Stocks Under $10 Weekly Summary

Last Week The week for equities opened the 2022 calendar in what could be described as anything from mixed to quite ugly. Trading volume returned to relatively normal levels, as trading volume attributable to constituent members of the S&P 500 for the five-day period in total landed 1% above the 50-week simple moving average for that index. Five-day trading volumes for Nasdaq Composite constituent names met their 50-week simple moving average precisely. Because the Russell is the benchmark for this portfolio, I probably should mention that this trading volume metric fell 4% short of the 50-week SMA. As for the portfolio in specific, during the past week, we added 150 shares of RADA Electronic Industries (RADA) ahead of that firm's investor and analyst event on Jan. 11. The portfolio will open the week with RADA weighing 2.95% upon the entire book, making this name the seventh largest of the 11 single stock positions held.

The portfolio made no sales.

Stepping back to the broader market, the Nasdaq Composite surrendered 4.53% last week, while the S&P 500 lost a more manageable 1.87%. The driving force behind the selloff in equities was a selloff in Treasury securities. Yield spreads (and by extension interest rates) expanded from top to bottom as monetary authorities have been placed in the position of combating both headline and core consumer level inflation. The Fed Minutes, released and Wednesday, really spooked investors as the prospect of the Fed actually considering "quantitative tightening" also known as a balance sheet roll-off much sooner than had been previously anticipated. Markets were ready for the tapering of asset purchases (quantitative easing), markets were ready for short-term rates targets to start moving sooner rather than later. Markets were ill prepared for any talk about an outright removal of liquidity from the economy, or in other words the purposeful contraction of the monetary base. There is no doubt in my mind that this will slow and then reverse inflation. There is plenty of doubt in my mind on just how far this can go before the same fate seeks out economic growth. From a macroeconomic perspective, the week was dominated by December jobs-related data. There were signs of a tight labor market, as participation and wage growth improved as did the unemployment rate. How many jobs were created in December? Nobody knows. Least of all, the Bureau of Labor Statistics. If one follows the ADP employment report, the U.S. economy added 807,000 private sector jobs in December. If one follows the BLS household survey, December 651,000 new folks found jobs. If one follows the BLS establishment survey, there were 199,000 new hires for the month, which is really weak, and that weakness was found in private sector hires. In other words, the ADP Report and BLS establishment survey published data for December that contradicts one another. Fact is, if the Bureau of Labor Statistics is this bad at collecting and releasing employment-related information, then how on earth can we trust anything that the agency publishes?

As far as the pandemic goes, the numbers just seem to get worse and worse. While we all seem to know personally a great many folks who have recently tested positive, thankfully, though there are of course exceptions, and we pray for those impacted, there does appear to have been a decoupling of the spread of new infections from severe outcomes in terms of numbers.

The Week Ahead This week, again brings very little in the way of earnings. That said, this Friday brings with it the kick-off of fourth quarter 2021 earnings. Currently, according to FactSet, consensus is for 21.7% S&P 500 year-over-year earnings growth. This would be down from 39.8% growth for Q3, and below projected full-year earnings growth of 45.2%. Revenues for the fourth quarter are expected to have grown 12.9%, down from 17.8% for the third quarter. Economists will be on watch for plenty of key macroeconomic data-points this week, as we will see December numbers for both consumer and producer level inflation as well as retail sales and industrial production. In addition, both houses of the Legislative branch of the U.S. government are actually expected to be back in session this week. Not just a rumor, you can look it up. Some job if you can get it. The S&P 500 will start the week trading at 21.25 twelve month forward looking earnings. The Russell 2000, which is more pertinent to this portfolio is trading at 27.63 times 12-month forward looking earnings.

The Macro, Earnings & The Fed Just a reminder, for macroeconomic data-points, expectations expressed in this round-up may or may not be in line with consensus view. These are my (Sarge's) expectations. Same ones you'll find at the bottom of every morning's Market Recon column (though they might change before we get there). Certain items below that do not have an expectation, mean that I simply just don't know, or do not have enough information to make an educated projection.

Monday: Economics (All Times Eastern)

10:00 - Wholesale Inventories (Nov): Expecting 1.2% m/m, Last 2.5% m/m.

The Fed (All Times Eastern)

12:00 - Speaker: Atlanta Fed Pres. Raphael Bostic.

Earnings Highlights (Consensus EPS Expectations)

Before the Open: CMC (1.19), TLRY (-.07)

Tuesday:

Economics (All Times Eastern)

06:00 - NFIB Small Biz Optimism Index (Dec): Expecting 98.3, Last 98.4. 08:55 - Redbook (Weekly): Last 18.8% y/y. 16:30 - API Oil Inventories (Weekly): Last -6.432M.

The Fed (All Times Eastern) 09:10 - Speaker: Cleveland Fed Pres. Loretta Mester. 09:30 - Speaker: Kansas City Fed Pres. Esther George. 10:00 - Speaker: Federal Reserve Chair Jerome Powell. Earnings Highlights (Consensus EPS Expectations)

Before the Open: ACI (.58), INFO (.84), SNX (2.68)

Wednesday:

Economics (All Times Eastern)

08:30 - CPI (Dec): Expecting 7.0% y/y, Last 6.8% y/y. 08:30 - Core CPI (Dec): Expecting 5.4% y/y, Last 4.9% y/y. 10:30 - Oil Inventories (Weekly): Last -2.144M. 10:30 - Gasoline Stocks (Weekly): Last +10.128M. 13:00 - Ten Year Note Auction: $36B. 14:00 - Federal Budget Statement (Weekly): Last $-191B.

The Fed (All Times Eastern)

14:00 - Beige Book.

Today's Earnings Highlights (Consensus EPS Expectations)

Before the Open: SJR (1.34) After the Close: KBH (1.77)

Thursday:

Economics (All Times Eastern)

08:30 - Initial Jobless Claims (Weekly): Expecting 209K, Last 207K. 08:30 - Continuing Claims (Weekly): Last 1.754M. 08:30 - PPI (Dec): Expecting 9.8% y/y, Last 9.6% y/y. 08:30 - Core PPI (Dec): Expecting 8.0% y/y, Last 7.7% y/y. 10:30 - Natural Gas Inventories (Weekly): Last -31B cf. 13:00 - Thirty Year Bond Auction: $22B.

The Fed (All Times Eastern) 08:00 - Speaker: Philadelphia Fed Pres. Patrick Harker. 10:00 - Speaker: Reserve Board Gov. Lael Brainard. 13:00 - Speaker: Chicago Fed Pres. Charles Evans.

Today's Earnings Highlights (Consensus EPS Expectations)

Before the Open: DAL (.12), TSM (1.14)

Friday:

Economics (All Times Eastern)

08:30 - Retail Sales (Dec): Expecting 0.1% m/m, Last 0.3% m/m. 08:30 - Core Retail Sales (Dec): Expecting 0.2% m/m, Last 0.3% m/m.

08:30 - Import Prices (Dec): Expecting 0.3% m/m, Last 0.7% m/m. 08:30 - Export Prices (Dec):

Expecting 0.6% m/m, Last 1.0% m/m. 09:15 - Industrial Production (Dec): Expecting 0.3% m/m, Last 0.5% m/m. 09:15 - Capacity Utilization (Dec): Expecting 77.0%, Last 76.8%. 10:00 - Business Inventories (Nov): Expecting 1.1% m/m, Last 1.2% m/m. 10:00 - U of M Consumer Sentiment (Jan-adv): Expecting 70.1, Last 70.6.

13:00 - Baker Hughes Oil Rig Count (Weekly): Last 481.

The Fed (All Times Eastern)

11:00 - Speaker: New York Fed Pres. John Williams.

Today's Earnings Highlights (Consensus EPS Expectations)

Before the Open: BLK (10.08), C (1.66), FRC (1.94), JPM (3.06), WFC (.99)

The Stocks Under $10 Portfolio

Below is a rundown of our current positions. Figures in parentheses are each stock's Friday closing price and percentage weighting in the model portfolio. For up to date information, please click here.

ONEs

AXT Inc. (AXTI:NYSE; $8.41, 3.13%)

1-Wk. Price Change: -4.5%

WEEKLY UPDATE: Last week, this stock gained into Wednesday morning and then retreated as if rolling off of a table on no specific news. This name has been quite volatile for weeks now, but in a wide range, and may be building a base. We do not expect to hear from the company until mid-February.

INVESTMENT THESIS: AXT, Inc. is a materials science company that develops and produces high-performance compound and single element semiconductor substrates, also known as wafers. InP is a high-performance semiconductor substrate used in broadband and fiber optic applications, 5G infrastructure and data center connectivity. InP substrates are also used in biometric wearables and other health monitoring applications. Semi-conducting GaAs substrates are used to create opto-electronic products, including high brightness light emitting diodes that are often used to backlight wireless handsets and liquid crystal display TVs and also used for automotive panels, signage, display and lighting applications. A new application for semi-conducting GaAs substrates is 3-D sensing chips using vertical cavity surface emitting lasers as an array of lasers on a single chip that can be used in cell phones and other devices. The company manufactures all of its products in the People’s Republic of China.

Price Target: $13

Cantaloupe, Inc. (CTLP:Nasdaq; $8.45; 3.93%)

1-Wk. Price Change: -4.8%

WEEKLY UPDATE: This stock sold off early last week, but then popped toward week's end, repeating the pattern of the week prior. There was no firm specific news other than an announcement that the firm will participate in the 24th Annual Needham Growth Conference today. The firm did also release the results of an interesting survey that was covered by the portfolio last Thursday.

INVESTMENT THESIS: Cantaloupe is a digital payments and software services company that provides end-to-end technology solutions for the unattended retail market. Its enterprise- wide platform is designed to increase consumer engagement and sales revenue through digital payments, digital advertising and customer loyalty programs, while providing retailers with control and visibility over their operations and inventory. The bulk of its revenue is derived from its enterprise-wide platform is designed to increase consumer engagement and sales revenue through digital payments, digital advertising and customer loyalty programs, while providing retailers with control and visibility over their operations and inventory. We see the company as a beneficiary of both mobile payment growth as well as the adoption of B2B fintech solutions.

Price Target: $12

Nokia Corp. (NOK:NYSE; $6.10; 3.51%)

1-Wk. Price Change: +0.5%

WEEKLY UPDATE: Nokia landed another deal, this time with Tele2 in the Baltic region. This gave the stock a boost early last week that ultimately faded with the broader market as the week wore on. This news was covered here last Wednesday. On Friday, Kepler Capital four star (at TipRanks) analyst Antoine Lensel initiated Nokia with a "Buy" rating and a $7.73 price target.

INVESTMENT THESIS: Nokia’s core mobile and digital infrastructure businesses should continue to benefit as recent cost reduction efforts drive improving margins in the coming quarters as 4G densification continues and 5G deployments accelerate across the globe. Meanwhile, the company’s high margin IP licensing business should also continue to benefit from 5G licensing transactions even as the company begins work on 6G. We suspect management will look to address underperforming or low growth businesses in the coming quarters, moves that would shore up its balance sheet while allowing operating leverage to fall to the bottom line.

Price Target: Reiterate $8.00

Titan International (TWI:NYSE; $11.06; 1.64%)

1-Wk. Price Change: +0.9%

WEEKLY UPDATE: This stock gained some small ground last week, showing some signs of consolidation after a tremendous run. technically, the $11.82 level should prove to be a pivot point unless the chart develops a handle, which to me, means don't panic if we do see a moderate pullback. A handle is exactly what we want technically, as it can act in some cases as if the cooling of a spring. Hopefully, we get a chance this week to illustrate this for you.

INVESTMENT THESIS: The company’s exposure to the earth-moving and construction equipment market that is poised to see a pickup in activity owing to the infrastructure bill in 2022 and 2023. That market accounts for roughly 40% of Titan’s revenue and roughly one-third of its gross profit. The second reason stems from the sharp move higher in key agriculture commodities that drive farmer incomes. Historically, when farmers are flush, they tend to replace aging equipment, but another reason for them to upgrade equipment is the growing push to improve crop yields, while also minimizing the use of fertilizers and pesticides. That movement is fostering the upgrade to precision agriculture equipment. Roughly 50% of Titan’s revenue and 57% of its gross profit is derived from this market, and the company’s largest customer is Deere & Co. (DE) , the largest agriculture equipment company.

Price Target: $12.00

TWOs

Antares Pharma (ATRS:Nasdaq; $3.46; 1.03%)

1- Wk. Price Change: -3.1%

WEEKLY UPDATE: There has still been no specific news since the company had announced that it had divested its Otrexup (methotrexate) injection in mid-December. The stock sold off hard into the latter part of last week, but did rally into the close on Friday. This is worth watching.

INVESTMENT THESIS: This company develops and manufactures therapeutic products using its drug delivery system. Current products include Xyosted. for testosterone replacement therapy, and Nocdurna. Currently the firm is launching a Phase 1 study for ATRS-1902 meant to treat adrenal crisis rescue and is preparing to commercialize TLANDO in the US under a licensing agreement with Lipocine.

Price Target: $5.25.

BlackBerry Ltd. (BB:NYSE; $8.86; 3.90%)

1-Wk. Price Change: -5.2%

WEEKLY UPDATE: The portfolio downgraded this name to a "Two" last Tuesday, while reducing our target price to $12 -- a two buck change. Two days later, The University of Waterloo's Water Institute announced a partnership with BlackBerry to address water-related challenges including the cybersecurity of water systems, water emergencies, and IoT (Internet of Things) water management solutions.

INVESTMENT THESIS: BlackBerry provides intelligent security software and services to enterprises and governments around the world. The Company secures more than 500 million endpoints including more than 175 million cars on the road today. Based in Ontario, the company leverages artificial intelligence (AI) and machine learning to deliver innovative solutions in the areas of cybersecurity, safety and data privacy, and is a leader in the areas of endpoint security, endpoint management, encryption, and embedded systems. As the digital transformation of enterprises continues to advance, workforces are becoming more distributed and mobile, and data and applications are increasingly migrating to the cloud. As part of this trend, the number of connected endpoints is growing rapidly, as is their complexity and the volume of sensitive data that they process and store. These endpoints, which include smartphones, laptops, desktops, servers, vehicles, industrial equipment and other connected devices in the Internet of Things (IoT), increasingly operate beyond the traditional network security perimeter and present an expanding attack surface to cyber adversaries.

Price Target: $12

Energy Recovery (ERII:Nasdaq; $19.83; 1.18%)

1-Wk. Price Change: -7.7%

WEEKLY UPDATE: This stock sold off hard Wednesday into Thursday and put up a failed attempt to rebound on Friday. There were no firm-related news events. Crude really didn't sell off until Friday, so these shares were not trading with oil prices as they sometimes do. The portfolio will be eyeing this name closely on Monday, as the action late last week certainly was concerning.

INVESTMENT THESIS: Energy Recovery creates technologies that solve challenges for industrial fluid-flow markets. The business runs through two segments, "Water Treatment", and "Emerging Technologies". Emerging technologies had formerly been known as "Oil Services" until that business came to a screeching half in recent years. Now, that business would include oil services, and with Water having carried the frim for that past couple of years, a rebirth in oil production would be where the potential is for this firm at this level.

Price Target: $25

FuelCell Technologies (FCEL:Nasdaq; $5.10; 0.57%)

1- Wk. Price Change: -1.9%

WEEKLY UPDATE: This stock appears to have settled in at the bottom of the range for almost two weeks now. Given the small size of this position and how underwhelming corporate performance has been, this name is going to have to show us something sooner rather than later in order to keep its "Two" rating.

INVESTMENT THESIS: This company offers various fuel cell products, which are used for multi-megawatt utility applications, microgrid applications, distributed hydrogen or use of the platform's thermal attributes for on-site heat or chilling.

Price Target: Still Under Review (Hasn't shown me much)

Rada Electronic (RADA:Nasdaq; $9.34; 2.95%)

1- Wk. Price Change: -0.9%

WEEKLY UPDATE: The portfolio added to this position on weakness last week ahead of this Tuesday's investor and analyst event. We need to hear what is said at this event. Given the state of several regions of the world, I would think that demand for smaller tactical radars at a reasonable price is only going higher, maybe that's just how I think, as I have a known bias for defense contractors. We need to hear some hard revenue projections.

INVESTMENT THESIS: RADA Electronic is an aviation and defense contractor and subcontractor, currently specializing in mini-tactical radars for nations on a budget. The firm has recently signed an agreement to increase operations in India. Given the fiscal state of the post-pandemic world, the portfolio sees an opportunity in this kind of business even if defense spending slows or pauses.

Price Target: $15.

Shift Technologies (SFT:Nasdaq; $3.04; 3.39%)

1- Wk. Price Change: -10.9%

WEEKLY UPDATE: JP Morgan five star (TipRanks) analyst Rajat Gupta downgraded Shift on Friday from "Overweight" to "Neutral." The stock was ahead of him, (and me) and sold off all week long, until finally rallying on Friday. Unfortunately, SFT is not expected to report until early March. We really need to hear something from these guys.

INVESTMENT THESIS: Shift is a rapidly growing e-commerce used vehicle business, currently operating primarily on the west coast and in Texas. Shift has some advantages over the competition, including test drives and other innovative steps that make the purchase or sale of used vehicles more "hassle-free."

Price Target: $9

22nd Century Group (XXII:NYSE American; $2.76; 5.13%)

1- Wk. Price Change: -10.7%

WEEKLY UPDATE: The bad news is that this stock gave up more than 10% last week. The good news was that it actually rallied on Thursday into Friday as analyst James McIlree of Dawson James Securities maintained his "Buy" rating on the shares and increased his target price from $7 to $8.50 based on his expectations for an imminent launch of the firm's very low nicotine cigarettes.

INVESTMENT THESIS: This stock is basically a play on the idea that the Biden administration moves toward an agenda targeting less dangerous and less addictive forms of tobacco as a replacement for what is currently available to US (and global) consumers. The idea here is for the firm's VLN (very low nicotine) cigarettes to get regulatory approval and move toward commercialization.

Price Target: $7

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