THE SMALL-CAP BEAT

A GEISER CAPITAL CORPORATION WEEKLY PUBLICATION

In this Issue Week of June 12, 2009

• IS THE MARKET OVER THINKING OR SIMPLY BEING

PRUDENT?
• ON THE ECONOMIC FRONT: A Closer Look
• EARNINGS SURPRISES & CHANGING GUIDANCES
• STARS & DOGS….AND ACTIONS
• LOOKING AHEAD…

IS THE MARKET OVER THINKING OR SIMPLY BEING PRUDENT?

Following a very strong week to begin June, with little economic releases or corporate results to
get market participants excited, last week was much slower, but still on the choppy side. At the
end of the week, the Russell 2000 and the S&P Small-Cap were marginally down, -0.7% and -
1.2% respectively, while the S&P 500, the NASDAQ and the Dow finished an inch higher,
between 0.4% and 0.7%.

In our case, despite some damages on Friday with the market moving to defensive stocks where
we are not particularly exposed to, the Geiser Top 20 still managed a strong performance moving
up another 5% at the end of week. As we are on a business travel in Europe, this will be an
abbreviated version of The Small-Cap Beat, but nevertheless a comprehensive issue.

WEEKLY MARKET WRAP-UP

52 W Range 52 W % Chg
Close Chg % Low High Low High
Russell 2000 526.83 -0.7% 342.59 764.38 53.8% -31.1%
S&P Small-Cap 280.09 -1.2% 181.32 402.07 52.5% -31.2%

Geiser Top 20 157.99 5.0% 66.67 295.49 137.0% -46.5%

S&P 500 940.09 0.7% 666.79 1404.46 41.9% -32.6%

NASDAQ 1849.42 0.5% 1265.52 2549.94 46.9% -27.1%
Dow 8763.12 0.4% 6440.02 12750.8 36.6% -31.0%

It seems the week began with the market questioning whether the very impressive gains that
have occurred since mid-March were not too far and to quickly and, very much related, if recent
positive economic news had not already been priced into the market.

With news lacking on Monday, investors got into a pondering mood over the fact that when
looking at recent economic news markets may just be at a point of over stretching themselves
and a healthy correction would be more than well-deserved. Given the remarkable upswing in
markets since mid-March, this line of thought could certainly be well-bounded. But then again,
markets went so low prior on the basis that the economic world would likely implode, recent gains
may just be offsetting losses that may not have occurred without a propensity for markets to over
react either side.
Anyhow, after beginning the session with important losses, the bulls roared back in the afternoon
just to lose enough steam to allow markets to close marginally lower. Financial stocks (+1.1%)
were the darling of the day just ahead of the Fed's official announcement regarding those to be
allowed to repay TARP funds.

On Tuesday, despite rather encouraging data on wholesale inventories for April, markets did not
particularly react; volume was on the slow side and markets ended essentially flat. Not a day that
will make history.

Wednesday was pretty much the same, but concerns moved toward rising interest rates and the
weakening of the dollars. Not surprising, on day when the US Treasury had to sell $19 B in 10-
year Treasury notes, although there were bidders, the market had to be lured by a higher yield
than anticipated. The yield on the benchmark 10-year Treasury note rose for the fourth time in
five days, jumping to 3.95% from 3.86% late Tuesday. Necessarily, the market has to be
concerned over the US government's debt load which is no doubt growing rapidly, eventually
leading potentially to much higher interest rates and inflation all to dampen the economic
recovery. But, at the end of Wednesdays’ session, in spite of these well-founded concerns,
markets managed to close essentially flat – a sign of strong resilience.

On Thursday, with positive news coming from the labor front, retail sales, business inventories
and foreclosures, but with investors still in mood for a healthy correction, markets closed only
modestly higher on somewhat better volumes than Wednesday.

Finally on Friday, following on the same trend and in spite of Consumer Confidence posting a
nine-month high, markets opted to take profits on energy stocks as oil prices slipped to $71 a
barrel, down from nearly $73 on Thursday, to move toward more defensive stocks such as
Proctor Gamble (PG), utilities and healthcare stocks. On the positive side, as a result of this flight
toward a better defensive, the Dow closed for the first time higher than its level of January 1st.
But the NASDAQ more exposed to hi-tech stocks closed a tad lower as National Semiconductor
(NSM) provided a gloomy outlook during the day. The same occurred for the Russell 2000 and
the S&P Small-Cap.

Some current market participants appear to be clearly looking for a reason to drive a correction
and they may just find one which would not be overly dramatic. But on the other side, there are
still many sitting on sidelines waiting for that same correction to jump in and, if it does not occur
soon, they’ll likely have to choose to participate to what could be the most impressive bull market
ever and the expected correction may never occur, at least not as currently expected.

ON THE ECONOMIC FRONT: A Closer Look

The day of the week on the economic front was Thursday, but markets choose to focus more on
Wednesday’s news with the Treasury Department reporting that the federal budget deficit had
soared to a record of $189.7 B in May. The US administration is now projecting that the deficit for
the budget year that began October 1st will total a record $1.84 trillion, more than four times the
amount of last year's record deficit and, as a share of GDP, the highest level since 1945 when the
US was right and left to win World War II.

Further, under the administration's budget estimates, the $1.84 trillion deficit for this year will be
followed by a $1.26 trillion deficit in 2010, and will never dip below $500 B over the next decade.
The US administration estimates that deficits will total $7.1 trillion from 2010 to 2019.

That is indeed a lot of dollars to borrow on world markets and, no doubt, all have to be worried
that such large borrowing needs could trigger steep increases in interest rates.
Apparently, Treasury Secretary Geithner traveled to Beijing the week prior to reassure officials in
China, now the single-largest holder of U.S. Treasury debt, that the US administration was indeed
serious about getting control of the deficits once the current downturn and financial crisis have
passed. Well, as part of good practice in customer relations, maybe the US Treasury should open
an office in Beijing to save on travel time and lower Carbone emissions.

The Economic Snap-Shot

Date Economic Release For Actual Expected Prior Revised from
Wholesale Inventories Apr -1.40% -1.20% -1.80% -1.60%
09-Jun
10-Jun Trade Balance Apr -$29.2B -$29.0B -$28.5B -$27.6B

10-Jun Crude Inventories 06-May -4.38M NA +2.87M

10-Jun Treasury Budget May -$189.7B -$181.0B -$165.9B

11-Jun Retail Sales May 0.50% 0.50% -0.20% -0.40%

11-Jun Retail Sales ex-auto May 0.50% 0.20% -0.20% -0.50%

11-Jun Initial Claims 06-Jun 601K 615K 625K 621K

11-Jun Business Inventories Apr -1.10% -1.00% -1.30% -1.00%

12-Jun Export Prices ex-ag. May 0.30% NA 0.20% -0.30%

12-Jun Import Prices ex-oil May 0.20% NA -0.20% -0.70%

Mich Sentiment-Prel Jun 69.0 69.5 68.7
12-Jun

Of more importance in the short term, there were a number of economic data released on
Thursday all pointing in the right direction, but not necessarily at a pace to please the most
impatient.

Although not widely followed, according to RealtyTrac Inc. which began reporting in January
2005, foreclosure filings in the US felt 6% from April to May – a sign of improvement. Yet, just to
indicate the depth of the problem, more than 321,000 households received at least one
foreclosure-related notice last month – 18% more than a year earlier – and despite the drop in
May, that war still the 3rd highest level since counting. Let’s just say that with foreclosures the
market is starting to see some light, but is still very much into the tunnel.

On the same day the US Department of Commerce announced that retail sales had risen 0.5% in
May, the largest increase since sales surged by 1.7 % in January following six straight declines.
The May increase was in line with expectations with the rebound driven by auto sales and gas
stations, but was still held back by continuing weakness at department stores. Excluding autos,
retail sales were also up 0.5 % in May, better than the 0.2% expected with gains coming from
hardware stores, grocery and health stores, all to show that whatever occurs individuals will
continue to eat, clean themselves and, in lack of better, will fix what’s broken. Taking care of
basic needs is always nice, but there is likely a demand currently ramping up for more than the
ordinary.

Still on Thursday, the US Department of Commerce released data on business inventories for
April – a cut of 1.1%, better than the decrease of 1.0% expected. The March figure was also
revised to a drop of 1.3%, compared to the 1.0% decline originally reported. Inventories have now
fallen for eight straight months, the longest stretch since there were 15 consecutive declines in
2001-2002, a period covering the last recession.

Reductions of inventories were at all levels with manufacturers and retailers cutting their
stockpiles 1.0%, while wholesalers reduced their inventories by 1.4%. Yet, whereas the ratio of
inventories to sales was at 1.27 in April 2008, it is now standing at 1.43, marginally down from
1.44 in March. Without sales picking up at an increased pace, despite improvements, further
reductions in inventories are to be expected and this has necessarily negative implications on
employments which is likely to remain subdued over the next few months. A classic case of the
dog running after its tail!

On the labour front, initial claims continued their downward falling last week by 24,000 to
601,000, better than the consensus of 615,000. However the number of unemployed continuing
to file for claims rose to 6.8 M, the highest on records dating to 1967. Things are only slowly
improving, but they are improving.

Finally on Friday, possibly due to the continued strength of stock markets since mid-March, the
Reuters/University of Michigan Surveys of Consumers suggested that consumers are
increasingly seeing better days ahead, but again only very gradually with the index only rising
from 68.7 in May to 69.0 in June, a number lower than expectations. Nevertheless, this is a nine-
month high in Consumer Confidence but still a tad lower than the level of September 2008 when
the world economy was sent into a tailspin with the stunning failure of Lehman Brothers.

EARNING SURPRISES & CHANGING GUIDANCES

Few major companies reported last week. Again, companies reporting significantly better-than-
expected all registered major upward moves in their stock prices. In the small-caps, those that
caught our attention were;

SIGNIFICANT EARNINGS SURPRISES

ON THE POSITIVE SIDE
Yr Yr/Yr W% MKT
Date Companies Sym Actual Cons Ago Rev Close Chg Cap
Men's Wear MW 0.10 -0.01 0.20 -5.5% $19.77
08-Jun 10.4% $1.03B
Pep Boys PBY 0.21b 0.07 0.10 -0.3% $9.70
08-Jun 19.9% $506.9M
Movado Group MOV -0.37 -0.48 0.05 -33.3% $11.23
09-Jun 35.8% $274.0M
Stewart Enterpr STEI 0.14b 0.08 0.15 -7.5% $5.03
09-Jun 3.5% $466.4M
09-Jun 99 Cents Only NDN 0.10 0.04 -0.06 13.3% $13.31 31.8% $931.0M
09-Jun Rentrak RENT 0.13 0.05 0.10 0.1% $13.75 27.7% $144.5M
09-Jun Shuffle Master SHFL 0.10 0.04 0.09 -7.6% $5.40 17.4% $289.7M
10-Jun Isle of Capri ISLE 0.16 -0.03 -0.06 -2.8% $11.85 -5.0% $376.5M
11-Jun School Speclt SCHS -0.60 -0.71 -0.66 -10.0% $22.47 17.6% $422.2M
ArcSight ARST 0.18a 0.13 33.70% $18.80
11-Jun 3.4% $209.1M

ON THE NEGATIGE SIDE

Yr Yr/Yr W% MKT
Date Companies Symb Actual Cons Ago Rev Close Chg Cap
Blyth Industries BTH 0.27b 0.47 0.18 $31.41
08-Jun -9.8% $297.1M
Korn/Ferry KFY -0.11 -0.05 0.36 -48.1% $11.71
09-Jun -2.7% $523.7M
10-Jun Thor Industries THO 0.04 0.10 0.51 -41.3% $22.22 8.7% $1.23B
11-Jun MDS Inc MDZ 0.03 0.06 0.06 -21.2% $5.13 -2.1% $616.3M
Schawk SGK -0.01 0.03 0.28 -22.9% $8.06
11-Jun 1.0% $209.1M
(a) Excluding non-recurring items; (b) May not be comparable to consensus.

As indicated below and interestingly enough, this is one of the first weeks in a few months
that there are more downward than upward guidances catching our attention.
 CHANGING GUIDANCES
POSITIVE
MKT
Date Company Symbol Period Est Guidance Close W % Chg Cap
Movado Group MOV FY10 -$0.09 $0.50 $11.23
09-Jun 35.8% $274.0M
NEGATVE
MKT
Date Company Symbol Period Est Guidance Close W % Chg Cap
09-Jun Ceradyne CRDN FY09 $1.48 $0.70 $19.50 -16.8% $502.9M
10-Jun Actuant ATU Q3 $0.16 $0.06-0.08 $14.14 1.5% $802.5M
11-Jun Genesee & W GWR Q2 $0.45 $0.35-0.37 $26.75 -9.8% $966.5M
11-Jun Lululemon LULU Q2 $0.11 $0.08-0.09 $14.23 1.9% $988.4M
11-Jun EZCORP EZPW Q3 $0.34 $0.29-0.31
Q4 $0.46 $0.41-0.43
FY09 $1.51 $1.40-1.44 $10.99 -16.1% $534.1M
11-Jun ArcSight ARST Q1 $0.09 $0.03-0.08 $18.80
3.4% $209.1M

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 5.0%, again a much better performance than the Russell
2000 (-0.7%) or the S&P Small-Cap (-1.2%) which both lost ground, and quite better than the
NASDAQ (+0.5%), the S&P 500 (+0.7%) or the Dow (+0.4%) all three only managing a marginal
upward move.

Although it did pay off on Friday, the over exposure of the Geiser Top 20 to solar stocks largely
contributed to its strong performance this week. Namely, JA Solar (JASO) ($5.67) and LDK (LDK)
($12.50) which were both added on May 22nd at $3.60 and $8.00 respectively gained this week
10% and 21%, and for JASO that followed an increase of 21% in the prior week.

Also on the positive side, a name mentioned again and again, TriQuint Semiconductor (TQNT)
($5.79) managed another very strong performance, up another 12% last week. This followed for
TQNT gains of 16% and 20% in the two weeks prior.

The Dog of the Week of Geiser’s Top 20 was Bare Escentuals (BARE) ($8.85) which contracted
10% last week and reached Geisers’ stop-loss. BARE was disposed last Friday at a gain of 64%.

LOOKING AHEAD…

The week ahead will be again lightly-populated in terms of economic releases, but a few will be
important including the PPI and CPI and the latest reads on Housing Starts and Industrial
Production. Again markets will continue to look at the Treasuries, the US dollar and movement in
commodities.
 Looking Forward On The Economy
Date Economic Release For Expected Prior
NY Manufacturing Index Jun -5.10% -4.55%
15-Jun
16-Jun Housing Starts May 483K 458K

16-Jun Building Permits May 500K 498K

16-Jun PPI May 0.60% 0.30%

16-Jun Core PPI May 0.10% 0.10%

16-Jun Capacity Utilization May 68.40% 69.10%

16-Jun Industrial Production May -0.80% -0.50%

17-Jun Core CPI May 0.10% 0.30%

17-Jun CPI May -0.90% -0.70%

18-Jun Initial Claims Jun-13 610K 601K

Leading Indicators May 0.90% 1.00%
18-Jun

On the corporate front, among some of the releases that should be looked at in the small-cap
world, we have;

Companies To Watch For

Prior Q
Yr/Yr W% MKT
Date Companies Symbol Expt. Yr Ago Rev Close Chg Cap
Casey's General CASY 0.36 0.28
15-Jun -26.5% $25.43 -4.0% $1.29B
Focus Media FMCN 0.15 0.34
15-Jun -52.8% $7.53 -11.6% $968.4M
La-Z-Boy LZB -0.11 0.02
15-Jun -22.7% $3.66 14.7% $188.4M
16-Jun The9 Ltd NCTY 0.33 0.46 -4.4% $11.08 -3.7% $297.1M
17-Jun Somanetics SMTS 0.13 0.21 28.3% $17.35 -3.9% $209.0M
18-Jun China Medical Tech CMED 0.43 0.53 -15.0% $24.41 -1.6% $785.7M
18-Jun Progress Software PRGS 0.38 0.47 -0.6% $23.14 -3.0% $921.5M
Healthways HWAY 0.24 0.39
18-Jun 1.0% $12.83 -1.2% $423.2M

Again, unless the unexpected occurs, we anticipate markets to trade sideways next week and,
given the recent markets’ strength, that may be a well deserved pause.

On this note, have all a good investing week!

Stephane Solis
Editor
The Small-Cap Beat

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