech, consumable medical supplies to acute-care hospitals. The company distributes products to healthcare service providers under various brands such as MediChoice and ArcRoyal. OMI is a 0.83% holding in the North Star Dividend Fund.
Landec Corp.(LNDC) + 12.8%:The Company is changing the name of its food business to Curation Foods from Apio in an effort to better reflect the company’s transition from a packaged vegetable company to a branded, natural foods company. Landec designs, develops, manufactures, and sells differentiated health and wellness products for food and biomaterials markets, and license technology applications to partners. LNDC is a 1.78% holding in the North Star Micro Cap Fund.
NTN Buzztime,Inc.(NTN) + 23.8%:There was no company specific news to account for the bounce in the share price from deeply depressed levels. NTN Buzztime provides interactive entertainment and dining technology to bars and restaurants in North America. Its main products are Buzztime, Playmaker, Mobile Playmaker, BEOND Powered by Buzztime and Play Along. NTN is a 0.39% holding in the North Star Micro Cap Fund.
SP Plus Corp. (SP) + 11.2%: There was no specific news to account for the rise in the share price. SP Plus is a provider of parking management, ground transportation and other ancillary services to commercial, institutional and municipal clients in the United States, Puerto Rico and Canada. SP is a 2.14% 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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