THE SMALL-CAP BEAT

A GEISER CAPITAL CORPORATION WEEKLY PUBLICATION

In this Issue Week of May 29, 2009

• MAY ENDS ON A STRONG NOTE – A THIRD MONTH IN

A ROW
• ON THE ECONOMIC FRONT: A Closer Look
• CORPORATE UPDATES & COMMENTS
• SIGNIFICANT EARNINGS SURPRISES
• CHANGING GUIDANCES
• STARS & DOGS….AND ACTIONS
• LOOKING AHEAD…

MAY ENDS ON A STRONG NOTE – A THIRD MONTH IN ROW

After four consecutive off days in the prior week, investors came back from Memorial Day
apparently well rested, in a good mood, and the week started on very strong note with the S&P
surging 2.6% on the day, and the NASDAQ a robust 3.4%.

But early on Tuesday, the markets had something to cheer for with the Conference Board
indicating mid-morning that the Consumer Confidence Index, which already had increased
significantly in April, had now rocketed to 54.9 when the consensus was for a reading of 42.3.
Investors appeared to hardly notice that the S&P/Case-Shiller National Home Price index
indicated that home prices had tumbled in the first quarter by 19.1%, slighted more than expected
and the worst in history.

And, guess what, led by homebuilders and retail stocks, the Russell 2000 and the S&P Small-
Cap both outperformed again major indices finishing the day up 4.7% and 4.8%, respectively. On
the other side, this all happened on relatively mild volumes across the board.

WEEKLY MARKET WRAP-UP

, 52 W Range 52 W % Chg
Close Chg % Low High Low High
Russell 2000 501.58 5.0% 342.59 764.38 46.4% -34.4%
S&P Small-Cap 264.89 4.6% 181.32 402.07 46.1% -34.1%

Geiser Top 20 148.72 6.1% 62.47 286.31 124.3% -51.1%

S&P 500 919.14 3.6% 666.79 1404.46 37.8% -34.6%

NASDAQ 1774.33 4.9% 1265.52 2549.94 40.2% -30.4%
Dow 8500.33 2.7% 6440.02 12750.8 32.0% -33.3%

On Wednesday, with buyers taking advantage of lower home prices along the banks dumping
houses on foreclosure sales, the National Association of Realtors indicated that home sales had
risen 2.9% in April to an annual rate of 4.68 M, marginally below expectations. The markets
traded essentially sideways holding their gains of the prior day with companies reporting results
largely beating expectations; that is until mid-afternoon when the roof sort of caved in on worries
over rising interest rates.
In fact, this all started with bond market becoming suddenly concerned over the amount of debt
the government was taking to stimulate the economic recovery, and this caused sharp sell-off
pushing yield on the 10-year US Treasury note to 3.75%, up from 3.55% late Tuesday; a major
move. Necessarily, this all trickled down to equity markets with investors assuming that rising
borrowing costs could only dampen any recovery. In the end, Tuesday’s market gains were
almost all erased in the last 2 hours of Wednesday trading. Markets have those …mood swings!

Despite concerns over the market’s ability to absorb an increasing amount of Treasury notes,
Wednesday’s auction of $35 B in five-year notes was well-received, same with Thursday’s
auction of $26 B in 7-year notes. All told, the government raised a total of $101 B in debt this
week; it was no sweat and actually had a marginal impact on bond prices or yield which closed
essentially at the same levels as the prior week.

On Thursday, with the announcement that durables orders had climbed 1.9% in April, much more
than the 0.4% that had been expected, along with initial jobless claims also coming better than
expected, the markets sort of played yo-yo most of the day with GM’s bankruptcy looming and the
Mortgage Bankers Association announcing that as many as 12% of US homeowners with a
mortgage were either behind on payments or in foreclosure, a record not be proud of.

At the end, on a day when a number of key players were reporting, and the trend being better-
than-expected earnings on lower-than-expected revenues, for the same reasons as the prior day
but with an opposite outcome, the markets bounced back to close about 1% higher as the bond
market calmed itself. Energy stocks led the way on the upside as oil prices kept rising to trade
above $65 a barrel following a meeting where the OPEC indicated that production would stay put.

On Friday, with the bond market calming itself, US GDP figures coming in largely as expected but
with oil price pursuing its upward trend, markets hedged up higher to finish the week and the
month higher. In the end, the Russell 2000 finished the week 5.0% higher and, after ups and
downs, still managed to close 2.9% higher for the month. The S&P 500 and the NASDAQ did
better in the last month, increasing 5.2% and 3.3% respectively

ON THE ECONOMIC FRONT: A Closer Look

• With Monday closed for Memorial Day, the first news of significance on Tuesday was
from the Conference Board which indicated that the Consumer Confidence Index had
rocketed to 54.9 from a revised 40.8 in April, much higher than the 42.3 expected. This is
the Index highest reading in 8 months, and not far from the 58.1 of a year-ago when it
was in a strong downward trend. Although bears may say this is all anecdotic, to us this
points out to a recovery, possibly sooner than generally expected.

• Economic data released on the same day in Germany also pointed toward a recovery.
While it was confirmed that the country’s GDP had posted in the first quarter its sharpest
decline on records dropping 3.8%, the fourth straight decline, with export and investment
in machinery contracting severely, consumer spending finally appeared to be rebounding
posting a quarter-to-quarter increase of 0.5%. Despite a labor market remaining weak,
consumer’s optimism is rising in Germany and this is key toward a sustained global
economic recovery.

• Necessarily dampening expectations of a strong recovery, the release of the Standard &
Poor's/Case-Shiller National Home Price index indicated Tuesday that home prices were
continuing their downward trend, but with month-to-month declines finally slowing.
Nevertheless, in the first quarter alone, US home prices tumbled by 19.1%, the most in
history and US home prices are now at the same levels as those seen at the end of 2002.
 Any increases in consumer spending, by far the largest component of GDP, should
clearly not be expected to be driven by an increase in consumers’ net worth which has
been taking a hell of beating lately.

• Following-on on the same topic, the National Association of Realtors indicated on

Wednesday that existing home sales had risen 2.9% from March to April – a tad better
than expectations – with buyer’s activity remaining in lower price ranges. This
represented an annual pace 4.68 M units, or 3.5% lower than the 4.85 M-unit level of
April 2008. First-time buyers continued to be important but there was also a rise in repeat
buyers attracted by deeply discounted prices on foreclosed listings, particularly in
California, Nevada, and Florida – not necessarily a sign of a strong market going forward.
All in all, distressed properties accounted for 45% of all existing home sales in April and
until the home market remains driven by bankers dumping on the market, things are not
going to improve, far from it. Not surprisingly, the median home price dropped to
$169,800 in April, or 14.9% below a year ago, but it could have been much worse given
the readiness of a large segment of the market to proceed quickly, almost at any prices.
Total housing inventory at the end of April rose 8.8% to 3.97 M existing homes available
for sale representing a 10.2.-month supply, compared with a 9.6-month supply in March.
The US home market is still not a pretty picture and it will take quite while before
improvements are to be seen.

• For what it’s worth, the National Association for Business Economics released on
Wednesday a survey of leading economists. About 74% of forecasters presently expect
the recession -- which started in December 2007 and is now the longest since World War
II -- to end in the third quarter of this year. According to the latest survey, the US
economy would be expected to contract by 2.8% percent this year, much worse than the
1.9% that was expected in February. Only a lethargic recovery would be expected by
most economists with unemployment rate rising possibly as high as 10.7% in the second
quarter of next year with consumers remaining cautious on spending until further notice.
As a sign of current consumers’ wariness, personal savings rate edged up slightly to
4.2% - a third month in a row above 4% - a first in a decade.

• Still on the positive the Commerce Department reported Thursday morning that orders for
durable goods had risen 1.9% in April, more than four times the 0.4% increase that had
been expected and the highest since December 2007 when the recession began. That
was the second increases in the past three months, only after recording 6 consecutive
declines prior.

• The above was followed by the Labor Department releasing data suggesting that the
labor market had possibly bottomed out with initial jobless claims dropping the prior week
to 623,000, below analysts' estimates of 635,000. That figure is about 30,000 below the
peak of the current the recession reached in early April when Auto-related layoffs
elevated the jobless claims numbers. Although the labor market appears to be finally
improving with companies cutting fewer workers, jobs remains very much a scarce
commodity. More than 5.7 M jobs have now been lost since the recession began and
further are to be expected before meaningful improvements can occur. Just a year ago,
as the pace of the economic downturn accelerated, weekly initial jobless claims were at
378,000, well-below current level.

• On the same day, the Mortgage Bankers Association came with other data indicating how
distressed the home market was. While foreclosures eased somewhat in the later of 2008
possibly as a result of various state and local measures, the Fannie Mae and Freddie
Mac halt on foreclosures, and different company-level moratoria, the pace of foreclosures
stepped up considerably in the last quarter. The combined percentage of loans in
 foreclosure and at least one payment past due reached at the end of last quarter 12.1%,
the highest level ever recorded by the MBA. Worst, while at that time over 50% of all
subprime floating-rate loans were in foreclosure or past due but, what appears to be
changing since the rapid rise in subprime lending is that today, nearly 50% foreclosures
are coming from ‘’prime’’ fixed-rate loans. This trend is expected to remain until sometime
after unemployment reaches its peak.

• On Friday, the day began with the US Department of Commerce releasing preliminary
GDP figures for the first quarter. The number was revised to an annualized decline of
5.7%, down from the 6.1% announced last month, but slightly above the 5.5% expected.
This is nevertheless an improvement over the fourth quarter of 2008 when GDP
contracted by 6.3%, the worst in US history. The decrease in real GDP in the first quarter
primarily reflected negative contributions from exports (-28.7%), government
expenditures (-4.3%), equipment and software (-33.5%), non-residential structures (-
42.3%) and residential fixed investment (-38.7%). That was partly offset by a positive
contribution from personal consumption which increased 1.5%, but down from the 2.2%
previously announced.. Private inventories subtracted 2.34% points from the first-quarter
change in real GDP, after subtracting 0.11% point from the fourth-quarter. Just by itself,
motor vehicle output subtracted 1.36% points from the first-quarter change in real GDP
after subtracting 2.01% points from the fourth-quarter. But this was partly offset by sales
of computers which added 0.06% point to the first-quarter change in real GDP.

• Not following recent trends, the ISM in Chicago indicated Friday morning that its business
barometer decreased from 40.1 in April to 34.9 in May, significantly lower than the 42.0
expected. The Index which monitors manufacturing around the Chicago area is running
counter to other data suggesting that manufacturing activity is improving. Due to its
proximity to Detroit, perhaps the Midwest is simply more affected by the slump in the auto
industry than expected.

• Throughout the week a theme close to investors was the OPEC meeting held Thursday
in Vienna along with oil prices that kept on rising, possibly stalling the upcoming recovery.
Energy stocks, including solar, got a boost from it. But looking at the demand for oil which
remains essentially unchanged and markets still showing strong overhangs with
inventories reaching their highest level in two decades earlier this month, there is
currently little economic support to justify a major leap in oil prices. Just in May, oil prices
surged about 30% to close on Friday over $66 a barrel; this was the biggest monthly
jump since the 37% rally of March 1999. Although underlying economic fundamentals
does not support recent jumps in oil prices, with OPEC members deciding to maintain
production at current levels, we may still see prices moving higher, albeit possibly at a
slower pace, and that would be essentially based on optimism over the upcoming
recovery.

• Different data released last week around the world were also pointing toward a global
recovery. Namely, the UK indicated that house prices had risen unexpectedly by 1.2% in
May, only the second time in twelve months, and in Germany, retail sales climbed 0.5%
in April, better than expected. In Japan, industrial output jumped 5.2% in April, the largest
monthly increase since 1953, while South Korea industrial output increased for a fourth
straight month. In India, GDP in the first quarter grew at a rate of 5.8%, also much better
than expected. Only slowly, but there are increasing evidences that the worse is behind.

CORPORATE UPDATES & COMMENTS

On the corporate front, the theme for companies that disclosed their results last week was
generally ‘’We’re seeing signs of improvements, but the current environment is still very
challenging’’.
Again, aside from Costco (COST) which missed consensus EPS indicating that it was particularly
affected by the weakness of the US dollar, most companies reported in-line or above consensus
EPS, but generally below consensus sales. As seen below, those companies reporting above
consensus had for most a very strong week stock wise. In the small-cap world, results that caught
our attention last week included:

• Canadian Solar (CSIQ) ($13.23), as the name suggest, is a second-tier player in

the solar industry. As most in the sector, the company reported much lower sales
but, contrary to others that reported earlier, managed to beat EPS expectations by
a fair margin. But more interesting than the actual results which were rather dismal
in our view, management indicated that based on the long term demand for the
company’s solar products, it had decided to resume the expansion of its solar cell
facility from a current 270 MW to 410 MW by the middle of Q3 2009. As an
indication, CSIQ delivered 18 MW in the latest quarter translating into net revenues
of $49.5M. If this is any indication, CSIQ is awaiting substantial growth ahead. Our
current target price for CSIQ is $15, but that could be broken on the upside. At this
time, we believe CSIQ is not trading on foreseeable results, but is rather driven by
rising oil prices and moving along with other energy stocks. Although not
necessarily delivering as expected, solar is an industry that we like and number of
stocks should do particularly well, including CSIQ whose 52 week high is $51.80.

SIGNIFICANT EARNINGS SURPISES

ON THE POSITIVE SIDE
Date Company Symbol Actual First Year Y/Y Close W Chg Mkt Cap
Call Ago Rev % %
28-May Freeseas FREE 0.29 0.25 0.01 103.7% $2.59 36.3% $54.8M
28-May Frontline FRO 0.97a 0.70 2.50 -32.4% $23.38 9.3% $1.82B
28-May Genesco GCO 0.17a 0.04 0.17 3.8% $25.79 13.2% 495.2M
28-May Perry Ellis PERY 0.46 0.23 0.60 -10.0% $8.17 28.1% $110.4M
28-May Sanderson SAFM 1.27 0.55 0.30 -1.6% $43.61 5.9% $885.6M
28-May Shoe Carnival SCVL 0.33 0.25 0.38 3.2% $10.93 16.8% $137.3M
28-May Trina Solar TSL 0.02a -0.08 0.51 9.5% $24.77 19.5% $732.7M
28-May J. Crew JCG 0.34a 0.11 0.48 1.5% $25.86 31.1% $1.62B
27-May Charming Shps CHRS 0.01a -0.07 0.01 -16.1% $3.76 10.3% $433.5M
27-May Coldwater Creek CWTR -0.08 -0.14 -0.10 -15.8% $3.80 2.2% $346.2M
27-May Jo-Ann Stores JAS 0.30a 0.11 0.12 3.1% $21.81 5.2% $570.2M
27-May Netezza NZ 0.03a 0.02 0.03 14.6% $6.98 -5.3% $416.9M
27-May Sigma Designs SIGM 0.30a 0.23 0.40 -10.0% $15.46 -3.0% $411.3M
26-May Canadian Solar CSIQ -0.10 -0.26 0.61 -71.1% $13.23 32.2% $472.1M
26-May China Fin Online JRJC 0.08a 0.03 0.26 6.3% $12.50 -0.3% $275.0M
26-May Take-Two TTWO -0.04 -0.13 1.52 -57.4% $8.63 -4.0% $693.1M
26-May Terremark Wrld TMRK 0.06 0.01 -0.05 21.3% $5.01 12.1% $300.4M
ON THE NEGATVE SIDE
Date Company Symbol Actual First Year Y/Y Close W Chg Mkt Cap
Call Ago Rev % %
27-May China Sunergy CSUN -0.40 -0.26 0.01 -51.9% $3.78 6.5% $168.7M
(a) Excluding non-recurring items; (b) May not be comparable to consensus.

• J.Crew Group, Inc. (JCG) ($25.86) is another specialty retailer that came in with much
better-than-expected EPS but, contrary to most, it also came in with higher sales than
last year. Mind you, JCG opened 42 new stores on a net basis with comparable store
sales decreasing 5% in the last quarter, still a respectable number in this environment.
Following the release, most Wall Street analysts following JCG maintained or upgraded
their recommendations on the stock with Barclays increasing it target price from $8 to
$27, Credit Suisse from $14 to $27 also, and FBR Capital from $15 to $25. By the time
analysts were done, JCG had pretty much attained the highest target price on Wall
Street, closing an inch below $26 last Friday, up 31% for the week. In the case of JCG,
either you were long the stock last week, or you simply miss it.
 • In the case of OmniVision (OVTI) ($11.39), a maker of image-sensing chips, although
the latest quarter was nothing to brag about with EPS of -$0.30 coming in on only slightly
better than expected on much lower sales and tighter margins, management guidance for
the upcoming quarter are significantly higher than current expectations. Based on the
above and the strength of its balance sheet, we have revised our target price for OVTI
from $12 to $16. Currently, the highest price target on Wall Street for OVTI is $13.

• But the winner of the week was MAP Pharmaceuticals, Inc., (MAPP) ($12.09), a drug
development company focusing on treatment of local respiratory and other common
treatable diseases such as migraine. Just last week alone, MAAP’s stock jumped from
$3.15 in the prior week to close at $12.09 last Friday – a very very strong move.. The
trigger on Tuesday was the released of results indicating that MAPP’s experimental orally
inhaled migraine drug had reached all four goals of a late-stage clinical study. MAPP's
drug, Levadex, prooved statistical significance for treating migraine, including pain,
nausea, and sensitivity to light and sound, with pain relief at 30 minutes and sustained
relief for 48 hours. Levadex is an inhaled version of an older drug used intravenously to
treat migraines, but formulated to be used in MAPP's proprietary inhaler, which is similar
to a standard asthma inhaler except that patients breathe in to receive the drug rather
than push on the device. According to the National Headache Foundation, more than
29.5 M Americans would suffer from migraines and, if approved, Levadex could provide
an alternative to the dated but still widely used class of triptan migraine drugs, including
GlaxoSmithKline's Imitrex and AstraZeneca's Zomig. We don’t have a price target for
MAPP, but the highest on Wall Street is $12.

CHANGING GUIDANCES
POSITIVE
Date Company Symbol Period Est Guidance Close Chg % Mkt Cap
28-May OmniVision OVTI Q1 -$0.23 ($0.16)-(0.07) $11.39 18.0% $569.9M
28-May J. Crew JCG Q2 -$0.02 $0.08-0.12 $25.86 31.1% $1.62B
27-May Take-Two TTWO Q4 $0.81 $1.08-1.28 $8.63 -4.0% $693.1M
NEGATVE
Date Company Symbol Period Est Guidance Close Chg % Mkt Cap
29-May Mentor Graphics MENT Q2 $0.03 -$0.10 $5.63 -7.6% $529.0M
28-May Esterline Techs ESL FY09 $3.66 $3.00-3.20 $27.34 1.2% $811.7M
27-May Jo-Ann Stores JAS FY10 $0.90 $0.70-0.85 $21.81 5.2% $570.2M
27-May DSW DSW FY10 $0.46 $0.30-0.35 $11.37 -10.2% $500.5M
27-May Take-Two TTWO Q3 -$0.05 ($0.55)-($0.65) $8.63 -4.0% $693.1M

• Our disappointment of the week was Mentor Graphics (MENT) ($5.63), a

provider of software for products designing. Although MENT reported results
largely in line with expectations for the last quarter, management issued lower
guidance for the upcoming quarter and its stock price went down the drain. We
are revising our assessment on MENT.

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.

Last week, the Geiser Top 20 edged up 6.1%, a better performance relative to the Russell 2000
(+5.0%) and the NASDAQ (+4.9%). Particularly helpful in attaining such performance was a
switch made early in the week to expose investors more adequately to solar stocks. Shares of
Spire Corp (SPIR) were disposed of at a gain of 17% to be replaced by an equivalent value in
shares of Canadian Solar (CSIQ). At the end of week, CSIQ had increased 14% from its base
cost, whereas SPIR had only increased 3% from its disposal value.

Moving on to the Stars and Dogs, Geiser’s Top 20 performer of last week was TriQuint
Semiconductor (TQNT) ($4.45) whose stock price moved up 18%, all essentially on no
significant news, but possibly simply reacting a little late to the upward move made by
semiconductor stocks in the prior week. Another strong mover among Geiser Top 20 last week
was again Fuqi International (FUQI) ($12.21) which recorded another weekly increase of 18%.
Since FUQI was added to Geiser’s Top 20 on May 15 at $7.61, the stock is up nearly 60% and
quickly getting closer to its target price of $15. Of the stocks mentioned in the prior issue of The
Small-Cap Beat, Black Box Corp. (BBOX) ($32.92) continued its upward movement closing the
week up 8%.

The Dog of the week of Geiser’s Top 20 was Mentor Graphics (MENT) ($5.63) which for
reasons mentioned prior lost nearly 8% during the week. Geiser is currently reassessing its
stance on MENT.

LOOKING AHEAD…

With June arriving, aside from the unexpected, there will be a very limited number of corporate
releases of significance this coming week. Among the companies that are set to report their latest
results, we should mentioned HHGregg, Inc. (HGG) (Cons $0.41 vs $0.31 Prior) and Lululemon
(LULU) (Cons $0.08 vs $0.12 Prior) on Tuesday, followed on Wednesday by DynCorp
International Inc. (DCP) (Cons $0.30 vs $0.17 Prior) and, in the large-caps, SAIC, Inc. (SAI)
(Cons $0.27 vs $0.25 Prior) and on Thursday, Cascade Corp. (CAE) (Cons $0.13 vs $1.10 Prior)
to close with Guess Inc. (GES) (Cons $0.29 vs $0.51 Prior), one of the last retailers to report.

With few events expected on the corporate side, the action is likely to come from economic
releases. While recent data have generally proven to be positive Monday's Personal Income
(Cons -0.2% vs -0.3% Prior) and Spending report (Cons -0.2% vs -0.3% Prior), both for April, will
be the hard data that is likely to further offer evidence as to whether we’re moving in the right
direction or not. Again, the US dollar, interest rates and oil prices should also be carefully
monitored. Until businesses start to show a willingness to hire and not just to lay off fewer people,
the path to economic recovery will remain strenuous.

On this note, have all a good investing week!

Stephane Solis
Editor
The Small-Cap Beat

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