THE SMALL-CAP BEAT

A GEISER CAPITAL CORPORATION WEEKLY PUBLICATION

In this Issue Week of May 15th, 2009
• IT HAD TO HAPPEN – ANYBODY COULD TELL
• ON THE ECONOMIC FRONT: Must Know News
• UPDATES & COMMENTS
• SIGNIFICANT EARNINGS SURPRISES
• CHANGING GUIDANCES
• LOOKING AHEAD…..

IT HAD TO HAPPEN – ANYBODY COULD TELL

Sooner or later, it had to happen. After nine straight weeks of consecutive gains for the Russell
2000 and the NASDAQ, and eight out of nine for the Dow, some profits were taken out of the
table. It all happened in a relatively slow week with bank stress test finally out the previous week
and the earnings season for the first quarter winding down with summer quickly coming.

In the end, the Russell 2000 lost 7.0%, the NASDAQ was down 3.4% and the Dow lost 3.6%.
Still, despite this pullback, since the lows of early March, the Russell 2000 is up 38.6%, the
WEEKLY MARKET WRAP-UP
52 W Range 52 W % Chg
Close Chg % Low High Low High
Russell 2000 475.84 -7.0% 343.26 764.38 38.9% -37.7%
NASDAQ 1680.14 -3.4% 1268.64 2551.47 32.8% -34.2%
Dow 8268.64 -3.6% 6726.02 13171.00 28.4% -37.2%

NASDAQ moved up 32.4% and the Dow, lagging somewhat, is up 28.4%.

Among the sectors, not surprising given recent strengths, Financials led the downward way,
declining 12.1%, after posting a gain of 23% last week alone on the foot steps of the bank stress
test results. Financial were not alone. In fact, all sectors making up the S&P 500 ended in
negative territory last week. Not far, Consumer Discretionary fell 7.3% and Energy ended up
down 6.8%.

The highlight of the week happened on Wednesday with the released of retail figures. Following
some well-deserved profit taking on Monday, a choppy session on Tuesday, the markets traded
sharply lower on Wednesday on the release of much worse-than-expected retail sales
data. Retail Sales came in at -0.4% in April, well below the consensus 0.0%, while the prior
month was revised lower to -1.3% from -1.1%.

As the markets indicated, continuing lower retail spending, albeit bottoming, may not be seen as
a strong signal for an overall economic recovery later this year. Further, with unemployment
continuing to rise and wage gains stagnating, the outlook for improvements in consumer
spending remains poor. The Industrial Production report released on Friday was only a further
indication that demand continues to be weak. On the positive side, the current excess capacity is
likely to keep any pricing pressures in check for sometime to come, and this despite current
governments’ aid flooding the financial sector which in itself can only upward pressure on prices.

While economic data have been generally improving lately, looking at the gains registered by the
markets lately, caution is in order. Particularly in the small-cap sector which has outperformed the
markets by a wide margin since early March, stocks selection is expected to become of
increasing importance.
ON THE ECONOMIC FRONT: Must Know News

• Following the bank stress test release, Capital One (COF), U.S. Bancorp (USB), BB&T
(BBT) Principal Financial Group (PFG) and Bank of New York Mellon (BK) announced
plans to raise capital with an eye towards paying back TARP loans. Among other, U.S.
Bancorp indicated its intent to offer sell $2.5B in common stock, BB&T expected to sell
$1.5B in shares, Principal Financial Group to raise $1B and Bank of New York Mellon will
offer $1B in common shares.

• Speaking at a Federal Reserve conference, Bernanke called efforts by U.S. banks to

raise capital ‘’encouraging’’. However, he also noted that the "stress tests used in the
assessment program should be part of a broader palette of internal stress tests
conducted by the banks themselves’’. This suggests that the Fed is likely to continue to
keep a close eye on the banks….as they may not be able to impose adequate internal
risk management discipline!!!

• On Tuesday, the numbers on U.S. homes facing foreclosure were released. In April, it
jumped 32%, led by Nevada, Florida and California. Its mind boggling, one in every 374
U.S. housing units received a foreclosure filing last month, the highest monthly rate since
reporting began in 2005. Repossessions by banks were down on a monthly and annual
basis, but will likely increase again in coming months.

• Also on Tuesday, ICSC reported that retail chain store sales rose 0.3% from a week ago,
and rose 0.5% Y/Y. According to Redbook, chain store sales rose 0.1% in the first week
of May, and rose 0.3% Y/Y. Among factors, warmer weather helped stores sell
horticultural products, apparel and other seasonal items.

• On Wednesday, the National Association of Realtors disclosed that the U.S. median
home price in Q1 fell 13.8% from the previous year to $169,000. It was however noted
that the drop in prices may be exaggerated by foreclosure sales of distressed properties,
while traditional sales of well-kept homes are holding their value better.

• The Census Bureau indicated early Wednesday morning that U.S. retail sales fell 0.4%
from March, well short of economist consensus of +0.1%. Sales were 10.1% lower than a
year ago. Ex-auto, sales were -0.5% vs. consensus of +0.2%. This did not bode well for
markets with the S&P Retail Index losing 3.3% on the day, dragged down on earnings
shortfalls from Liz Claiborne (LIZ) and Macy's (M), both declining 26% and 7%
respectively.

• The Department of Labor indicated Wednesday that US import prices rose 1.6% in April,
after rising 0.2% (revised) in March, more than the economist consensus of +0.6%. Most
of the increase came from a rise in petroleum prices. Prices are down 16.3% from a year
ago. Export prices were +0.5% M/M and -6.8% Y/Y.

• Thursday, it was disclosed that after waiting a half-year, six insurers were cleared to
receive up to $22B in TARP funds. Hartford Financial (HIG) was approved for $3.4B;
Lincoln National (LNC) said it may receive $2.5B; also approved were Allstate (ALL),
Prudential Financial (PRU), Principal Financial Group (PFG), and Ameriprise Financial
(AMP). It's not clear that all six will request TARP money. One analyst called the decision
"a deal with the devil," but said the move may have been unavoidable, because the
collapse of any one could ignite another round of panic. Here it goes again!

• According to the latest WSJ economist survey published on Thursday, the recession will
be over by August. Recovery, on the other hand, is expected to be subdued and
 protracted. The consensus is that the Fed’s action has effectively averted a depression,
or a much more severe recession.

• The Labor Department indicated Thursday that initial claims for the week came in at a
higher-than-expected 637,000 (consensus 610K), and were up 32K from last week's
605K (revised). Continuing claims, which measure the total number of unemployed
claiming benefits, rose 202K to 6.56M. This is still not an indication that consumer
spending will be picking up anytime soon.

• Still on Thursday, it was announced that Producer Prices (PPI) rose 0.3% in April from
March, a drop more than the 0.2% gain economists predicted. Prices are down 3.7% vs.
a year ago. Core PPI gained 0.1%, and is up 3.4% vs. last year.

• That was followed up by CPI on Friday, which was in line at 0.0% in April, while core CPI
came in at -0.7% (consensus -0.6%).

• Of more importance on Friday was Industrial Production which came in slightly better-
than-expected at -0.5% for April (consensus -0.6%), though that was offset by a
downwards revision in the prior month to -1.7% from -1.5%. However, Capacity Utilization
fell to 69.1%, and while better than the 68.8% consensus estimate, it is still the lowest
point since records began in 1967.

• To end the week, Eurostat indicated Friday morning that euro region GDP fell 2.5% in Q1
from last quarter, the fastest contraction on record,. From a year ago, the euro-area
economy shrank 4.6%, also the biggest drop on record. Inflation in euro region held
steady at 0.6% in April.

UPDATES & COMMENTS

Although the earnings season for the first quarter is fading to an end, there were last week a fair
number of companies who managed to beat expectations by significant margins. This may not be
all that surprising given that expectations in many instances were revised downwards throughout
the last months. Others, despite the same revisions, still posted very disappointing results, well
below expectations. Results that caught our attention last week include:

• Fuqi International (FUQI) ($7.61), a seller of precious metal jewellery in the People’s
Republic of China released its results on Friday. Revenues are up 41% Y/Y with EPS
coming in at $0.45, much better than the consensus of $0.34 and above last year EPS of
$0.31. Although FUQI corrected itself strongly in the first few days of last week, it
rebounded strongly on earnings disclosure, trading on Friday about 5X its average
volume. Management’s guidances were increased from a consensus of $1.44 for FY09 to
$1.49 to $1.63. Brokers following FUQI have a Buy or a Strong Buy on the stock. FUQI is
a stock to watch with positive price drive. This is a stock that can go to $11.00, and
possibly higher.

• Helen of Troy (HELE) ($18.80), a distributor of brand-name consumer products and

home appliances, is one those whose results were much better expectations. EPS came
in at $0.36 on slightly lower revenues, compared to a consensus of $0.14. Earnings were
released Wednesday and despite negative market trends, particularly for retail, the stock
picked up over 10% this week alone. Wedbush Morgan recently upgraded its
recommendation on HELE from Hold to Buy. HELE has favorable price momentum and is
likely to surpass its 52 week high of $24.70.

• Winn-Dixie Stores (WINN) ($13.80), an important food retailer in southeastern USA,

 also posted results well above expectations. On flat revenues, WINN achieved EPS of
$0.30 vs consensus of $0.12. On the announcement, WINN rebounded swiftly picking up
close to 20% last week. WINN is not a favourite of brokerage firms, but is a strong
defensive stock.

• STEC (STEC) ($14.36), a manufacturer of custom made memory solutions, also came
with outstanding results, but with the stock jumping almost 40% last week alone, there
may be less upside potential for new comers. Still, STEC is a definite company to watch
and should be accumulated on price weakness.

SIGNIFICANT EARNINGS SURPISES

ON THE POSITIVE SIDE
Date Company Symbol Actual First Year Y/Y Close Chg. Mkt Cap
Call Ago Rev % %

15-05 Fuqi Intl FUQI 0.45 0.34 0.31 41.0% $7.61 0.3% $167.5M
14-05 Middleby MIDD 0.77 0.61 0.77 12.8% $45.50 -0.5% $843.2M
14-05 Am Superconductor AMSC 0.03 0.01 -0.04 59.4% $22.86 -8.8% $989.5M
13-05 KongZhong KONG 0.07 0.03 0.03 38.0% $7.42 7.5% $266.0M
13-05 Jack In The Box JACK 0.51 0.44 1.8% $23.32 -2.4% $1.33B
13-05 Acxiom ACXM 0.25 0.22 0.15 -15.5% $9.94 2.2% $777.1M
13-05 Maiden form Brands MFB 0.26 0.17 0.26 16.4% $12.67 -3.5% $286.9M
13-05 Helen of Troy HELE 0.36b 0.14 0.31 -3.8% $18.80 10.8% $566.6M
12-05 Learning Tree LTRE -0.09 -0.14 0.08 -22.3% $9.30 3.9% $148.6M
12-05 Warnaco Group WRC 1.00a 0.73 -5.2% $26.90 -5.3% $1.23B
12-05 Fossil FOSL 0.26 0.16 0.43 -9.3% $20.90 3.9% $1.39B
12-05 China Automotive CAAS 0.13a 0.08 7.8% $5.43 -7.0% $146.5M
11-05 Winn-Dixie Stores WINN 0.30 0.12 0.2% $13.80 19.0% $751.8M
11-05 STEC Inc STEC 0.17b 0.11 0.07 25.2% $14.36 39.4% $695.7M
11-05 Progenics Pharm PGNX -0.06 -0.29 41.2% $5.37 -0.9% $166.6M
11-05 Nelnet NNI 0.64a 0.26 0.31 45.9% $8.20 22.2% $402.9M
11-05 Matrixx Initiatives MTXX 0.33 0.23 -6.7% $18.52 12.6% $175.1M
11-05 DTS DTSI 0.15 0.11 0.18 13.8% $24.49 1.6% $425.7M
11-05 WellCare Group WCG 0.29a 0.18 0.52 9.7% $16.53 -18.0% $697.9M
11-05 Sterling Construction STRL 0.41 0.26 0.23 11.8% $16.97 -8.0% $224.1M
11-05 Mediacom Comm MCCC 0.27 0.14 -0.31 6.1% $5.28 -3.3% $355.0M
11-05 IPCS Inc IPCS 0.34b 0.08 8.4% $14.83 -1.3% $254.5M
11-05 Insight Enterpr NSIT 0.08a 0.01 0.22 -13.8% $7.19 23.1% $327.7M
11-05 AgFeed Industries FEED 0.08 0.05 0.03 175.1% $4.02 1.0% $152.4M

ON THE NEGATVE SIDE

Date Company Symbol Actual First Year Y/Y Close Chg. Mkt Cap
Call Ago Rev % %

14-05 Blockbuster BBI 0.12 0.15 0.21 -19.5% $0.82 -21.2% $158.5M
14-05 Syneron Medical ELOS -0.23a -0.16 0.30 -65.1% $7.13 -9.3% $174.5M
14-05 Lear LEA -3.42 -1.73 1.00 -43.8% $1.34 -46.4% $103.8M
13-05 OPNET OPNT 0.00 0.05 -0.01 7.0% $7.99 -5.4% $164.8M
13-05 Commvault Systems CVLT 0.09 0.15 0.19 -0.9% $11.11 -12.4% $460.8M
13-05 Liz Claiborne LIZ -0.37a -0.23 0.28 -28.8% $4.38 -27.0% $416.7M
12-05 GT Solar SOLR 0.13a 0.18 4.8% $5.37 -32.7% $768.3M
11-05 Zoltek ZOLT 0.01 0.09 0.19 -27.4% $7.40 -13.5% $254.6M
11-05 Superior Well SWSI -0.67 -0.08 0.10 30.9% $9.68 -36.9% $230.3M
Services
11-05 Nam Tai Electronics NTE -0.09b -0.01 0.63 -30.6% $4.03 -10.2% $180.6M
11-05 ENGlobal ENG 0.07 0.13 0.15 -4.8% $5.15 -14.2% $140.6M
11-05 Cypress Biosci CYPB -0.24 0.12 -0.08 -44.4% $7.49 -1.1% $285.1M
11-05 Clear Channel Out CCO -0.25 -0.18 0.04 -24.9% $3.68 -32.0% $1.31B
(a) Excluding non-recurring items; (b) May not be comparable to consensus.

• Still on the positive side, Nelnet (NNI) ($8.20), a provider of education planning and
financing services to students, schools, and financial institutions in the United States,
also posted very impressive results. Revenues were up 45% compared to last year, and
EPS came in at $0.64, far better than the consensus of $0.26. Although the stock jumped
up by 22% last week, there is still room for further capital appreciation. Its 52 week high is
 $16.35; this should be broken on the way up.

• Insight Enterprises (NSIT) ($7.19), a provider of brand-name information technology

(IT) hardware, software, and services to businesses and institutions worldwide, is another
one that made the best out of a difficult environment. On revenues decreasing by 13%,
NSIT posted EPS of $0.08, much better than the consensus of $0.01. Concurrently to
earnings release, management’s EPS guidance for FY09 were elevated to $0.80-$0.87,
compared to a consensus of $0.70. Despite strong and consistent results lately, NSIT
remains under followed by brokerage firms. Yet, some investors are noticing. Although
NSIT has picked up 23% last week alone, further capital appreciation is most likely,
possibly breaking its 52 week high of $17.31.

CHANGING GUIDANCES
POSITIVE
Date Company Symbol Period Est Guidance Close Chg Mkt Cap
%
11-05 Hillenbrand HI FY09 $1.65 $1.65-1.78 $16.42 -4.3% $1.01B
12-05 Insight Enterpr NSIT FY09 $0.70 $0.80-$0.87 $7.19 23.1% $327.7M
12-05 Warnaco Group WRC FY09 $2.49 $2.50-2.66 $26.90 -5.3% $1.23B
12-05 Fossil FOSL Q2 $0.16 $0.18-$0.20
FY09 $1.45 $1.50-$1.70 $20.90 3.9% $1.39B
13-05 Maidenform Brands MFB Q2 $0.23 $0.21-$0.25
FY09 $0.91 $1.00-$1.10 $12.67 -3.5% $286.9M
13-05 Jack In The Box JACK FY09 $2.05 $2.08-$2.20 $23.32 -2.4% $1.33B
15-05 Fuqi Intl FUQI Q2 $0.29 $0.27-0.32
FY09 $1.44 $1.49-$1.65 $7.61 0.3% $167.5M
NEGATVE
12-05 Electro Scientific ESIO Q1 ($0.23) ($0.30)-
(0.25) $8.31 -7.4% $225.1M
12-05 GT Solar SOLR FY10 $0.81 $0.45-0.60 $5.37 -32.7% $768.3M
13-05 OPNET OPNT Q1 $0.08 ($0.01)-
$0.05 $7.99 -5.4% $164.8M
14-05 Am Superconductor AMSC FY10 $0.05 $0.01-$0.03 $22.86 -8.8% $989.5M

• On the negative side, GT Solar (SOLR) ($5.37), a leading provider of manufacturing

equipment and turnkey solutions to the solar industry worldwide, posted decidedly
disappointing results in an industry itself not delivering on anticipations. On revenues
growing at a dismal rate of 5%, SOLR EPS came in at $0.13, well-below the consensus
of $0.18. Compounding the matter, management lowered guidance for FY10. The market
did not appreciate at all and the response was quick and swift with SOLR tumbling close
to 25% on Wednesday alone on very heavy volume. Like a few other in the industry,
SOLR is a case of failed expectations. Although the sector is expected to do well down
the road, the downside potential for SOLR in the short term is far greater than any upside
the stock may offer.

• In the case of Lear Corp (LEA) ($1.34), a manufacturer of seat systems, electrical
distribution systems, and electronic products for the automotive industry, although results
were amazingly disappointing, one might actually wonder why the stock had a sudden
upside run the previous week. LEA is now back essentially where it should be at.

• Clear Channel Outdoor (CCO) ($3.68), a leading outdoor advertising company is another
case of disappointing earnings. But with the stock down 33% last week alone, this one
may merit further attention….the jury is still out deliberating.

LOOKING AHEAD…

Looking ahead into next week, there will be a number of important earnings release. Namely, in
the large-cap world, Home Depot (HD) and Hewlett-Packard (HPQ) will report on Tuesday and
Deere (DE) and Target (TGT) on Wednesday. These results are likely to set the week trend.
Small-caps to be reporting next week include American Apparel (APP) on Monday, JA Solar
(JASO) and Saks Inc (SKS) both on Tuesday, Ann Taylor (ANN) and Semtech (SMTC) on
Wednesday and, on Thursday, Skillsoft (SKIL).

On the economic front, it will be a much slower week with the only notable releases being
Housing Starts/Building Permits on Tuesday and the FOMC Minutes from the April 29 meeting on
Wednesday.

All in all, although market participants are not likely to sell in May and go away, yet momentum-
based trade is anticipated to slow, especially this week as there are few major market-moving
events expected. It may just be a consolidation week with action occurring case by case.

On this note, have all a good investing week!

Stephane Solis
Editor
The Small-Cap Beat

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