THE SMALL-CAP BEAT

A GEISER CAPITAL CORPORATION WEEKLY PUBLICATION

In this Issue Week of June 26, 2009

• WHERE ARE ALL THOSE BEARS FORESEEING NEW

LOWS?
• EARNINGS SURPRISES & CHANGING GUIDANCES
• STARS & DOGS….AND ACTIONS
• ON THE PRIVATE FRONT – TO WATCH FOR
• LOOKING AHEAD…

WHERE ARE ALL THOSE BEARS FORESEEING NEW LOWS?

Since mid-march, the Russell 2000 and the S&P Small-Cap have both gained 49% and the
NASDAQ is not far behind with an upward move of 45%. Somewhat lagging but nevertheless, the
S&P 500 is now up 38% and the Dow is somehow trailing a bit with a gain of 31%. As per our
Geiser Top 20 which is animal in itself, the index is up 119% since then, but that is another
matter. In any case, while economic numbers have generally improved during the period and
most now agree that the recession s now fading away, markets have made a substantial upward
move from their lows of mid-March and many are suggesting that stocks are overdue for a major
correction, possibly to attain new lows.

WEEKLY MARKET WRAP-UP

52 W Range 52 W % Chg
Close Chg % Low High Low High
Russell 2000 513.22 0.1% 342.59 764.38 49.8% -32.9%
S&P Small-Cap 269.49 -0.1% 181.32 401.07 48.6% -32.8%

Geiser Top 20 168.42 2.8% 65.97 283.41 119.7% -40.6%

S&P 500 918.9 -0.3% 666.79 1313.15 37.8% -30.0%

NASDAQ 1838.22 0.6% 1265.52 1473.2 45.3% 24.8%
Dow 8438.39 -1.2% 6440.02 11933.5 31.0% -29.3%

With such movement in stock prices in such a short period, one could easily argue that markets
are more than likely to undergo a major correction and, historically, prior to moving to a new bull
market, often after a significant upward move in a bearish market, news lows have often been
set. That is a sensible view and, as we are seeing when markets are left unattended with a lack of
meaningful news as this past Monday, the bears tend to quickly take of hold of markets action.
Yet, they seemed not able to finish the job, last week being a good example of their lack of
breath.

Again, after a significant dive on Monday, markets quickly rebounded to finish the week
marginally up or down, a sort of flat week but with ample trading opportunities making stock
picking all that more important. We expect more of the same, likely until the end of the summer.
While numbers may be pointing toward significant gains since mid-March, let’s not forget that
markets are still well below their 52 week highs and not that far from their highest levels in 2009.
Anyhow on Monday, as the World Bank released a study indicating that the world economy would
decline -2.9% in 2009, worst than the Bank’s previous forecast of -1.7% March but all pretty much
old news to all, this along with Walgreen (WAG) ($29.80, -5.2%) reporting better-than-expected
sales, but marginally lower earning than the consensus, markets were quick to react and it was
not pretty. At the closing of the bells, the Dow was down -2.4%, its lowest finish since May 27, the
S&P 500 had lost -3.1%, losing its advance for the current year and the NASDAQ had felt -3.4%.
The Russell 2000 with a lost of -4.4% did not better, far from it. This is what can happen on a day
lacking news.

In less than 24 hours, markets began to recover but only slowly and on rather trivial volume. It
began with the National Association of Realtors releasing positive data on sales of previously
occupied homes which rose by 2.4% from April to May - the third monthly increase this year – but
a tad below what was expected. Still, after a rowdy session the prior day, this was more than
enough to cool off sellers. At the end of the day on Tuesday, markets were essentially flat
compared to the prior day

The Economic Snap-Shot

Date Economic Release For Actual Expected Prior Revised from
23-Jun Existing Home Sales May 4.77M 4.82M 4.66M 4.68M
24-Jun Durable Orders May 1.80% -0.90% 1.80% 1.80%
24-Jun Durable Orders, Ex-Tr May 1.10% -0.50% 0.40% 0.80%
24-Jun New Home Sales May 342K 360K 344K 352K
24-Jun Crude Inventories Jun-19 -3.87M -3.87M
25-Jun Initial Claims Jun-20 627K 600K 612K 608K
25-Jun Q1 GDP - Final Q1 -5.50% -5.70% -5.70% --
26-Jun Personal Income May 1.40% 0.30% 0.70% 0.50%
26-Jun Personal Spending May 0.30% 0.30% 0.00% -0.10%
26-Jun PCE Core May 0.10% 0.10% 0.30%
26-Jun Mich Sentiment-Rev Jun 70.8 69 68.7 69

On day populated with worthwhile news, Wednesday was a much better trading session, but still
on the choppy side. The day began with investors showing up in a much better mood following
the release late Tuesday afternoon of better-than-expected results by Oracle ( ORCL) ( $21.24,
+2.8%) along with management moving up guidance going forward. Markets got to a good start
early on led by tech stocks. This trend was boosted with the release by the Commerce
Department of much better-than-expected data for durable orders for May which increased 1.8%,
exactly matching the increase of April, a first since the recession began in December 2007.

In mid-morning, the positive tone was hampered somewhat by the release of worst-than-expected
numbers for new home sales down -0.6% month-over-month versus an expected increase of
2.3%. Stocks initially sold off following the new homes data, but quickly rebounded and resumed
their strength awaiting the FOMC policy statement in mid-afternoon to which markets reacted
cautiously on renewed fears of inflation and eroding bond prices. But in the end, with the Fed
pledging to leave interest rates low "for an extended period" to give the economy time to heal,
markets finished on a strong note, except for the Dow which lost -0.3% for the day. The
NASDAQ gained 1.6% and the Russell 2000 was up 1.1%, decidedly a better day.

With the Labor Department releasing a significant increase in initial jobless claims for the
previous week which jumped from 612,000 to 627,000, much higher than the 600,000 forecasted,
Thursday could have a disastrous trading day. And although it started on the wrong foot, it turned
out to be the strongest of the week. There were a number of key events that contributed to give
broad based strength to markets.
First, participants appeared to focus on recent corporate reports coming in better-than-expected.
In particular, Lennar Corp (LEN) ($9.18, +17.8%), the fourth-largest homebuilder in the US,
despite disclosing worst-than-expected results for the latest quarter, management came up with
rather positive statements going forward suggesting that the US home market may have already
hit the bottom. Likewise, retail stocks got a definite boost as Bed Bath & Beyond (BBBY)
($31.03, +8.7%) reported better-than-expected first quarter earnings.

As equally important, if not more but from another front, the Fed announced that given the
improving state of the economy it was now time to wind down the numerous emergency lending
programs it launched last fall at the height of the financial crisis. Investors applauded the fact that
the Fed considered life support to financial no longer necessary to push markets higher in a
broad movement with all 10 major sectors in the S&P 500 able to log in gains of 1.0% or more.

Friday did not follow up. Although there were a number of important economic releases, most
coming better-than-expected or in-line with expectations, trading seemed to lack direction, but
volume was very strong, the largest in 3 months amid the usual end-of-quarter window dressing.
Among other, the University of Michigan reported that consumer sentiment in June had risen to a
reading of 70.8, much better than the flat reading of 69 expected, but that appeared to go
unnoticed.

The same happened with personal income which moved up 1.4% in May, much better the
forecast of 0.3%, but most of the gain resulted from a one-time withholding tax break and
investors were finally more troubled by savings rate which soared to 6.9%, a 15-year high, while
spending rose by a modest 0.3% in May, as expected. Clearly, consumers are listening to the
news and, for the time being, their keeping their hands in their pockets real tight and this is not
necessarily positive for the overall economy. At the end of the session, markets tried to reverse
the steam to finish in positive territory, but the attempt failed in what was a largely lethargic day.

EARNING SURPRISES & CHANGING GUIDANCES

In the small-cap world, although the number of companies reporting was rather limited, most
results came in as anticipated, or above expectations. 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
Steelcase SCS 0.00b -0.14 0.16 -33.1% $6.02
23-Jun 19.0% $803.5M
Sonic SONC 0.24a 0.20 0.28 -9.9% $10.14
23-Jun 13.9% $615.7M
American AM 0.27 0.20 0.27 -3.6% $10.70
24-Jun Greetings 60.9% $421.8M
CKE CKR 0.29s 0.25 0.31 -4.1% $8.70
24-Jun Restaurants -2.6% $475.5M
Xyratex XRTX -0.23 -0.28 0.15 -26.9% $4.96
24-Jun 28.8% $146.1M
Christopher & CBK 0.05 -0.05 0.32 -22.5% $3.30
25-Jun Banks 2.2% $226.7M
SMSC SMSC -0.15 -0.23 0.39 -32.7% $20.60
25-Jun 8.5% $448.6M
AZZ Inc. AZZ 0.80 0.66 0.82 -4.4% $33.90
26-Jun -2.1% $411.6M
 ON THE NEGATIGE SIDE
Yr Yr/Yr W% MKT
Date Companies Sym Actual Cons Ago Rev Close Chg Cap
Lennar LEN -0.76 -0.64 -0.76 -20.9% $9.18
25 -Jun 17.8% $1.47B
KB Home KBH -1.03 -0.64 -3.30 -39.8% $13.42
26- Jun 0.1% $1.02B
(a) Excluding non-recurring items; (b) May not be comparable to consensus.

Obviously one of the companies that got us thinking following the release of its latest results
was American Greetings (AM) ($10.70, +60.9%), one of the oldest and better know greeting
cards company in the world. Upon looking at the numbers, while we don’t dispute AM’s
current pricing – the stock still trading well below its 52 week high of $18.45 and below its
book value of $13.05, to justify such a jump in its stock price, it is not so much the latest
results nor a fundament change in the company’s outlook that made such a difference, but
more so shorts sellers that were caught off guard which rapidly amplified the upward
movement.

CHANGING GUIDANCES
POSITIVE
MKT
Date Company Symbol Period Est Guidance Close W % Chg Cap
23-Jun Steelcase SCS Q2 -$0.04 $0.00 $6.02
19.0% $802.5M
NEGATVE
MKT
Date Company Symbol Period Est Guidance Close W % Chg Cap
23-Jun Cytec CYT Q2 $0.27 Modest loss $18.07 -6.8% $850.5M
FY09 $1.26 $0.60-0.90

24-Jun Rite Aid RAD FY10 -$0.42 ($0.59)-(0.33) $1.24 -3.9% $1.1B
24-Jun Acxiom ACXM Q1 $0.21 $0.03-0.07 $8.95 -24.8% $703.9M
25-Jun Robbins & Myers RBN Q4 $0.26 $0.14-0.24 $19.80 -7.5% $649.8M

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.

Again, the Geiser Top 20 outperformed by far other indexes last week moving up 2.8%, while the
Russell 2000 (+0.1%) and the S&P Small-Cap (-0.1%) were essentially flat as well as the S&P
500 (-0.3%). The NASDAQ was a little better moving up 0.6% in the week, but the Dow lost
significant ground finishing -1.2% lower.

The performance of the Geiser Top 20 last week was particularly helped by newcomers to the
index. As mentioned in the prior edition of the SCB, six switches were made and out of those 6
four moved up very nicely last week, one was sort of flattish, and one, well, did not do so well to
say the least. Of those recent additions, those that were up included Rentrak Corporation
(RENT) ($17.43, +19.8%), Shuffle Master (SHFL) ($6.37, +7.1%), Healthways (HWAY) ($14.49,
+5.9%) and Pep Boys (PBY) ($10.17, +5.5%). The flattish one was 99 Cents Only Stores
(NDN) ($13.64, -0.2%), The Dog of recent additions, but the one also offering the most upside
potential, was China Medical Technologies (CMED) ($22.76, -16.0%). For the record, the six
stocks that were deleted from the Geiser Top 20 managed last week to move up 1.4% on
weighted basis.

Other strong performer in Geiser Top 20 last week included Stein Mart (SMRT) ($8.62, +17.0%)
making a move along with the release of better-than-expected numbers for durable orders for
May and retailer Bed Bath & Beyond (BBBY) ($31.03, +8.7%) reporting better-than-expected
first quarter earnings. Another one was Youbet.com (UBET) ($3.50, +14.4%) which made a
move on unusual volume on Friday, nearly 20X its 3-month average. Already mentioned above,
the Dog of the week was China Medical Technologies (CMED) ($22.76, -16.0%).

GEISER TOP 3 HOLDING

Company Sym Price W – Chg MKT % Total Target
% Cap Holding
ChinaCast Education CAST $7.20 +2.4% $256.7M 8.8% $10.00
Affymetrix AFFX $5.97 -1.5% $422.0M 5.9% $11.25
Rentrak RENT $17.43 +19.8% $181.1M 5.6% $29.00

ON THE PRIVATE FRONT – TO WATCH FOR

One the Company that some of our readers are following is Strategic Minerals (SMC), a company
listed on the Sydney stock exchange. A number of approaches have been made over the past 3
or 4 months from both local and international investment groups seeking to become involved with
the future development of Strategic’s Woolgar project.

Strategic is currently seeking around AUS$1.5 M to conduct a follow up drill program over the
recently high grade discovery Mowbray area and to finalise the prefeasibility study to allow
production to begin at the company’s existing Woolgar gold mining resources (currently around
700,000 ounces).

Although Strategic has received a number of proposals to move forward, none are actually all that
attractive. Strategic anticipate that upon completion of its financing, its drilling program could be
completed within 5-6 weeks of commencement, and should Strategic achieve the result
anticipated, the Woolgar project could take on a whole new dimension to attract new market
interest for the company.

LOOKING AHEAD…
Next week will be a short trading week as U.S. markets will be closed Friday in observance of
Independence Day falling next Saturday. Not only will it be a short week, but investors are not
expected to have a whole lot to chew on and lately when this has occurred, the bears have taken
hold of markets. In a shortened week ahead of the vacation season, with not much news to
digest, one may wonder if buyers will show up in reasonable numbers.

Of the economic data to be released next week, Thursday will be the day and the focus will be on
employment figures. While May’s numbers came in generally better than expected, the impact on
consumer spending is still very much lagging with US shoppers appearing to be in a saving mood
not seen in a long time. Other reports that should get attention next week will include the latest
readings on consumer confidence on Tuesday, construction spending on Wednesday and factory
orders to finish the week on Thursday. The latter may well be a key one.
 Looking Forward On The Economy
Date Economic Release For Expected Prior
30-Jun Consumer Confidence Jun 55.1 54.9
01-Jul Pending Home Sales May 1.10% 6.70%
02-Jul Nonfarm Payrolls Jun -370K -345K
02-Jul Unemployment Rate Jun 9.60% 9.40%
02-Jul Hourly Earnings Jun 0.20% 0.10%
02-Jul Average Workweek Jun 33.1 33.1
02-Jul Initial Claims Jun-27 NA 627K
02-Jul Factory Orders May 0.20% 0.70%

At the corporate level, not much is expected with only a few companies set to report their latest
quarterly results. Among the better known names, H & R Block (HRB) (Cons $2.05 vs $2.11
Last Year) will be reporting on Monday and General Mills (GIS) (Cons $0.80 vs $0.73 Last
Year) on Wednesday. Indeed, a very light week!

In the Small-Cap world, it should also a slow week with only a number of 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
29-Jun -15.0% $21.00 -15.8% $671.9M
EXFO EXFO -0.05 0.16
30-Jun 7.1% $3.41 1.2% $203.3M
Synnex SNX 0.48 0.56
30-Jun -1.1% $24.23 -2.2% $797.3M
The9 Ltd NCTY 0.33 0.46
30-Jun -4.4% $10.67 6.5% $286.1M
Demandtec DMAN -0.02 0.03
01-Jul 11.1% $9.09 -5.3% $255.2M
Acuity Brands AYI 0.57 1.01
02-Jul -20.0% $29.28 -0.6% $1.2B
Methode Electronics MEI -0.16 0.43
02-Jul -41.3% $6.94 7.4% $262.0M
Schawk SGK -0.06 0.15
02-Jul -22.2% $7.88 -2.5% $196.5M

With the markets still very much expecting a sizeable correction to occur, with the coming week
expected to be listless in terms of news, some caution may be warranted.

On this note, have all a good investing week!

Stephane Solis
Editor
The Small-Cap Beat

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