THE SMALL-CAP BEAT

A GEISER CAPITAL CORPORATION WEEKLY PUBLICATION

In this Issue Week of July 3, 2009

• A SHORT BUT A WILD WEEK – A REBOUND SHOULD

BE EXPECTED
• EARNINGS SURPRISES & CHANGING GUIDANCES
• STARS & DOGS….AND ACTIONS
• LOOKING AHEAD…

A SHORT BUT A WILD WEEK – A REBOUND SHOULD BE EXPECTED

Contrary to the last few Mondays, the last week began on a positive note, but all on minimal news
and on very light volume. In fact, the event of the day last Monday was the sentencing of Madoff
who deservedly so got the maximum for running the longest and largest Ponzi ever. Although the
sentence itself might be a consolation prize, the evaporation $65B orchestrated over such a long
time was nothing to cheer about, particularly when looking at the efficacy of the US financial
regulatory system in this whole affair. Anyhow, for what its worth, investors applauded the
sentence to push markets significantly higher in a broad-based fashion.

At the end on Monday, on a day lacking meaningful news for investors, all 10 major sectors in the
S&P 500 had logged healthy gains led by Financials (+1.4%), utilities (+1.3%), telecom
(+1.2%), and energy (+1.3%) stocks. The exceptions on Monday were small-cap stocks with the
Russell 2000 losing -0.5%, also in a broad movement with nearly 70% of its components closing
lower.
WEEKLY MARKET WRAP-UP
52 W Range 52 W % Chg
Close Chg % Low High Low High
Russell 2000 497.21 -3.1% 342.59 764.38 45.1% -35.0%
S&P Small-Cap 263.13 -2.4% 181.32 401.07 45.1% -34.4%

Geiser Top 20 160.43 -4.7% 65.97 283.41 109.3% -43.4%

S&P 500 896.42 -2.4% 666.79 1313.15 34.4% -31.7%

NASDAQ 1796.52 -2.3% 1265.52 1473.2 42.0% 21.9%
Dow 8280.74 -1.9% 6440.02 11933.5 28.6% -30.6%

Although the momentum carried on early Tuesday morning, likely on the better-than-expected
results reported by Apollo Group (APOL) ($67.90; -0.8%) and H&R Block (HRB) ($16.89;
+9.5%) after the close on Monday, it all got stopped with the release of the Consumer Confidence
Index for June which came in at 49.3, well below the 55.3 reading that was expected and down
from the previously reported 54.9 for May. Along the same line, the Expectations Index came in at
65.5, again much below the 75.5 that was expected and down from the 71.5 in the previous
report, all reflecting a labour market remaining weak, home prices still in a slump and stock
markets essentially flat in June.

Investors needed no more to turn south and it was not just limited to stocks prices, but also to
commodities and precious metals including crude oil, natural gas, gold and silver, the only bright
spot being the US dollar showing some strength. After managing to crawl back somewhat in mid-
afternoon, markets ended the day on Tuesday and the quarter on sour note with the Dow and the
S&P 500 losing almost 1.0% each for the day, while the NASDAQ and the Russell 2000 faired a
little better restricting their losses to -0.5%. All 10 major sectors in the S&P 500 finished lower.
Materials stocks were among the hardest hit sectors on the day shedding -1.3% with steel stocks
(-1.8%) posting particular weakness on the footsteps of disappointing results released by
Schnitzer Steel (SCHN) ($50.20; -18.2%).

The Economic Snap-Shot

Revised
Date Economic Release For Actual Expected Prior from
30-Jun Consumer Confidence Jun 49.3 55.1 54.8 54.9
30-Jun S&P/Home Price Ind Apr -18.12% -18.63% -18.72% -18.70%
30-Jun Chicago PMI Jun 39.9 39 34.9
01-Jul ADP Employment Jun 473K 395K 485K
01-Jul ISM Index Jun 44.8 44.9 42.8
01-Jul Construction spending May -0.90% -0.60% 0.60% 0.80%
01-Jul Pending Home Sales May 0.10% 0.00% 7.10% 6.70%
02-Jul Nonfarm Payrolls Jun -467K -367K -322K -345K
02-Jul Unemployment Rate Jun 9.50% 9.60% 9.40%
02-Jul Hourly Earnings Jun 0.00% 0.10% 0.10%
02-Jul Average Workweek Jun 33 33.1 33.1
02-Jul Initial Claims Jun-27 614K 615K 630K 627K
02-Jul Factory Orders May 1.20% 0.90% 0.50% 0.70%

On Wednesday, despite the latest ADP Employment Change report released prior to the opening
of markets indicating that private payrolls jobs had been slashed by 473,000 in June, significantly
worst than the 395,000 that had been expected, markets opened on a upbeat mood on the
release also early morning of better-than-expected results and positive guidance by General
Mills (GIS) ($58.50; +5.8%) which contributed to a wide-ranging move upward for consumer
staples stocks. This along with rising commodity prices and a weakening US dollar pushing
higher energy and material stock prices favoured a broad-based movement on the upside in the
early going.

This trend was somewhat dampened mid-morning by the release of the final economic data due
for the day. It was first the ISM Manufacturing Index which for June posted a reading of 44.8,
marginally below the 44.9 that was expected, but still better than the reading of 42.8 in May. Right
after, construction spending for May was announced. Month-over-month, construction spending
decreased -0.9% in May, a tad worst than the -0.6% that was expected, but April was also
adjusted downward from an increase of +0.8% previously announced to an actual increase of
only +0.6%. Finally, pending home sales for May were also disclosed. Here, while expectations
were for a flat number in May after the April spike, pending home sales did again increase
(+0.1%), albeit only very marginally, but the April number was increased to 7.1% compared to the
6.7% announced a month ago.

All in all, not necessarily a total disaster and not either to be totally unexpected, but data certainly
still pointed out to difficult market conditions, particularly on the labour and home front. Without
these markets recovering it would be hard for anyone in his right mind to foresee consumer
spending picking up, one of the main driver of economic growth, but investors, maybe in a festive
mood ahead of a coming long weekend kept on pushing stocks moderately higher on
Wednesday. At the end of the day, the Dow was up +0.7%, the NASDAQ +0.6%, the S&P 500
+0.4% and the Russell 2000 managing the best performance of the day to close up +1.8%. A bit
puzzling, but when markets are in such mood!

While investors appeared to be in a very forgiving mood on Wednesday, Thursday was the exact
opposite. With the ADP Employment number coming out the prior day and markets barely
blinking at the much worst-than-expected data, nonfarm payrolls jobs to be released on the last
day prior to the long weekend could have been a non-event, but far from it. Nonfarm payrolls jobs
number for June were indeed not good and with hourly earnings and average work week still
declining, while there are improvements here and there, it seems to us that we are still a long way
from a lasting recovery. Anyhow, despite significantly better-than-expected number for factory
orders which jumped month-over-month by 1.2% in May, compared to expectations of 0.9%, and
much better than the increase of 0.5% the prior month, investors were simply not in a mood to kid
around and the damages were important.

Was it a question of not leaving money on the table over a long week end, possibly some
undressing following the end of a quarter or investors catching late a word of wisdom on job data
announced the prior day , Thursday was not a good day In what was the most thinly traded
session in 2009, the Dow lost -2.6%, the NASDAQ was minus -2.7%, the S&P 500 down -2.9%
and the Russell 2000 was simply hammered losing 3.8% on the day. Maybe, after all, it was just
a question of buyers going on vacation a day too early to leave the floor to what seems to be a
declining number of bears.

We’ll see next week, but a rebound would be in order. That is if buyers show up and, given the
actions to be expected next week, they may just take another week off.

EARNING SURPRISES & CHANGING GUIDANCES

Again as in the prior few weeks, only a few small-cap companies were set to report last week.
The trend for results was either in-line with expectations or above expectations, but last week was
not the best time to report as investors appeared to have their own issues. Results that caught
our attention included;

SIGNIFICANT EARNINGS SURPRISES

ON THE POSITIVE SIDE
Yr Yr/Yr W% MKT
Date Companies Sym Actual Cons Ago Rev Close Chg Cap
Sealy ZZ 0.07 0.05 0.08 -20.5% $1.80
30-Jun -8.2% $165.8M
Synnex SNX 0.57 0.48 0.56 -3.6% $28.38
30-Jun 17.1% $933.8M
Lindsay Corp LNN 0.42 0.25 1.15 -41.1% $36.15
01-Jul 6.9% $444.8M
UniFirst UNF 1.12 0.74 0.87 -1.0% $36.70
01-Jul -1.9% $709.7M
Methode Elect MEI -0.10 -0.16 0.43 -42.3% $6.25
02-Jul -9.9% $236.0M

ON THE NEGATIGE SIDE

Yr Yr/Yr W% MKT
Date Companies Sym Actual Cons Ago Rev Close Chg Cap
Schnitzer Steel SCHN -0.05 0.16 2.14 -57.6% $50.20
30-Jun -18.2% $1.41B
EXFO EXFO -0.39 -0.05 0.16 -10.3% $3.07
30-Jun -10.0% $183.0M
(a) Excluding non-recurring items; (b) May not be comparable to consensus.

Of the companies that released their results last week, only Synnex (SNX) ($28.38; +17.2%) was
worthwhile digging a little deeper. What was found is certainly worth mentioning. First, for those
who never heard of SNX, this is a company involved in the business process service industry.
SNX operates in two business segments, Distribution Services (DS) and Global Business
Services (GBS). DS is mainly a distribution business of computer and related systems to various
customers. DS also provides assembly services on a OEM basis. The GBS segment offers itself
various services, including customer management, software development, web hosting, hosted
software and back office processing, mainly through voice, chat, Web, email, and digital print. It
also sells products complementary to these service offerings in China.

But more important for investors, SNX is a company that has been beating expectations on a
constant basis for while, both revenue wise and net income, and again in the latest quarter. This
is a company that has a strong balance sheet, trading at about 1.3 X book value and with a P\E
below 11X, certainly a stock to watch for.

CHANGING GUIDANCES
POSITIVE
MKT
Date Company Symbol Period Est Guidance Close W % Chg Cap
Synnex SNX Q3 $0.51 $0.58-0.61 $28.38
30-Jun 17.1% $933.8M
NEGATVE
MKT
Date Company Symbol Period Est Guidance Close W % Chg Cap
30-Jun EXFO EXFO Q4 $0.04 (0.06)-(0.02) $3.07 -10.0% $183.0M
01-Jul CardioNet BEAT FY09 $0.66 $0.30-0.35 $9.40 -44.7% $222.3M
02-Jul Manhattan Assoc MANH Q2 $0.22 $0.08-0.12 $16.53 -12.2% $380.8M
02-Jul LDK Solar LDK Q2 -$0.11 Lower than $10.91
consensus -3.5% $1.23B

STARS & DOGS……AND ACTIONS

Our publisher, Geiser Capital Corp, maintains for clients a list of 20 small-cap stocks expected to
outperform the Russell 2000. In a nutshell, the Geiser Top 20 is rolling weighted index; that is,
stocks are added when their expected returns are above the expected returns of stocks in the
selection and, inversely, stocks are deleted when expected returns are lower than what is
expected from other opportunities.

For a first in a long time, the Geiser Top 20 underperformed other indexes closing down -4.7%
last week. Ouch!

Mind you markets did not do so well either, but there is no comfort in others sub-par
performances. In what was a short but marking trading week, the Russell 2000 lost -3.1%, the
S&P Small-Cap was down -2.4%, exactly the same for the S&P 500, not much difference for the
NASDAQ which also lost -2.3%, while the Dow did a little better losing only -1.9% last week.

In the case of the Geiser Top 20, last week performance was not the story of a few stocks
tumbling on unforeseen events; the downward movement was fairly widespread. Necessarily,
stocks that had outperformed markets by a wide margin not so long ago, such as Affemetrix
(AFFX) ($5.46; -8.5%), Rentrak Corporation (RENT) ($17.43, +19.8%) or Youbet.com (UBET)
($3.50, +14.4%) were all affected by a profit taking movement triggered by fear. Others which for
the time being shall remain nameless may have given what they could give to the Geiser Top 20.
A reassessment of some positions is underway.
 GEISER TOP 3 HOLDING
Company Sym Price W – Chg MKT % Total Target
% Cap Holding
ChinaCast Education CAST $7.14 -0.8% $256.7M 9.2% $10.00
Shuffle Master SHFL $6.48 +1.7% $347.5M 5.8% $10.00
Affymetrix AFFX $5.46 -8.5% $385.9M 5.6% $11.25

LOOKING AHEAD…
Next week will be the beginning of second quarter reporting. Alcoa (AA) (Cons -$0.34 vs $0.66
Last Year) will kick off the season on Wednesday after the closing, followed early Thursday by
3Com (COMS) (Cons $0.05 vs $0.09 Last Year), but aside from also Pepsi Bottling (PBG)
(Cons $0.73 vs $0.78 Last Year) which is also set to report this week, investors are not expected
to be particularly busy digesting results from the better known names this coming week.

In the Small-Cap world, it will also be a very slow week with only a few companies set to report.
Those that have caught our attention include:

Small-Caps To Watch For

Prior Q
Yr/Yr W% MKT
Date Companies Symbol Expt. Yr Ago Rev Close Chg Cap
China Medical Tech CMED 0.43 0.53
06-Jul -15.0% $19.63 -6.2% $630.2M
Intl Speedway ISCA 0.32 0.54
07-Jul -14.3% $25.25 -3.1% $1.23B
Ruby Tuesday RT 0.19 0.27
07-Jul -9.6% $6.74 -2.9% $355.90
WD-40 Company WDFC 0.38 0.49
08-Jul -21.7% $28.42 0.5% $468.9M
Helen of Troy HELE 0.35 0.42
09-Jul -3.8% $17.35 6.8% $517.6M
Chattem CHTT 1.22 1.06
09-Jul -3.9% $66.47 -4.3% $1.29B
Lawson Software LWSN 0.10 0.10
09-Jul -18.3% $5.43 -3.4% $886.7M
The9 Ltd NCTY 0.33 0.46
09-Jul -4.4% $9.47 -11.2% $253.9M
PriceSmart PSMT 0.33
10-Jul 14.0% $16.46 0.7% $486.9M

But even if it is expected to be awfully slow on the corporate front this coming week, it will be
even more dreadful in terms of economic data releases with the ISM Services Index on Monday
and Wholesale Inventories on Thursday being pretty much the sole highlights of the coming
week.

Possibly the news of the week will come from Italy where the G-8 Summit is being held for three
days starting this coming Wednesday. It is more than likely that some participants at the meeting,
if not officially, will bring to the floor the role of the US dollar as the world currency and this could
spark trading on the dollar itself as well as on commodities. Say tuned!

Looking Forward On The Economy

Date Economic Release For Expected Prior
06-Jul ISM Services Jun 46 44
08-Jul Consumer Credit May -$7.5B -$15.7B
09-Jul Wholesale Inventories May -1.00% -1.40%
10-Jul Export Prices ex-ag. Jun NA 0.30%
10-Jul Import Prices ex-oil Jun NA 0.20%
10-Jul Trade Balance May -$30.0B -$29.2B
10-Jul Mich Sentiment-Prel Jul 71 70.8
All in all, the coming week is not expected to provide a whole lot for investors to fantasize on.
Lately when this has occurred, bears have able to roared back easily; essentially on very light
volume with buyers not showing up for work. But who could blame them after such feisty time
since mid-March. Yet, for those exposed, caution may be warranted.

On this note, have all a good investing week!

Stephane Solis
Editor
The Small-Cap Beat

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