THE SMALL-CAP BEAT

A GEISER CAPITAL CORPORATION WEEKLY PUBLICATION

In this Issue Week of May 22nd, 2009
• MONDAYS DON’T MAKE A WEEK – NO SIR!
• ON THE ECONOMIC FRONT: The Markets’ Drivers
• CORPORATE UPDATES & COMMENTS
• SIGNIFICANT EARNINGS SURPRISES
• CHANGING GUIDANCES
• STARS & DOGS….AND ACTIONS
• LOOKING AHEAD…..

MONDAYS DON’T MAKE A WEEK – NO SIR!

Following down markets in the prior week, investors surged back on Monday sparked by better-
than-expected results from the No. 2 U.S. home improvement retailer, Lowe's Cos Inc., followed
in early afternoon by indications that homebuilder confidence was on the rise. Market’s optimism
quickly extended to sectors other than retailers to include homebuilders, banks and energy
companies. Positive broker comments on Bank of America Corp, up nearly 10 % on the day,
boosted financial stocks, while rising oil prices made energy company more attractive.

At the closing of the bells on Monday, the S&P 500 had picked up 3.0%, the NASDAQ 3.1% and
the Russell 2000 surged a strong 3.9%, all in a relatively slow session. Everything seemed to be
in place for strong week. Well, apparently not so.

From there on, the markets registered four consecutive days off to end the week with very
modest gains. The positive bias was short lived.
WEEKLY MARKET WRAP-UP
52 W Range 52 W % Chg
Close Chg % Low High Low High
Russell 2000 477.62 0.4% 343.26 764.38 39.4% -37.5%
S&P Small-Cap 253.23 -0.2% 181.32 402.07 39.7% -37.0%

Geiser Top 20 140.14 6.5% 286.31 62.47 124.3% -51.1%

S&P 500 887.00 0.5% 666.79 1419.12 33.0% -37.5%

NASDAQ 1692.01 0.7% 1268.64 2551.47 33.7% -33.7%
Dow 8277.32 0.1% 6726.02 13171.00 28.5% -37.2%

From Tuesday on, despite a number of healthy indications, investors appeared to focus on the
bad news. And, indeed, there were a number of them.

Again, it all started with U.S. housing starts and permits falling ‘’unexpectedly’’ to record lows in
April. In what was choppy trading, Tuesday was somewhat saved by investors trying to snap up
shares in the technology sector ahead of results to be released by Hewlett Packard after the
st
closing. But, despite 1 quarter results being in line with expectations, the world's top personal
computer maker lowered guidance for the remaining of the year and indicated upcoming lay-offs
for 6,400 workers, or 2% of its workforce. Investors needed no more, and when in such mood, it
does not take much.

On Wednesday, despite a number of companies posting better-than-expected results, particularly

from small-caps retailers pushing markets higher early in the day, it all fell off later with the
release of the FOMC Minutes in which the Fed indicated that business conditions should be
improving in coming months, but also lowered its assessment for the current year indicating that
unemployment could reach nearly 10 percent. In the end, losses were modest; the exception
being energy stocks which posted some of the biggest gains on the trail of oil topping $62 a barrel
for the first time since November.

Despite the Conference Board indicating early Thursday that its leading economic indicators had
risen 1% in the prior month, vs 0.8% expected, and again largely better-than-expected results on
the corporate front, the markets’ fall accelerated with investors focusing on new jobless claims
dropping as expected but, oh god!, continuing claims rising to nearly 6.7 million from about 6.6
million; the highest total on records dating to 1967 and the 16th straight record. This along with an
S&P report suggesting that Britain’s economy was in bad shape and the country’s debt rating
could be lowered appeared to be on top of investors’ minds.

On Friday, just ahead of long Memorial Day week end in a session generally lacking corporate
releases and economic news, after trending upward on light volume, the week ended with
investors focusing on the state of the upcoming US deficit and the current weakness of the US
dollars to bring markets slightly lower for the day, and marginally higher for the week.

This week, if it had not been for retailers coming with largely better-than-expected results and, to
a lesser degree, energy stocks rising on higher oil prices, investors were clearly in mood to cash
in profits following the amazing rally of mid-March.

For those who put value in market direction, both the Russell 2000 and the S&P Small Cap are
inches away for crossing their 50-day moving average on the downside. As the small-caps have
been largely behind the recent rally outperforming other prominent indices by a significant margin,
if that was to occur, this would not bode well for small-caps, but also for the market in general.
But given the importance of the current rally, some form of a pullback would not be out of the
order either. We shall all stay tuned; it should be awfully interesting!

ON THE ECONOMIC FRONT: The Markets’ Drivers

• On Monday, the National Association of Home Builders indicated that the housing-market
index had risen for the second straight month, up two points to 16 after a five point jump
in April. This is the index highest level since September of 2008. While it remains at a
very low level, the recent strength - amid falling prices and an $8,000 tax credit for first
time buyers - suggests the U.S. housing market is likely to have hit the bottom.

• In Japan, economic data for the first quarter were released – not good. Although not all
surprising, Japan's economy contracted by 4% in Q1, or 15.2% on an annual basis, its
fastest decline on record. Amid a stronger yen and a weak global economy, Japan’s
exports plunged by 26%, also a record, Analysts generally think the worst is probably
over, but consumer demand is expected to remain weak with a rebound coming more
from restocking.

• On Tuesday, the Census Department reported that new home construction in April had
fallen 12.8% to an annual pace of 458,000, its lowest pace on record and well-below
expectations. Despite a recent uptick in homebuilder confidence, the housing market is
still clogged. If any, the one bright spot in April was single-family homes which were up
2.8%, but that was more than countered by apartments and multi-family units plunging
42.2%.

• Again, Reebook’s chain stores data were disappointing. Sales felt 0.2% in the first two
weeks of May from the same period last month. Analysts were expecting a 0.1% drop.
ICSC indicated separately that weekly sales were down 1.2% vs. the prior week, noting
both traffic and sales has slowed significantly. As noted in the better-than-expected
 results largely posted by retailers for the first quarter, current earnings strength is not
being fuelled by strong sales, much to the contrary, but more as a result of drastic costs
measures implemented prior. Large ticket items are still very much out of favour with
small seasonal purchases picking up some of the slack.

• On Wednesday, markets opened with the release of an S&P report downgrading the UK
economy from Stable to Negative, pretty much sending the pound down the tube. In
particular, S&P is worried that UK’s debt burden could approach the equivalent of its
GDP, a level not sustainable, and remain there for some time. Along the same line, the
IMF had just concluded in another report that Britain’s financial sector would need further
support from the government, and this could erode capital buffers the UK has.

• Still on governments’ aids, in a story from the WSJ, it was reported that the Fed was
poised to inject another $7B into GMAC, and may have to invest another $7B over time,
a move which could give the government a majority stake in the car lender and its half-
parent GM. According to US stress-test results, GMAC's capital shortfall would be
pegged at $11.5B. What began last December as a $20B batch of emergency loans to
the auto industry now looks likely to balloon well beyond $50B, and could even approach
$100B by year end.

• Mid-afternoon Wednesday, the minutes from the FOMC's April 28-29 meeting were
released. Aside from indicating that the Fed had lowered its outlook for this year and
2010, saying that the economy would contract more sharply and unemployment would
rise higher than originally projected in January, the key issue at stake was whether or not
the Fed should expand a program to buy mortgage and Treasury securities to keep
interest rates in check and heal the credit markets. In the end, the Fed opted to wait in
order to assess the impact of current stimulus on the economy. The bulls would have
preferred otherwise. Thus far, the Fed has already bought $118 billion in Treasury
securities out of a commitment to purchase $300 billion announced in March in an effort
to keep interest rates low.

• As usual on Thursday, employment data were released. Initial Jobless Claims fell 12,000
from the prior week to 631,000 – slightly worse than the consensus of 625K – while
continuing claims rose by 75,000 to 6,662,000. Although the report largely failed to clarify
whether job losses had topped out or were heading higher, the bears took notice to bring
the market down.

• On the foot steps of US Treasurer Geithner testifying before the Senate Banking
Committee on Wednesday and the just issued S&P report on the UK, bears were helped
by renewed concerns over the bulging US budget deficit, fears over raising interest rates
and the eventual possibility that the U.S.'s spotless AAA rating be downgraded. When in
such a mood…

• In fact, markets hardly noticed the Conference Board’s index of leading economic
indicators had risen 1% in April - the first increase in seven months - following a revised
dip of 0.2% in March. This was slightly better than expectations of 0.8%. For the first time
in 18 months, the strengths among the index's components exceeded the weaknesses.
Out of ten indicators seven rose, including stock prices, consumer expectations, average
work week, manufacturers' new orders for consumer goods and deliveries by vendors,
while initial jobless claims dropped, also a positive. Building permits, manufacturers'
orders for capital goods and the real money supply weighed down the index. Although
pointing toward a rebound, bears out numbered bulls on the day.

• On Friday, on a day lacking news, but with the US dollars under marked pressure,
markets were hampered by renewing concerns over the US deficit and rising interest
 rates. Finally, President Obama also enacted a law increasing restrictions on the credit
card industry.

CORPORATE UPDATES & COMMENTS

On the corporate front, the last week was a relatively slow period. Aside from Hewlett Packard
(HDQ) reporting in-line with expectations along with lower guidance, there were a were a fair
number of retailers announcing their quarterly results. For the most part, earnings were better
than expected, with Target (TGT), Saks (SKS), TJX (TJX), Lowe's (LOW), Home Depot (HD),
Sears (SHLD), and Gap (GPS) beating estimates, not on growing sales, but largely on costs
reduction measures. In the small-cap world, results that caught our attention last week included:

• Among the companies that reported much better results than expected, Stein Mart
(SMRT) ($6.70), a discount retail chain with 275 stores across the US, was the big mover
of the week jumping nearly 72% compared to the prior Friday. With over 2M shares
shorted as of late April, most likely many had to cover quickly, possibly fuelling the
upward price movement. In any event, the new CEO appointed last December certainly
delivered on costs reductions. SG&A fell to $79.9 million, compared with $91.5 million in
Q1 last year. To get there, measures implemented included headcount reduction,
cutback in store hours, lower salaries and suspension of 401(k) contribution. Given the
current economic environment, this company may be at the right place, at the right time
and with the right management in place. Further, SMRT has a strong balance sheet with
book value per share of nearly $4.75. Our target price for SMRT is $11 but, given last
week price strength, one should not be surprised to see some profit taking to occur.

SIGNIFICANT EARNINGS SURPISES

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

21-05 Barnes & Noble BKS -0.04 -0.15 0.05 -4.4% $25.12 12.0% $1.39B
21-05 Bristow Group BRS 0.73a 0.64 0.86 5.6% $27.39 7.2% $797.3M
21-05 Stein Mart SMRT 0.38 0.16 0.17 -9.2% $6.70 71.8% $285.9M
21-05 Tech Data TECD 0.63 0.34 0.43 -17.7% $30.41 8.4% $1.52B
21-05 Black Box BBOX 0.96a 0.64 0.74 -1.7% $30.43 19.3% $533.5M
21-05 Aruba Networks ARUN 0.01a -0.01 -0.01 7.5% $6.59 38.2% $560.7M
21-05 Dress Barn DBRN 0.39 0.31 0.39 6.6% $15.05 5.8% $909.3M
21-05 Foot Locker FL 0.20 0.13 0.14 -7.1% $10.35 -0.5% $1.6B
21-05 Medcath MDTH 0.31a 0.20 0.32 3.0% $10.98 16.3% $215.4M
21-05 Nordson NDSN 0.41b 0.26 0.97 -35.8% $36.99 2.5% $1.24B
21-05 Safe Bulkers SB 1.14 0.64 0.43 -4.9% $7.64 25.0% $416.4M
21-05 SkillSoft SKIL 0.19 0.12 0.06 -6.4% $8.08 7.3% $788.6M
20-05 AnnTaylor ANN -0.04a -0.13 0.47 -27.9% $7.49 -8.3% $438.6M
20-05 Tween Brands TWB -0.06 -0.19 0.21 -18.5% $4.29 53.8% $106.4M
20-05 Citi Trends CTRN 0.54 0.45 0.36 18.3% $23.88 5.3% $350.7M
19-05 E-House China EJ 0.09 0.05 -1.2% $14.04 12.3% $1.12B
19-05 Saks SKS -0.04 -0.26 0.13 -26.9% $3.94 18.0% $544.9M
19-05 Solarfun Power SOLF -0.02 -0.17 2.21 -41.5% $6.24 30.5% $335.5M
19-05 Dycom DY 0.13a 0.04 0.14 -12.2% $10.59 35.2% $416.5M
18-05 Perfect World PWRD 0.62a 0.46 0.38 40.1% $19.34 7.3% $988.9M

ON THE NEGATVE SIDE

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

22-05 Yingli Gr Energy YGE -0.09a -0.01 1.73 -35.7% $9.35 10.0% $1.19B
21-05 LDK Solar LDK -0.21 -0.08 0.45 -33.6% $7.77 -3.1% $878.9M
20-05 Columbus McKin CMCO 0.17a 0.28 0.74 -15.7% $12.77 -1.2% $241.2M
19-05 JA Solar JASO -0.18 -0.05 0.14 -79.4% $3.70 19.0% $597.2M
18-05 American Apparel APP -0.13 -0.05 0.02 $3.51 -31.0%
(a) Excluding non-recurring items; (b) May not be comparable to consensus.
 • Tween Brands, (TWB) ($4.29), a specialty retailer for tween girls operating under the
Justice and Limited Too brands, is another whose stock went through the roof following
the release of its most recent quarter. Again, a case point in costs reductions. But, for
TWB, as banking covenants were at stake, investors may have been particularly pleased
by the company confirming that it was on track to "comfortably satisfy" its credit facility
covenants. TWB has total current assets of $225M, including $84M in cash and
equivalents. Long -term debt stands at $165M, inclusive of $14M in current maturities.
Analysts are generally mixed on TWD. Our target price is $6.50, slightly below book
value per share of $6.95. But, in the short term, the stock may have run ahead of itself.

• Aruba Networks (ARUN) ($6.59), a growing provider of mobility solution enabling secure
access to data, voice, and video applications across wireless and wired networks, has
become a though call after surging close to 40% this week alone. True, the company
posted better-than-expected results, particularly on the revenue side, gaining market
share over Cisco (CSCO) and Motorola (MOT) in a difficult environment. True, ARUN is
adding new clients by the truck load. True, the company is loaded with cash representing
almost $1.30 per share. But on Friday, four brokerage firms upgraded ARUN to
Overweight, Buy or Strong Buy and, yet, none have a target price higher than $7.00 and
this pretty much where the stock is trading at. While we have the highest regard for
ARUN which is has been doing all the right things, we’re puzzled by the recent surge in
its stock price….maybe just too rapid, too soon.

CHANGING GUIDANCES
POSITIVE
Date Company Symbol Period Est Guidance Close Chg % Mkt Cap
18-05 Himax Tech HIMX Q2 $0.06 $0.07-0.09 $3.03 22.7% $567.5M
20-05 Cato CTR Q2 $0.34 $0.48-0.54 $575.5M
FY10 $1.14 $1.13-1.27 $19.58 9.5%
21-05 Stage Stores SSI Q2 $0.09 $0.20-0.27 $451.3M
FY10 $0.49 $0.40-0.65 $11.90 8.3%
21-05 Barnes & Noble BKS Q2 $0.03 $0.05-0.15 $1.39B
FY10 $1.07 $1.10-1.40 $25.12 12.0%
21-05 Dress Barn DBRN FY09 $0.88 $1.00-1.05 $15.05 5.8% $909.3M
21-05 Nordson NDSN Q3 $0.37 $0.42-0.53 $36.99 2.5% $1.24B
21-05 Black Box BBOX Q1 $0.59 $0.63-0.68 $30.43 19.3% $533.5M
NEGATVE
20-05 Cornell Corr CRN FY09 $1.70 $1.62-1.70 $16.59 -10.0% $247.4M

• Black Box Corp (BBOX) ($30.43), a provider of network infrastructure services for
communication systems worldwide, is another interesting situation. In an challenging
environment, BBOX managed to post much better-than-expected results, both on the
earning side as well as for revenues. Along with the earnings’ released, management
upgraded guidance for the coming quarter. Although the company’s balance sheet may
not be as strong as one would like, BBOX is trading well book value, earnings are
growing steadily and the stock is still trading below 10X forward EPS. Our target price for
BBOX is $45.

• On the negative side, Yingli Green Energy (YGE) ($9.35), LDK Solar (LDK) ($7.77) and
JA Solar (JASO) ($3.70), all providers of solutions to the solar industry, well, they all
posted truly dismal results, particularly JASO whose revenue tumbled down close to 80%
in the last quarter. As mentioned last week on GT Solar (SOLR), the solar industry is
currently living on hopes and anticipations, but certainly not delivering on expectations. At
current prices, our view is that there are more downside risks than upside potential in
most solar stocks; that is until companies start getting their act together and begin
delivering meaningful results.
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 6.5%, a strong performance relative to the Russell 2000
(+0.4%) and other indices as well. More noteworthy, the Geiser Top 20 index rebounded 124%
since the March lows, compared to 39% to both the Russell 2000 and the S&P Small-Cap. On the
other side, Geiser’s Top 20 index is still down 51% from its 52 week high, while other important
indices are down 33% to 37% from their 52 week highs.

This said, moving on to the Stars and Dogs of the week, two of the stocks mentioned in the last
issue of The Small-Cap Beat were added early in the week to Geiser Top 20, namely Fuqi
International (FUQI) and Nelnet (NNI). Both performed extremely well with FUQI surging 35% to
close the week at $10.28 and, not far behind, NNI gained 34% closing on Friday at $8.20.
Another one that did well was Data Domain (DDUP) – here, better to be lucky than smart – who
moved up 44% on the take-over offer of NetApp (NTAP) at $25 per share, or $1.5B, just about at
Geiser’s current target price. NetApp’s take-over offer just made quicker.

The Dog of the week of Geiser Top 20, not necessarily a great surprise, was Spire Corp (SPIR),
a manufacturer of solar products. Spire released catastrophic results after the closing of the
market on Friday May 15 and on Monday, on the opening, the damage was done. At the end of
week, the stock recovered somewhat, but nevertheless lost 8% closing at $6.44 on light volume.

LOOKING AHEAD…

Although it will be a short week with markets closed on Monday for Memorial Day, there will be
closely-watched economic reports released and, from the corporate world, always noteworthy
earnings reports, the OPEC meeting to be held on Thursday, the US dollars facing downward
pressure, enough to be steering some market’s actions

On the economic front, both the S&P/Case-Shiller Home Price Index (Exp. -18.4% vs -18.6%
Prior) and the Consumer Confidence report for May (Exp. 42.0 vs 39.2 Prior) will be out on
Tuesday. On Wednesday it will be the turn of Existing Home Sales for April (Exp. 4.65M vs 4.57M
Prior) and Durable Goods Orders for April (Exp. 0.5% vs -0.8% Prior). As usual, Thursday is
Initial Jobless Claims (631K last week), followed by New Home Sales (Exp. 363K vs 356K Prior)
and, finally on Friday, the revised first quarter GDP number (Exp. -5.5% vs 6.1 Prior) will be out.

Setting trends with earnings reports this week, we will find on Tuesday Take-Two (TTWO) will
report (Cons. -$0.13 vs $1.52 Prior), on Wednesday Autozone (AZO) (Cons. $2.89 vs $2.45
Prior), Ralph Lauren (RL) (Cons. $0.40 vs $1.00 Prior) and Staples (SPLS) (Cons. $0.21 vs
$0.30 Prior) and on Thursday, it will the turn of Costco (COST) (Cons. $0.53 vs $0.67 Prior),
Heinz (HNZ) (Cons. $0.55 vs $0.61 Prior) and Dell (DELL) (Cons. $0.23 vs $0.38 Prior).

Again, there should be a lot to digest in terms of news and events this week.

A key in maintaining this rally is participation and, last week in particular, the dancing floor was
very quiet – too calm for our taste. This is a concern. But with many still sitting on the sideline
expecting close to the end of the world, with the economy now showing clear signs of
improvement, albeit slowly and not necessarily in a constant fashion, dancers will eventually
come back to the floor.

And if real life is any indication, late party goer often return home empty handed only to take care
of the next morning’s headache.

On this note, have all a good investing week!

Stephane Solis
Editor
The Small-Cap Beat

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