Peattie Capital Management :: Invested in the Individual

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2016 ISSUES

December 5, 2016

What a month....

The S&P 500 gained 3.4% in November and most Peattie Capital portfolios also had a good month, with more aggressive accounts performing significantly better than the S&P 500. Small cap equities were particularly strong, rallying for an unprecedented 14 consecutive days after the election and gaining 11% for the month.

However, the Bloomberg Barclays Global Aggregate bond index lost $1.7tn, its worst performance since at least 1990, (Source: Financial Times, Dec. 1), and the U.S. 10-year note lost 2.5% for the month.

Prior to the election, the markets were down eight consecutive days, and the subsequent bounce is being largely attributed to hopes for increased infrastructure spending, less regulation, and lower taxes. In addition, a variety of investors have held siginificant amounts of cash, and I would expect that money to be put to work and support equity prices, at least through year end.

In addition to the election results, the OPEC oil production cuts and pending rate hike from the Federal Reserve are also significant developments which are driving sector rotation. The winners so far are financials, energy, and other cyclicals such as materials. Losers have been defensive sectors such as utilities and telecom. I would expect technology names to benefit as well, but in the past few days shares of many leading technology companies have been hit very hard.

My overall takeaway is that the turbulence and rotations will continue, as the uncertainty that accompanies a new administration weighs on the markets. My biggest concern is that higher rates will be a headwind to multiple expansion and companies will need to have better than expected earnings growth for shares to appreciate meaningfully.

A Little History

There have been a number of post election bounces such as 1992 (Bill Clinton's "Don't Stop Thinking About Tomorrow") and also 2008 (Obama's "Hope and Change") which were followed by extreme volatility. While some are likening Trump to Reagan, I think it's important to understand the differences between the environments of 1980 and today.

Here's how Jim Grant (Grant's Interest Rate Observer, Nov. 25, 2016) summarized the differences: "Reagan came into office with GDP growth dead in the water, the inflation rate pushing 12%, the jobless rate topping 7.2%, and the 10-year Treasury at 12.5%. The public debt weighed in at 25.5% of GDP and the S&P traded at nine times earnings. Expectations were low and borrowing capacity was high....Nowadays growth is running at 2.9%, the inflation rate at less than 2%, the jobless rate at 4.9% and the 10-year Treasury yield at 2.32%. The public debt amounts to 76.5% of GDP, while the S&P 500 trades at 20.6 times earnings. Expectations are high and borrowing capacity...is much reduced."

In other words, there was a lot of room for improvement then, whereas today both equities and bonds are much more expensive. Several studies I've seen conclude that a traditional 60/40 (equities/bonds) will generate annual returns of only 2%-3% range as a result of today's relatively expensive starting point. In addition, the U.S. has far less room to borrow (theoretically) than it has in the past, which may handcuff the implementation of Trump's policies.

The dilemma of the growth investor

Several Peattie Capital growth names have come under severe selling pressure the past few days. For example, Ellie Mae ("ELLI") which sells software packages to banks and other mortgage providers to standardize and simplify the mortgage application process, has fallen nearly 30%, from a nearby high of $110 at the end of October to $80 today.

Veeva Systems ("VEEV") reported a spectacular quarter on Nov 15, and shares spiked 14%, from $42 to $48. However in the first two days of December shares dropped back to $43. High multiple hyper growth stocks are particularly volatile, but this seems like an overreaction to me. Google ("GOOG") and Facebook ("FB"), two prominent names in most portfolios, have also come under serious selling pressure.

In IRA accounts I have sold some shares of each of these names, but in taxable accounts I am holding shares as selling would not only create a large short term capital gain, but also present the question of when to get back in. Each of these names is well positioned and I believe they will reward shareholders the next few years. However in the short term they are contributing to weak performance.

Another ETF caution flag

Monmouth Realty ("MNR") has been a Peattie Capital recommended stock twice in the past two years (see table below), with wonderful results. In MNR's Nov. 29 earnings call, the CEO compared ETFs to CDOs, synthetic CDOs, and CDOs squared, (instruments widely believed to be at the heart of the 2008 financial meltdown) and also stated that robo advisors "buy high and sell low, they don't know what they own, and they create real opportunities to invest."

I couldn't agree with him more, which is one reason why I've made a point of discussing the risks of ETFs in many newsletters this year. For anyone interested, the comments begin at the 49:30 time of the call, which is available on the company's website www.mreic.com.

Stock picking is still a good way to go

Peattie Capital believes that paying the right prices to own the right stocks is a good approach to the market. For some clients, depending on their specific characteristics, I might also overlay a tactical hedging program to protect against material downdrafts which might consist of boxing existing long postions, shorting, or raising cash.

For long term investors, I (generally) agree with Warren Buffett's comment that "All there is to investing is picking good stocks at good times and staying with them as long as they remain good companies." That is still the approach for most, not all, Peattie Capital clients as difficult as it is sometimes.

Here is an updated version of recent Peattie Capital recommended stocks, using closing prices from November 30.

This chart shows all PCM's recommendations for the past 23 months showing an average return of 15.4%. The total return of the S&P 500 in the comparable period is approximately 10.6%.

Additional recommendations are available on request. This table does not include speculative
and short sale candidates which are only appropriate for clients who have requested them.

PERFORMANCE OF PCM RECOMMENDED STOCKS

Date	Name	Ticker	Action	Price	Close	Gain
11/3/16	Cogent Communications	CCOI	Buy	$37.00	$37.45	1.2
10/5/16	AMC Entertainment	AMC	Buy	$31.50	$33.95	7.8%
7/6/16	Monmouth Realty	MNR	Buy	$13.40	$14.05	6.0%
7/6/16	Broadcom	AVGO	Buy	$151.00	$170.49	12.9%
7/6/16	Wells Fargo Pref L*	WFC/PRL	Buy	$1340	$1305	(1.2%)
6/2/16	Veeva Systems	VEEV	Buy	$33.65	$46.46	38.1%
4/5/16	LSB Industries*	LXU	Buy	$12.35	$9.75	(21.1%)
4/5/16	Marine Harvest	MHG	Buy	$15.50	$17.90	19.2%
3/3/16	KVH Industries*	KVHI	Buy	$9.25	$9.06	(2.1%)
3/3/16	Howard Hughes Co.	HHC	Buy	$99.00	$113.86	15.0%
1/6/16	Align Tech	ALGN	Buy	$65.00	$93.05	43.2%
11/2/15	ViaSat	VSAT	Buy	$65.50	$71.28	8.8%
9/2/15	Google	GOOG	Buy	$590	$758.04	28.5%
8/4/15	DexCom, Inc*	DXCM	Buy	$85	$84.20	(0.9%)
7/2/15	Cogent Communications	CCOI	Buy	$32.50	$37.45	20.8%
6/2/15	Express Scripts*	ESRX	Buy	$86.00	$81.55	(5.2%)
5/4/15	Align Technology	ALGN	Buy	$59.00	$93.05	57.7%
3/4/15	Sabre Corp*	SABR	Buy	$21.60	$26.57	25.5%
2/5/15	Cogent Communications	CCOI	Buy	$38.50	$37.45	3.7%
1/5/15	Monmouth Realty	MNR	Buy	$11.60	$14.05	30.5%

NOTES: Gains include dividends. All numbers are unaudited. The risk of loss always exists, and past results are not necessarily indicative of future results. *Position sold at manager's discretion

Recommended stock: Abbott Labs ("ABT")

Abbot Labs has gone through a series of strategic changes the past few years, culminating in the break up of the company into two (Abbot and Abbvie) in 2013. Currently the company is in negotiations to buy two companies, Alere and St. Jude Medical, the latter is expected to close before year end. It also owns 13% of Mylan, of the controversial EpiPen pricing scandal, which has probably contributed to ABT's -15% return this year.

However, ABT has a long and storied history of growing its intrinsic value, and I particularly like that it has paid a dividend every quarter since 1924 and raised the payout every year since 1972 (current yield 2.6%).

CEO Charles White has been actively buying shares recently, with a $45mm purchase in July at an average price of $43.12 and another $15mm in November at $40.54. Subsequently the shares have traded down to the high $30's, possibly a result of a soft earnings report from rival Medtronic in November. White is highly regarded and was named by Barron's earlier this year to its list of the world's 30 best CEOs.

At current prices ABT's shares represent a good opportunity for long term investors and I recommend buying them up to $38.50

Please don't hesitate to contact me with question or comments and just let me know if you'd like to be removed from distribution.

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November 3, 2016

Volatility returns

The major indices were all down in October with the Dow, S&P 500 and NASDAQ dropping 1%, 1.9%, and 2.3% respectively. Peattie Capital portfolios were also down for the month, approximately in line with the indices.

A number of Peattie Capital companies have yet to report earnings, but among those who have reported the news has been good. For example, Alphabet ("GOOG") reported earnings which beat expectations, and also announced a $3bn share buyback. Shares are down slightly since then, probably held back by macro headwinds and uncertainties around their long term projects. I remain optimistic about GOOG, even though shares have appreciated 35% in the 14 months since I recommended them. GOOG is Peattie Capital's largest position, and remains a core holding in almost every portfolio.

Several positions fared poorly in October, such as Align Technologies ("ALGN") which dropped 7%, and Howard Hughes Corp. ("HHC") which dropped 6%. HHC is particularly volatile as there are no analysts following it and the company does not hold quarterly conference calls. Furthermore it is not in any indices, and therefore does not have a "built in" buying bias by index-tracking ETFs. Nonetheless I believe HHC (and ALGN) represents a good oppoortunity at today's levels, particularly for anyone with a mid-long term investment horizon.

Both ALGN and HHC have performed very well recently, with gains of 32% and 11% respectively since I recommended them earlier this year. While I'm frustrated by the short-term performance, I have no intention of selling them based on what I know today.

The daily put/call ratio was 1.46 on Tuesday, Nov. 1. That is an extraordinarily high number (90% of the time it is between .8 and 1.0), and it signals massive fear. It is the second highest number I can ever recall seeing (1.8 during the financial crisis in 2008 being the highest), and is noteworthy because times of excessive fear tend to produce the best buying opportunities. Wednesday's ratio was 1.35, also an exceptionally high number.

Confluence of issues causing concern

The likelihood of an interest rate hike in December is increasing, and as far as I'm concerned there is enough data to support any decision by the Fed. I would call it a toss-up, despite the futures market ascribing a 70+% liklihood, as the language in the recent press release was more dovish than the language in the press release prior to last year's December rate hike. What's different now is the market's expectations for future hikes, as overall economic growth remains subdued and inflation negligible.

A recent report from Hays Advisory (Hays Market Outlook October 27) stated "raising the Fed Funds rate by a miniscule 0.25% in this environment appears to be a lot more dramatic in implementation than it sounded in a headline. A 25-basis point increase in Fed Funds rate has translated to more than $500 billion in money getting pulled from the economy."

Last week's Q3 GDP report had an appealing headline of 2.9%, but digging into the details reveals that 0.8% of that was attributable to a transitory bounce in exports (soybeans) and an additional 0.6% of it was a build in inventories. The US economy has now had eight consecutive quarters of sub 3% growth, which, according to David Rosenberg of Gluskin Sheff "has never before happened in the context of a non-recessionary economy" (source: "Breakfast with Dave" October 28). While employment is improving, productivity gains are sparse, and overall economic growth is stuck between 1% - 2%.

That said, there are some pockets of relative strength, such as a tightening labor market which is leading to mildly higher wage growth. Some economists are watching that closely as it can be an indicator of incipient inflation.

Yellow flag on valuations

I repeat what I've said the past couple months that valuations for many mainstream companies are too high for my liking and do not represent good investment opportunities at today's prices. Not to pick exclusively on cereal companies (last month I cited General Mills), but Kellogg ("K") has recently dropped 15% from its nearby high and yet still trades at 42x trailing earnings (Source: Michael Kahn "Why Are Investors Fleeing Dividend-Rich Sectors?" Barron's online October 24).

According to Mason Hawkings, Founder of Longleaf Partners, a couple "safe" sectors are trading well above their long-term averages: consumer staples are over 20 times, compared to a 10-year average of 16.8-times, and utilities are now at 22.2-times, 40% higher than their 10-year average (Source: Longleaf Partners third quarter shareholder letter).

Waiting for clarification

The combination of election headlines, potential rate hike(s) and lackluster earnings growth is causing turbulence in the markets, and until there is clarity around these issues I don't expect significant appreciation in the indices. However, there are industries and companies undergoing changes that are not reflected in their stock price, and I expect that well-chosen stocks can provide competitive returns.

Stock picking is still a good way to go

Here is an updated version of recent Peattie Capital recommended stocks, using closing prices from October 31.

This chart shows all PCM's recommendations for the past 22 months showing an average return of 11.8%. The total return of the S&P 500 in the comparable period is approximately 7%.

Additional recommendations are available on request. This table does not include speculative
and short sale candidates which are only appropriate for clients who have requested them.

PERFORMANCE OF PCM RECOMMENDED STOCKS

Date	Name	Ticker	Action	Price	Close	Gain
10/5/16	AMC Entertainment	AMC	Buy	$31.50	$31.45	(0.2%)
7/6/16	Monmouth Realty	MNR	Buy	$13.40	$13.66	3.1%
7/6/16	Broadcom	AVGO	Buy	$151.00	$170.28	12.8%
7/6/16	Wells Fargo Pref L	WFC/PRL	Buy	$1340	$1305	(1.2%)
6/2/16	Veeva Systems	VEEV	Buy	$33.65	$38.86	15.7%
4/5/16	LSB Industries*	LXU	Buy	$12.35	$9.75	(21.1%)
4/5/16	Marine Harvest	MHG	Buy	$15.50	$18.11	20.6%
3/3/16	KVH Industries*	KVHI	Buy	$9.25	$9.06	(2.1%)
3/3/16	Howard Hughes Co.	HHC	Buy	$99.00	$109.85	11.0%
1/6/16	Align Tech	ALGN	Buy	$65.00	$85.92	32.2%
11/2/15	ViaSat	VSAT	Buy	$65.50	$70.68	7.9%
9/2/15	Google	GOOG	Buy	$590	$784.54	33.0%
8/4/15	DexCom, Inc*	DXCM	Buy	$85	$84.20	(0.9%)
7/2/15	Cogent Communications	CCOI	Buy	$32.50	$36.90	19.1%
6/2/15	Express Scripts*	ESRX	Buy	$86.00	$81.55	(5.2%)
5/4/15	Align Technology	ALGN	Buy	$59.00	$85.92	45.6%
3/4/15	Sabre Corp*	SABR	Buy	$21.60	$26.57	25.5%
2/5/15	Cogent Communications	CCOI	Buy	$38.50	$36.90	2.3%
1/5/15	Monmouth Realty	MNR	Buy	$11.60	$13.66	27.2%

NOTES: Gains include dividends. All numbers are unaudited. The risk of loss always exists, and past results are not necessarily indicative of future results. *Position sold at manager's discretion

Recommended stock: Cogent Communications ("CCOI")

I reiterate my recommendation of CCOI, which I recommended in February, 2015 and then again in July 2015. The company continues to benefit from the growth of the internet as the low-cost network connection provider, and expects to grow 10%-20% per year for the foreseeable future.

In addition, CCOI consistently increases its dividend, and stated on their earnings call they expect to continue to do so, at a higher rate (2 cents quarterly or 5.3% this quarter) than they've raised it in the recent past. The new rate is $1.60 annually and at today's price the shares yield over 4%. The company also has an active share repurchase program.

The CEO owns about 10% of the company and has stated that he would be open to selling the company at the right price, which may be incrementally more likely as the industry is seeing some consolidation (Century Link purchasing Level 3).

Given the significant tailwind of internet growth and the operating cash flow it generates I would expect CCOI to hold up reasonably well, even in a volatile environment and I recommend buying shares up to $37.

Please don't hesitate to contact me with question or comments and just let me know if you'd like to be removed from distribution.

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October 5, 2016

September: yet another good month at Peattie Capital

Despite the market's late-month dip, taking the S&P 500 to a small loss for for the month (0.15%), Peattie Capital portfolios performed well and most accounts had a positive month. The third quarter was a terrific quarter as well, with many accounts gaining 6-7%, more than double the S&P 500's 3.2% return.

Overall, it's been a mildly frustrating stretch in the markets as the S&P 500 first crossed above 2100 on Feb. 17, 2015. Since then its been mostly sideways for 18 months with a total return of 6%. Today's headlines revolve around the election, the next round of tightening, decelerating growth in China, Brexit, and Middle East tensions (sound familiar?). While U.S. employment has improved, productivity is low, S&P 500 earnings have stalled, and U.S. GDP growth is stuck at about 1.5%.

I attribute Peattie Capital's excellent performance recently to good stock picking, as a number of positions continue to perform very well. According to Hays Advisory, we haven't seen a quarterly earnings increase since 2014 (Source: Hays Market Outlook Sept. 22, 2016), and I believe good stock picking will become increasingly important.

While I'm on the fence about a rate hike in December, I am expecting a Hillary victory and a dovish Federal Reserve next year as the three recent dissenters aren't voters in 2017. In addition, I expect the pace (and amount) of any rate hikes to be modest. In other words, the "lower for longer" theme will persist.

Pivoting to growth

I've stated several times that I don't like mainstream U.S. companies with slow/negligible growth as I believe the search for income has triggered a stampede into these types of names (General Mills, for example) and broadly speaking they are overvalued. At today's levels, I am much more interested in companies with organic growth even though they may appear more expensive. For example, "Saas" companies appear expensive, but present good opportunities. Here's what First Analysis said in a research report from October 3:

"An investor's choice is to pay a high price for low-growth dividend payers or pay what currently looks like a modestly higher multiple for much faster growth. With large technology companies like Oracle and SAP growing revenue single digits but trading at 4-5x revenue, paying 6-9x revenue for SaaS companies does not seem expensive. Assuming 20-30%+ growth continues, many SaaS companies will be trading at equal or lower multiples than the established players in just a year or two."

Exxon ("XOM") and the Russell small cap index: two examples of potential ETF pitfalls

Despite oil's volatility the past several years (peaking at roughly $125 and bottoming in January near $27), Exxon's ("XOM") shares have been range-bound between $70-$95 since early 2012. XOM's earnings per share have dropped considerably, from $9.70 in 2012 to $2.65 (est) in 2016. As far a I can tell, XOM's share price is not being driven by fundamentals, but rather by the flow of funds into ETFs, and the aforementioned search for yield. It is included as a top 10 holding in no less than 100 ETFs, according to etfdb. (website: http:/etfdb.com/stock/xom/). My question then becomes, what happens when the flows go out of ETFs? Wouldn't it make sense that the same process that forced ETFs to buy XOM would force them to sell it?

Even more disturbing to me is the case of the Russell 2000 small cap ETF. According to a recent article in the FT, ("When a benchmark can be an illusion" Sept. 19) "Russell publishes two versions of the Russell 2000 P/E multiple. The most commonly used version excludes any losses at all, including only the profits made by index constituents. Using this method the Russell 2000 stands at a multiple of about 40 times trailing earnings. Using the other method, which includes the losses, the Russell trades at a considerably higher 84 times last year's profits."

Note to self: Know what you own and why you own it!

Stock picking is still a good way to go

Here is an updated version of recent Peattie Capital recommended stocks, using closing prices from September 30.

This chart shows all PCM's recommendations for the past 21 months showing an average return of 15.4%. The total return of the S&P 500 in the comparable period is approximately 9%.

Additional recommendations are available on request. This table does not include speculative
and short sale candidates which are only appropriate for clients who have requested them.

PERFORMANCE OF PCM RECOMMENDED STOCKS

Date	Name	Ticker	Action	Price	Close	Gain
7/6/16	Monmouth Realty	MNR	Buy	$13.40	$14.27	7.7%
7/6/16	Avago	AVGO	Buy	$151.00	$172.52	14.3%
7/6/16	Wells Fargo Pref L	WFC/PRL	Buy	$1340	$1309.27	(0.9%)
6/2/16	Veeva Systems	VEEV	Buy	$33.65	$41.28	22.7%
4/5/16	LSB Industries*	LXU	Buy	$12.35	$9.75	(21.1%)
4/5/16	Marine Harvest	MHG	Buy	$15.50	$17.92	19.4%
3/3/16	KVH Industries*	KVHI	Buy	$9.25	$9.06	(2.1%)
3/3/16	Howard Hughes Co.	HHC	Buy	$99.00	$114.50	15.7%
1/6/16	Align Tech	ALGN	Buy	$65.00	$93.75	44.2%
11/2/15	ViaSat	VSAT	Buy	$65.50	$74.65	14.0%
9/2/15	Google	GOOG	Buy	$590	$777.29	31.7%
8/4/15	DexCom, Inc*	DXCM	Buy	$85	$84.20	(0.9%)
7/2/15	Cogent Communications	CCOI	Buy	$32.50	$36.81	18.8%
6/2/15	Express Scripts*	ESRX	Buy	$86.00	$81.55	(5.2%)
5/4/15	Align Technology	ALGN	Buy	$59.00	$93.75	58.9%
3/4/15	Sabre Corp*	SABR	Buy	$21.60	$26.57	25.5%
2/5/15	Cogent Communications	CCOI	Buy	$38.50	$36.81	2.1%
1/5/15	Monmouth Realty	MNR	Buy	$11.60	$14.00	28.7%

NOTES: Gains include dividends. All numbers are unaudited. The risk of loss always exists, and past results are not necessarily indicative of future results. *Position sold at manager's discretion

Recommended stock: AMC Entertainment Holdings ("AMC")

AMC is in the midst of two long term projects which are aimed at 1) changing the movie-going experience (reclining seats, serving alcohol) and 2) becoming the leading global movie chain. I believe they are on track to accomplish both goals.

By the end of 2017, AMC expects to have renovated 185 of their theatres (50%) and so far the evidence suggests that remodelled theatres are handily outperforming the industry with concession sales growing mid/high single digits. Relative to industry-wide attendance, which was down 12% in Q2, AMC's renovated theatres saw attendance drop only 5%. Pricing is central to the investment thesis, and AMC has recently created an executive position to focus exclusively on that.

In addition, AMC intends to buy two competitors, giving them increased market share, more theatres to remodel, and a footprint in Europe. In July AMC announced it would buy Odeon for $1.2bn and begin remodelling theatres in Europe in 2017. Shortly thereafter, AMC raised its offer for Carmike Cinemas from an all cash $30 per share to $33 per share with 70% of the purchase in cash and the remainder in AMC shares. It remains to be seen if the new offer succeeds, however even without Carmike there is plenty for AMC to do to generate earnings growth.

AMC trades at about 20X estimates and pays $0.80 annual dividend which yields 2.5% at today's price. I like the clear path to growth, and the undeniable evidence that so far at least, the renovation strategy is working. I recommend buying AMC up to $31.50.

Please don't hesitate to contact me with question or comments and just let me know if you'd like to be removed from distribution.

CLOSE THIS ISSUE

September 6, 2016

An outstanding month for Peattie Capital Portfolios

Peattie Capital portfolios had a great month, with returns ranging from 0.2%-3.7%, while the S&P 500 was -0.2%. The best performers were those with a heavier weighting in tech, where a number of stocks did well. For example, Veeva Systems ("VEEV") reported a terrific quarter on August 30th which drove the shares 8% higher on the 31st. VEEV gained 7.6% in August and has now gained 22% since I recommended it in the June 2 newsletter at $33.65.

Peattie Capital portfolios have performed much better the past few months and I am excited about the prospects going forward.

Financials showing some life

2016 has been a dreadful period of underperformance for bank stocks. For example, Wells Fargo ("WFC") has returned -6%. However, with more hawkish comments from Janet Yellen recently, bank stocks are beginning to reflect a tightening by the Federal Reserve and a potentially steepening yield curve. The resulting "net margin" expansion (the difference between the level banks source funds and where they lend them out) is the primary driver of bank earnings, and I expect bank shares to continue to respond favorably if the yield curve steepens. Several portfolios own WFC and also JP Morgan ("JPM") both of which contributed favorably in August.

Some of this year's darlings (utiities, telecom) underperformed in August. I maintain that many well known dividend- paying stocks have become overvalued, and I have no interest in buying them at today's levels. Oil has dropped about 20% from nearby peak prices, probably on supply concerns. Peattie Capital clients have very little exposure to the oil industry, at least for now.

New research partner continues to deliver outstanding results with several longs up 30%-60% this year

By way of review, this group runs a portfolio (not open to outsiders) which consists of 15 long positions and 15 short ones. They host regular meetings, forums, panels and "Idea Days" with a variety of investors, industry specialists, research analysts and other financial professionals and look at 400-500 companies annually. From this they create a "funnel" of potential investment candidates, and then they do their own proprietary research to create a "bench" of names ready to go into their portfolio. The result of this procedure is a "competition for capital" as they are disciplined about the structure of their portfolio, with only the very best ideas actually being in the portfolio.

Three of the 15 companies in their long portfolio reported earnings in the past three days. In addition to the VEEV discussed above, on August 31st Ctrip ("CTRP") reported better than expected results, and shares gained 1.6% Thursday the 1st. The basic thesis for CTRP is that a lengthy period of investments is nearing an end, and that CTRP will emerge as the dominant Chinese online travel company. Margins will steadily expand, having dropped to 5% in 2014. So far the thesis is playing out as planned.

Broadcomm ("AVGO") reported earnings on Thursday the 1st and the post-merger restructuring continues. Shares dropped 2.2% Friday, however most analysts wrote favorably about AVGO and several raised price targets as well, to the $200-$210 range. For the year AVGO has gained 22% and it has gained nearly 17% since I recommended it in the July newsletter at $151. Based on what I know today, I expect to hold a mid sized position in AVGO and will likely add more shares on any dip.

One other noteworthy transaction by them is that they sold all their shares in Salesforce ("CRM") earlier this year, having owned them for nearly 10 years. CRM reported in line earnings last week, but guided future earnings down, triggering an 8% drop in shares. Well done!

Of the 15 long positions they held at the start of the year, they have sold six and still own nine. Of those nine, five have gained over 20%, and one has gained over 60%. One was sold (Whitewave Foods) after gaining 53% this year and being taken over by Danone. Needless to say, my confidence in this group is high and rising, as both their process and results are world class. It's worth mentioning that they are even finer people than investors and Peattie Capital is fortunate to be associated with them.

Rate hikes and elections

The drumbeat of higher interest rates continues, and I think in December there is better than a 50% chance there will be one. However, I don't think there will be a series of hikes as was widely predicted at this point last year, which may have been why the markets had such a terrible beginning to 2016. It's impossible to predict how the market will respond and I expect to maintain most long positions. However several clients have expressed concern about the markets, and in some cases I have been raising cash which I expect to hold for the time being. I have a few shorts in place as well, but only in very small amounts for a select few clients who want them.

My guess is that Hillary will be the next President, on the basis that Trump is just too far behind in many key states and will need to "run the table" in most others to win. Most people I speak with say something along the lines of "the country can survive a Hillary presidency and Trump is just too much of a loose cannon."

Stock picking is still a good way to go

Here is an updated version of recent Peattie Capital recommended stocks, using closing prices from August 31.

This chart shows all PCM's recommendations for the past 20 months showing an average return of 13.6%. The total return of the S&P 500 in the comparable period is approximately 9%.

Additional recommendations are available on request. This table does not include speculative
and short sale candidates which are only appropriate for clients who have requested them.

PERFORMANCE OF PCM RECOMMENDED STOCKS

Date	Name	Ticker	Action	Price	Close	Gain
7/6/16	Monmouth Realty	MNR	Buy	$13.40	$14.00	4.5%
7/6/16	Avago	AVGO	Buy	$151.00	$176.42	16.8%
7/6/16	Wells Fargo Pref L	WFC/PRL	Buy	$1340	$1352.00	0.9%
6/2/16	Veeva Systems	VEEV	Buy	$33.65	$40.92	21.6%
4/5/16	LSB Industries*	LXU	Buy	$12.35	$9.75	(21.1%)
4/5/16	Marine Harvest	MHG	Buy	$15.50	$15.38	0.5%
3/3/16	KVH Industries*	KVHI	Buy	$9.25	$9.06	(2.1%)
3/3/16	Howard Hughes Co.	HHC	Buy	$99.00	$118.22	19.4%
1/6/16	Align Tech	ALGN	Buy	$65.00	$92.91	42.9%
11/2/15	ViaSat	VSAT	Buy	$65.50	$75.04	14.6%
9/2/15	Google	GOOG	Buy	$590	$767.05	30.0%
8/4/15	DexCom, Inc*	DXCM	Buy	$85	$84.20	(0.9%)
7/2/15	Cogent Communications	CCOI	Buy	$32.50	$35.54	13.7%
6/2/15	Express Scripts*	ESRX	Buy	$86.00	$81.55	(5.2%)
5/4/15	Align Technology	ALGN	Buy	$59.00	$92.91	57.5%
3/4/15	Sabre Corp*	SABR	Buy	$21.60	$26.57	25.5%
2/5/15	Cogent Communications	CCOI	Buy	$38.50	$35.54	(2.2%)
1/5/15	Monmouth Realty	MNR	Buy	$11.60	$14.00	28.7%

NOTES: Gains include dividends. All numbers are unaudited. The risk of loss always exists, and past results are not necessarily indicative of future results. *Position sold at manager's discretion

Recommended stock: There is no recommended stock for September

Please don't hesitate to contact me with question or comments and just let me know if you'd like to be removed from distribution.

CLOSE THIS ISSUE

August 1, 2016

A good month for Peattie Capital Portfolios

Returns for Peattie Capital portfolios ranged between 2%-4% in July, with the best performers those with more tech exposure. The S&P 500 returned 3.6% in July.

Tech returns and oil fades

Several large cap tech names reported outstanding earnings last week and most Peattie Capital portfolios have positions in two of the biggest and best performers, Alphabet ("GOOG") and Facebook ("FB"). GOOG has now returned 31% since I recommended it 11 months ago.

FB has not been a Peattie Capital recommendation, but it is a mid-sized position (3%-4%) in most portfolios. I continue to believe that both GOOG and FB have multiple levers to pull to generate significant growth and expect add to positions opportunistically.

Meanwhile oil has dropped about 20% from nearby peak prices, probably on supply concerns. Peattie Capital clients have very little exposure to the oil industry, at least for now. It's noteworthy that the drop in oil prices didn't pull down the market, as previously the two have been highly correlated.

Defensive sectors very expensive and many good companies cheap

The defensive sectors (utilities, REITS, consumer staples) continue to attract funds but to my way of thinking they have become too expensive. Utilities, for example, now trade at "decade-high price-earnings ratio and at a multi-decade-high price-sales ratios" (David Kotok Cumberland Advisors). As Ben Levisohn recently wrote the "Powershares S&P 500 Quality trades at 26.1x (trailing) earnings, 27% above its five-year median of 20.6x, according to Thomson Baseline data. Compare that to the SPDR S&P 500, which trades at 17.9x trailing, 10% higher than its five-year median of 16.3x." (Source: Barron's: The Trouble With Quality" June 13, 2016)

At some point the demand for these allegedly "safe" investments will ease, and share prices will correct, possibly sharply. However, there's no telling when that will happen or what its catalyst will be. In the meantime, I agree with Citigroup strategist Tobias Levkovich who said "There's a danger in believing you're defensively positioned when you overpay". (Source: IBID)

In contrast, Norwegian Cruise Lines ("NCLH") has steadily grown earnings from $2.30 (2014) to an expected $3.88 this year and $4.79 in 2017. (Source: UBS) Despite this strong growth, shares trade at 11x 2016 estimates and 8.8x 2017 estimates, which is below their historic range of 10x-18x, and barely half the market's multiple. So far in 2016 shares are down 27%!

Note to self: Owning out-of-favor companies (or companies in out-of-favor industries) is career threatening, even though owning them through these "out-of-favor" periods will ultimately generate the biggest long-term returns.

A different way to be defensive?

Any number of market strategists are clamoring about overvaluation, unaddressed risks, elections, terrorism, global economic slowdowns, and other macro concerns. Valuations, generally speaking, are stretched, but for now the overall combination of favorable monetary conditions, slow (but positive) economic growth, and (from a contrary point of view) excessive fear (as reflected by withdrawals from mutual funds) provide a good backdrop for equities.

That said, for many Peattie Capital clients a more defensive approach is warranted, and for more conservative accounts I have been raising cash and adding hedges. For some accounts, I have been adding short positions as well. Shorting can be highly risky, and I am only doing so in very small amounts, typically no more than 2% of a portfolio per name, and only in certain accounts.

More data points on new research partner...and the results are good

I've been having conversations with clients and prospects about a market neutral approach, in the manner of Alfred Jones who is credited with the first "hedged" approach to investing. Like any other strategy, the real success comes from owning the right names, which is one reason why I'm excited about seeing the results of my new research partner. To be sure, their results aren't perfect, but they have been correct (so far) with their largest positions (GOOG, FB, AVGO) and they are short Baidu ("BIDU") which dropped 3.6% after reporting Friday and is down about 15% for the year.

By way of background, this group runs a portfolio (not open to outsiders) which consists of 15 long positions and 15 short ones. They host regular meetings, forums, panels and "Idea Days" with a variety of investors, industry specialists, research analysts and other financial professionals and look at 400-500 companies annually. From this they create a "funnel" of potential investment candidates, and then they do their own proprietary research to create a "bench" of names ready to go into their portfolio. The result of this procedure is a "competition for capital" as they are disciplined about the structure of their portfolio, with only the very best ideas actually being in the portfolio.

Stock picking is still a good way to go

Here is an updated version of recent Peattie Capital recommended stocks, using closing prices from July 29.

This chart shows all PCM's recommendations for the past 19 months showing an average return of 14.6%. The total return of the S&P 500 in the comparable period is approximately 8.6%.

Additional recommendations are available on request. This table does not include speculative
and short sale candidates which are only appropriate for clients who have requested them.

PERFORMANCE OF PCM RECOMMENDED STOCKS

Date	Name	Ticker	Action	Price	Close	Gain
7/6/16	Monmouth Realty	MNR	Buy	$13.40	$13.81	3.1%
7/6/16	Avago	AVGO	Buy	$151.00	$162.21	7.4%
7/6/16	Wells Fargo Pref L	WFC/PRL	Buy	$1340	$1334.00	(0.4%)
6/2/16	Veeva Systems	VEEV	Buy	$33.65	$38.01	13.0%
4/5/16	LSB Industries*.	LXU	Buy	$12.35	$9.75	(21.1%)
4/5/16	Marine Harvest	MHG	Buy	$15.50	$17.03	11.2%
3/3/16	KVH Industries	KVHI	Buy	$9.25	$9.06	(2.1%)
3/3/16	Howard Hughes Co.	HHC	Buy	$99.00	$119.51	20.7%
1/6/16	Align Tech	ALGN	Buy	$65.00	$89.16	37.2%
11/2/15	ViaSat	VSAT	Buy	$65.50	$73.87	12.8%
9/2/15	Google	GOOG	Buy	$590	$771.39	30.7%
8/4/15	DexCom, Inc*	DXCM	Buy	$85	$84.20	(0.9%)
7/2/15	Cogent Communications	CCOI	Buy	$32.50	$42.79	36.0%
6/2/15	Express Scripts*	ESRX	Buy	$86.00	$81.55	(5.2%)
5/4/15	Align Technology	ALGN	Buy	$59.00	$89.16	51.1%
3/4/15	Sabre Corp*	SABR	Buy	$21.60	$26.57	25.5%
2/5/15	Cogent Communications	CCOI	Buy	$38.50	$42.79	16.6%
1/5/15	Monmouth Realty	MNR	Buy	$11.60	$13.81	27.1%

NOTES: Gains include dividends. All numbers are unaudited. The risk of loss always exists, and past results are not necessarily indicative of future results. *Position sold at manager's discretion

Recommended stock: There is no recommended stock for August

Please don't hesitate to contact me with question or comments and just let me know if you'd like to be removed from distribution.

CLOSE THIS ISSUE

July 6, 2016

Income accounts performing well

Peattie Capital portfolios diverged in June, with income oriented portfolios clearly the best performers. Interest rates are falling everywhere, and Fitch reported last week that $11.7 trillion of sovereign bonds were trading with yields below 0%. Needless to say, the demand for income continues. Thus far in 2016, fixed income is providing the best capital appreciation, and equities are providing the best income.

While I'm hard-pressed to make the case for bonds, which I consider "return-free risk", I have been adding several bank preferred stocks to a number of portfolios. Several of these have attractive dividends in the 5% - 7.5% range, and the major money center banks have plenty of liquidity to make the payments.

Overall, the first half of the year has been disappointing for Peattie Capital portfolios as a couple core positions have performed very poorly and protecting against a further selloff after the year's volatile start left several accounts underinvested when the market turned up. For most accounts, even ones I consider somewhat aggressive, I expect to emphasize more income producing names. The NASDAQ has dropped 3.7% year- to-date, well below both the S&P 500 and Dow.

A tale of two markets

Defensive sectors (utilities, REITS, consumer staples) have significantly outperformed however many names in those sectors now trade too expensively to buy. For example, General Mills ("GIS") reported last week, and shares bounced to $72, up 27% for the year. Despite declining revenues (and no revenue growth expected until 2019), shares trade at 23x fiscal 2017 earnings estimate of $3.10 and 21x fiscal 2018 estimate of $3.45. To be sure there are improving margins, and a dividend of $1.92 (2.6% yield) so there are reasons to like the stock. Several conservative accounts own Pepsi ("PEP") although at 18x it too is trading at a premium to the market.

In contrast, CommScope ("COMM") a $6bn global communications infrastructure company, has grown revenues at a compound annual growth rate ("CAGR") of 14% the past 10 years, and 9% the past five years. The company expects 9%-14% revenue growth annually for the forseeable future. Adjusted operating income was $311mn in 2011 and is expected to be over $1bn in fiscal 2016, a CAGR of 22%. Adjusted free cash flow is expected to be over $500mn in fiscal 2017, a CAGR of 13% during the same period. Earnings were $1.85 in 2015 and are expected to be between $2.40-$2.50 in 2016, for growth of over 30%. Granted the shares have also performed well this year, but at $30 they still represent a good opportunity at barely 12x forward earnings. Mobile data traffic grew 74% in 2015 and is expected to grow another 9 fold by 2020. (Note: company May 16 presentation for all data)

There is no telling when this disparity will end, but given the variety of uncertainties my guess would be it will continue for now.

Two names punished by Brexit

In June, two names were hit hard by the Brexit vote, Ryan Air ("RYAAY") and Epam Systems ("EPAM"), both of which dropped roughly 20% and so far haven't recovered. I particularly like the long term propsects for RYAAY, which is already moving to increase the size of its share buyback program and currently trades at roughly 9.5x 2017 estimates, about half the S&P's 17x forward estimate. Near-term there are a number of uncertainties, but mid and longer term RYAAY is a very attractive opportunity. That said, holding these names may not be appropriate for all Peattie Capital accounts.

According to Sam Stovall at Standard & Poors, usually there are several days of selling after a surprise like the Brexit vote, with a 6-8% drop fairly typical. Following that, however, markets tend to recover and reclaim the losses over the ensuing weeks, possibly months. Not so in the volatile 2016 markets, as the S&P 500 dropped 113 points (-5.3%) in just two sessions and subsequently regained 98 points in the following three sessions (uses closing prices). For the month the S&P was essentially flat, gaining two points to 2098.

I have been asked how the markets could rebound so quickly, and the only thing I might ascribe that to would be the likelihood that domestic interest rate hikes would be pushed further out, and the ongoing demand for fixed income and corresponding drop in rates makes equities more attractive on a relative basis. Other possibilities might be that Brexit will not actually happen for a couple years, and even when (if?) it does it may not have a material impact on earnings for US companies.

Early prognosis on new research partner is good

I mentioned last month that I had begun receiving regular research reports from a group that I've been working informally with for a few years and I'm pleased to say that early reviews are good.

Recently four of their long positions reported earnings and each beat estimates, with an immediate bump to the share price (albeit short-lived in one case), and they were not immune from the Brexit selloff. Still, my confidence in this group is growing, and I believe that Peattie Capital and its clients will benefit from being part of their community.

US Economy still ok

Overall the US economy remains stuck in the 1.5-2.5% range, which is better than many areas of the world, but not terribly inspiring. The good news is that the likelihood of a recession appears low, but after so many years of such low interest rates, it's surprising that growth isn't stronger. In addition, no one knows what the Fed might be able to do to combat a recession should one happen.

From an earnings perspective, it's helpful that oil has rebounded (for now, at least) and the US dollar isn't appreciating like it did last year, although it is stronger since the Brexit vote. Both these factors are helpful to many US companies.

Stock picking is still a good way to go

Here is an updated version of recent Peattie Capital recommended stocks, using closing prices from June 30.

This chart shows all PCM's recommendations for the past 18 months showing an average return of 10.3%. The total return of the S&P 500 in the comparable period is approximately 4.9%.

Additional recommendations are available on request. This table does not include speculative
and short sale candidates which are only appropriate for clients who have requested them.

PERFORMANCE OF PCM RECOMMENDED STOCKS

Date	Name	Ticker	Action	Price	Close	Gain
6/2/16	Veeva Systems	VEEV	Buy	$33.65	$34.12	1.4%
4/5/16	LSB Industries*.	LXU	Buy	$12.35	$9.75	(21.1%)
4/5/16	Marine Harvest	MHG	Buy	$15.50	$16.90	10.3%
3/3/16	KVH Industries	KVHI	Buy	$9.25	$7.70	(16.8%)
3/3/16	Howard Hughes Co.	HHC	Buy	$99.00	$114.32	15.5%
1/6/16	Align Tech	ALGN	Buy	$65.00	$80.55	23.9%
11/2/15	ViaSat	VSAT	Buy	$65.50	$71.40	9.0%
9/2/15	Google	GOOG	Buy	$590	$692.10	17.3%
8/4/15	DexCom, Inc*	DXCM	Buy	$85	$84.20	(0.9%)
7/2/15	Cogent Communications	CCOI	Buy	$32.50	$40.06	27.6%
6/2/15	Express Scripts*	ESRX	Buy	$86.00	$81.55	(5.2%)
5/4/15	Align Technology	ALGN	Buy	$59.00	$80.55	36.5%
3/4/15	Sabre Corp*	SABR	Buy	$21.60	$26.57	25.5%
2/5/15	Cogent Communications	CCOI	Buy	$38.50	$40.06	9.5%
1/5/15	Monmouth Realty	MNR	Buy	$11.60	$13.26	22.3%

NOTES: Gains include dividends. All numbers are unaudited. The risk of loss always exists, and past results are not necessarily indicative of future results. *Position sold at manager's discretion

Recommended stocks: Broadcom Limited ("AVGO"), Wells Fargo Preferred Series L, and Monmouth Realty ("MNR")

Normally I am not interested in "growth by shrinking" but Hock Tan, CEO of Broadcom, ("AVGO") has a history of exceeding expectations after acquisitions and with the close of the Avago/Broadcom merger earlier this year he has a ripe opportunity to do so again. The "new" AVGO reported its first quarter in June and the results were terrific: cost synergies were pulled forward and exceeded expectations, earnings beat by 7%, and guidance for the next quarter was raised from $2.60 to $2.75. AVGO raised its quarterly dividend from $0.49 to $0.50 and signalled its intent to pursue additional acquisitions after this one, but only after reaching its target operating model of 2x debt/EBITDA.

Previous successful integrations include CyOptics in 2013, LSI in 2014 and Emulex in 2015. In each instance earnings estimates were at least 10% higher a year later as he was able to find additional synergies.

Shares of AVGO bounced after the earnings report from $154 to $165 but subsequently corrected in the Brexit tsunami. I believe shares are well positioned and that the runway for further synergies has at least a few more quarters to go. For anyone interested I recommend buying shares up to $151.

Shares of Wells Fargo Convertible Preferred Series L have a 7.5% dividend and even after a strong run yield 5.6%. This series is non-cumulative, which means Wells Fargo could skip a payment if they chose, but they have never done so, even in the 2008-2009 meltdown. I expect these shares to perform well in this ultra-low rate environment but one risk is that they will underperform if rates turn up. Wells Fargo can convert this series into common stock, but only if the price of the common reaches about $200, which would be a welcome development as the common currently trades near $46. I recommend buying shares up to $1,340.

I recommended Monmouth Realty ("MNR") in January, 2015 and shares have subsequently returned 22%, well ahead of the S&P 500's 4.9% total return. In Q1, revenues jumped 24% and earnings grew 21%, accelerating from 2015's annual growth rates of 20% and 10% respectively. In addition, MNR increased its annual dividend to $0.64 from $0.60 and shares currently yield 4.8%.

Thus far this fiscal year, MNR has increased its gross leasable space 6% and has an additional 1.9mm square feet in the pipeline which they expect to close within the next six quarters. Currently MNR has 14.9mm square feet in 95 locations in 30 states, and an occupancy rate of 99.6%.

With strong tailwinds from ecommerce and the recent opening of the expanded Panama Canal, I expect MNR to maintain its rapid growth and am recommending purchasing shares again, this time up to $13.40.

Please don't hesitate to contact me with question or comments and just let me know if you'd like to be removed from distribution.

CLOSE THIS ISSUE

June 2, 2016

Range of Returns	May	YTD

All PCM Accounts	(1.5%) - 1.4%	(7.8%) - (0.8%)
S&P 500	1.5%	2.6%

A good month dragged down by two poor performers

About the only person that might be happier than me to see the calendar turn is Matt Harvey, the Mets pitcher who had a 5.91 ERA in May and didn't pitch past the 5th inning in four of his six starts. However, he bounced back with a gem Memorial Day, and likewise I expect Peattie Capital to bounce back as well.

There were some big winners in May, such as Align Technologies ("ALGN") which returned 9.2%, Marine Harvest ("MHG") which returned 6.2%, and Howard Hughes Company ("HHC") which gained 3.7%. Each of these is a recently recommended stock, and they have returned 21.3%, 8.6% and 10.4% respectively since being recommended in 2016. However, they (and others) were not enough to overcome the effects of two poor performers, KVH Industries ("KVHI") and LSB Industries ("LXU").

KVHI has been a core holding for years. I have been patient with the company as it built a global satellite network covering the world's shipping lanes and then bought middleware and content companies to provide a turnkey solution in maritime satellite communications. With an addressable market of potentially 250,000 ships (currently in about 6,000) and a leading market share, KVHI appeared to be well positioned in a growing industry. However first quarter earnings disappointed, as pricing dropped significantly and shares fell 15%.

Even more disturbing was the annual proxy, in which the company asked for shareholder approval to issue up to an additional 4.7mm shares, an increase of 28%. These new shares would be rewarded to employees on a individual performance basis, untethered from any corporate peformance metrics or accountability. Against a backdrop of an (overall) flat stock price the past 10 years, this is very disappointing. With $50mm cash on the balance sheet (granted, about the same amount of debt), I would've liked to see a share buyback, rather than a request for additional employee compensation.

The proxy also disclosed that compensation to the wife of the Chairman, who serves as the company's "senior director of creative and customer experience" (what?) jumped 33% in 2015 (to $214k). For perspective, KVHI's shares were down 5% in 2014, and another 25% in 2015, and currently sit nearly 50% below their $15 high 14 months ago. Rewarding employees with egregious raises and lavish stock packages while shareholders suffer is reminiscent of the investment banking industry with its "heads we win, tails you lose" model, its lack of individual accountability, and its endless bonuses regardless of corporate or shareholder well being.

On May 27, KVHI announced that the CFO was leaving to pursue other interests, effective immediately. Most Peattie Capital portfolios have also left, as I consider management's decisions unacceptable, amounting to a direct slap in the face to shareholders.

The second position that underperformed was LXU, which I recently recommended at $12.35 as a potential turnaround with nearby catalysts. LXU reported May 4 and also diclosed serious pricing issues, with most products down roughly 25%. Owning a small, cyclical, and heavily indebted company with declining selling prices is not appropriate for Peattie Capital clients, and I sold all LXU shares.

Reasons to remain positive and a potential summertime rate hike

Bear markets usually begin with complacency and confidence at highs, based (probably) on preceeding market strength, such as the tech bubble in the late 1990's. Clearly, that is not the case today as short interest on the NYSE rose 1.6% in the first half of May, and the NASDAQ short interest grew 1.4%. (Source: David Rosenberg, Gluskin Sheff, May 30)

In addition, the American Association of Independent Investors (AAII) poll last week registered the lowest reading of bulls in eleven years, 17.8%. The number of investors describing themselves as "neutral" rose to 52.9%, the highest since 2003. Equity funds have seen seven consecutive weeks of withdrawals, with aggregate redemptions over $100bn in that time. (Source: IBID)

From a macro perspective, geopolitical threats seem to be moderating (Greece), Brexit is losing momentum, oil has firmed but isn't rocketing towards $100, earnings have stabilized, the yield curve is healthy (positively sloped), new home sales are accelerating, and most economists are calling for 2-2.5% Q2 GDP growth, which is to say that there is no recession in sight.

My own view is that things, overall, are ok, at least for now, and perhaps that is why several Fed Governors have recently spoken about a potential summertime rate hike. Last Friday (May 27) Chairwoman Yellen seemed to give a nod in that direction when she said "probably in the coming months such a move would be appropriate."

I had originally thought that the summertime would not be the time for another move, but given these comments I have to believe that right now the light is green, meaning that it's more of a possibility than I originally thought. My guess would be July instead of June because of the Brexit vote, and that would also give the Fed two more unemployment reports to digest.

Peattie Capital broadening its research muscle

Several times annually I participate in idea sessions with other professional investors and in May one of them began including me in their research distribution. I have become increasingly comfortable with this group over the past couple years and expect that including their research will be a benefit to Peattie Capital, as I am impressed with the depth of their knowledge, their process of sourcing investment ideas from other professionals, their timely publications, and their hard work. This is an institutional advisory firm with no individuals as clients, and I am flattered to be included.

Stock picking is still a good way to go

Here is an updated version of recent Peattie Capital recommended stocks, using closing prices from May 31.

This chart shows all PCM's recommendations for the past 17 months showing an average return of 10.3%. The total return of the S&P 500 in the comparable period is approximately 4.5%.

Additional recommendations are available on request. This table does not include speculative
and short sale candidates which are only appropriate for clients who have requested them.

PERFORMANCE OF PCM RECOMMENDED STOCKS

Date	Name	Ticker	Action	Price	Close	Gain
4/5/16	LSB Industries*.	LXU	Buy	$12.35	$9.75	(21.1%)
4/5/16	Marine Harvest	MHG	Buy	$15.50	$16.64	8.6%
3/3/16	KVH Industries	KVHI	Buy	$9.25	$8.47	(8.4%)
3/3/16	Howard Hughes Co.	HHC	Buy	$99.00	$109.26	10.4%
1/6/16	Align Tech	ALGN	Buy	$65.00	$78.83	21.3%
11/2/15	ViaSat	VSAT	Buy	$65.50	$69.01	5.4%
9/2/15	Google	GOOG	Buy	$590	$737.72	25.0%
8/4/15	DexCom, Inc*	DXCM	Buy	$85	$84.20	(0.9%)
7/2/15	Cogent Communications	CCOI	Buy	$32.50	$39.82	25.8%
6/2/15	Express Scripts*	ESRX	Buy	$86.00	$81.55	(5.2%)
5/4/15	Align Technology	ALGN	Buy	$59.00	$78.83	33.6%
3/4/15	Sabre Corp	SABR	Buy	$21.60	$28.17	32.3%
2/5/15	Cogent Communications	CCOI	Buy	$38.50	$39.82	7.9%
1/5/15	Monmouth Realty	MNR	Buy	$11.60	$11.89	9.1%

NOTES: Gains include dividends. All numbers are unaudited. The risk of loss always exists, and past results are not necessarily indicative of future results. *Position sold at manager's discretion

Recommended stocks: Veeva Systems ("VEEV")

I recommended Veeva Systems ("VEEV") in September, 2014 (at $30) but subsequently sold it as high multiple growth stocks started correcting and there were others with a similar profile that I preferred to own.

Subsequently the forward multiple has dropped from 50x to 38x and the company's "Vault" product- a document management platform- has had two consecutive quarters of 100% growth and now represents 30% of revenues. In addition, in the recent quarterly call, management indicated that Vault might be extended outside the life sciences industry where VEEV has operated exclusively to date. This could be a very powerful pivot point, as there are increasingly more applications available on the platform, and a greater audience for it as well. Earnings are expected to grow single digits in 2016 but accelerate to 20% growth in 2017.

Shares of VEEV have traded very well lately and as a high growth/high multiple stock it isn't appropriate for everyone. So for now it will be a small position (2% ish) and is a better candidate for growth oriented portfolios. For anyone interested I recommend buying shares up to $33.65

Please don't hesitate to contact me with question or comments and just let me know if you'd like to be removed from distribution.

CLOSE THIS ISSUE

May 4, 2016

Range of Returns	April	YTD

All PCM Accounts	(2.0%) - (0.3%)	(7.0%) - (1.9%)
S&P 500	0.3%	1.1%

Late month volatility hurt portfolios in April

April was a very strong month for most Peattie Capital portfolios until the last couple days when several positions dropped dramatically. For example, April's recommended stock LSB Industries ("LXU") dropped 14% in the final two days of the month (and has continued to slide the first few days of May). LXU reports earnings on May 4 and I look forward to hearing the latest developments at the company.

In addition, Align Technologies ("ALGN") reported a good quarter after the market closed on the 28th. Despite an earnings beat and nice upgrade (Morgan Stanley upped the price target from $79 to $84) shares closed down nearly 3% Friday. ALGN is a big position in most Peattie Capital portfolios and I will be looking to add more shares if the price continues to drop. Another name, Protolabs ("PRLB"), a very small position in only a few accounts, dropped 22% after reporting a mildly disappointing quarter. I like this fast growing name very much, and expect to maintain a small position in it for select portfolios.

I recommended Howard Hughes Corp ("HHC") in March at $99 and it has become a significant holding in many portfolios. In early April the CFO unexpectedly resigned, triggering a 10% correction in the shares which subsequently have been range bound between $100 and $111. It too sold off late in April (5% drop the final two days). However, the company reported a very strong quarter on May 2 (granted a significant one-time property sale boosted earnings) and Whitney Tilson recently named HHC one of his two favorite stocks. I believe over the long term the shares have tremendous potential, but with little analyst coverage, no dividend, a lumpy business model, and no quarterly conference call, I expect them to be more volatile than most names in Peattie Capital portfolios. Patience will be required!

Lastly, Sealed Air ("SEE") reported a mixed quarter on the morning of the 28th and shares dropped about 10%. SEE is in the middle of a long-term turnaround, and remains a core holding in most portfolios. I particularly like management, and if the U.S. dollar has peaked for this cycle that will help SEE as it has significant overseas operations. SEE has an ongoing buyback program, and just raised the dividend 23% annually, to $0.64. I expect to own SEE shares for the forseeable future and would likely be a buyer of more shares if the price drops.

Peattie Capital portfolios are concentrated with typically 20-25 positions and as a result volatility can be greater than the overall market, which clearly was the case in late April as ALGN, HHC, SEE (and in some portfolios LXU) are all significant positions. I expect each of these names to be in portfolios for the time being, although there may be some tweaking of position size along the way. Overall, most portfolios are down low/mid single digits so far in 2016.

Energy doing well in 2016, and toe in the water for gold and emerging markets

Energy, commodities, and select emerging markets have been big winners this year, and I continue to nibble at positions in these areas where I see value and opportunity. In addition to the Chevron ("CVX") that I began buying a couple months ago, I also opened small positions in Schlumberger ("SLB") and National Oilwell Varco ("NOV") in the oil sector. There is still an oil glut, but production in the U.S. has declined five consecutive months and the number of rigs is down to 332, a 79% drop from the October 2014 peak. (Source: Baker Hughes)

In addition, there has been a lack of new investment in a variety of oil producing nations, and Iraq "has fallen behind in payments to international oil companies as well, another hurdle for Middle East output." (Source: David Rosenberg "Breakfast with Dave" May 2, 2016) It's impossible to pinpoint the timing, but my conclusion is that oil companies will need to increase spending from today's levels to meet global demand. Not to put too much emphasis on one data point, but Exxon ("XOM") reported a 63% drop in profits on April 29 (to their lowest level since 1999) and shares closed up on the day.

With the "race to the bottom" in interest rates, hard assets are also doing well this year and I have started buying Central Fund of Canada ("CEF"), a mutual fund which owns gold and silver. A few accounts have a small position in Credicorp ("BAP") which is Peru's biggest bank. Peru is the only country I know of that has been raising interest rates this year, and the ensuing steepening yield curve is the key driver for bank earnings.

Update on the US and the Federal Reserve

Q1 GDP was an anemic 0.5%, slightly below estimates, and the fourth consecutive decline in quarterly GDP (3.9% in Q2 2015, 2.0% in Q3 2015, 1.4% in Q4 2015). There was a bit of strength in residential construction (+10.7% annualized) and a very large decline (86%) in energy/mining construction (more evidence to support the oil thesis). Productivity is trending down, despite the pickup in employment, and most economists I've read are predicting something in the 1.5% - 2% range for Q2 GDP growth, better but not very exciting.

My takeaway is that the Federal Reserve is on hold, probably until December at the earliest, as current conditions are too soft, and September is pretty close to the elections. A "lower for longer" scenario would be a headwind for banks, but a tailwind for oil and other commodities. It would also keep downward pressure on the U.S. dollar, which would be helpful to any companies with significant overseas operations.

Calendar is a headwind

I'm far more interested in the long term potential of individual companies, but there is evidence that returns in the May - October period are less than those of the November - April period. Additionally, election years tend to be weaker historically than non-election years and eighth years of a presidential term tend to be weaker than other election years.(Source: Stock Trader's Almanac)

Stock picking is still a good way to go

Here is an updated version of recent Peattie Capital recommended stocks, using closing prices from April 29.

This chart shows all PCM's recommendations for the past 16 months showing an average return of 10.7%. The total return of the S&P 500 in the comparable period is approximately 3%.

Additional recommendations are available on request. This table does not include speculative
and short sale candidates which are only appropriate for clients who have requested them.

PERFORMANCE OF PCM RECOMMENDED STOCKS

Date	Name	Ticker	Action	Price	Close	Gain
4/5/16	LSB Industries.	LXU	Buy	$12.35	$13.16	6.6%
4/5/16	Marine Harvest	MHG	Buy	$15.50	$15.55	0.3%
3/3/16	KVH Industries	KVHI	Buy	$9.25	$9.76	5.5%
3/3/16	Howard Hughes Co.	HHC	Buy	$99.00	$105.17	6.2%
1/6/16	Align Tech	ALGN	Buy	$65.00	$72.19	11.1%
11/2/15	ViaSat	VSAT	Buy	$65.50	$76.70	17.1%
9/2/15	Google	GOOG	Buy	$590	$693.01	17.5%
8/4/15	DexCom, Inc*	DXCM	Buy	$85	$84.20	(0.9%)
7/2/15	Cogent Communications	CCOI	Buy	$32.50	$38.70	22.3%
6/2/15	Express Scripts*	ESRX	Buy	$86.00	$81.55	(5.2%)
5/4/15	Align Technology	ALGN	Buy	$59.00	$72.19	22.4%
3/4/15	Sabre Corp	SABR	Buy	$21.60	$28.95	35.9%
2/5/15	Cogent Communications	CCOI	Buy	$38.50	$38.70	5.0%
1/5/15	Monmouth Realty	MNR	Buy	$11.60	$11.50	5.8%

NOTES: Gains include dividends. All numbers are unaudited. The risk of loss always exists, and past results are not necessarily indicative of future results. *Position sold at manager's discretion

Recommended stocks: There is no recommended stock for this newsletter

Please don't hesitate to contact me with question or comments and just let me know if you'd like to be removed from distribution.

CLOSE THIS ISSUE

April 5, 2016

Range of Returns	March	YTD

All PCM Accounts	3.2% - 6.5%	(5.6%) - (1.5%)
S&P 500	6.5%	0.8%

March: The roller coaster continues

The rally which started mid February has continued, with the S&P 500 gaining 6.5% in March. For the year the S&P 500 has turned positive, with a 0.8% net return, and 1.3% total return (dividends included). While most Peattie Capital porfolios had a good month, overall the returns are below the market. Nonetheless, absent specific instructions otherwise, I remain committed to a risk-managed approach to equities with the overall goal of participating in market upturns, and protecting assets in any significant downturn. Most Peattie Capital portfolios gained between 4-5% in March and are down 2-3% for the year.

Dovish Yellen rides to the rescue....again

Yellen's speech last week was characterised as a "dovefest" by Jeff Gundlach, and it's hard to disagree with him. In addition, a sampling of recent economic releases are somewhat subpar, and inflation is not yet an issue. Yellen has indicated in the past her definition of price stability begins with wage trends of 3% or greater, and the year-over-year gain is currently +2.3% (Source: Gene Epstein, Barron's April 4), despite an improving employment outlook. Consumer sentiment fell in March from February's levels and auto sales were notably below expectations.

More importantly, Yellen acknowledges global economic concerns more frequently, and, not to read too much into that, but clearly there are areas of weakness around the globe. A number of developed countries have either negative or extraordinarily low interest rates well below those in the U.S. Japan's 10-year note yields -.10% and Germany's yields 0.12%, compared to a 1.75% 10-year yield here in the U.S. Taken collectively, my view is that the Fed is on hold, although that could change with any new surprisingly strong data.

And lower rates contribute to a lower U.S. dollar

The strength of the U.S. dollar has been a massive headwind for a number of constituencies. For example, commodities are priced in dollars, so strengthening puts downwards pressure on commodity prices, e.g. oil. In addition, U.S. companies with overseas operations lose twice as their goods are more expensive for foreigners to buy and when overseas sales are translated back for reporting purposes they generate fewer U.S. dollars. From an earnings perspective, the non-appreciating dollar will remove a headwind and a declining dollar will provide a tailwind for any companies with overseas operations.

According to David Rosenberg ("Breakfast with Dave" March 31) for the past few years the super strong dollar created a "vice" on global liquidity, and "was the second most intense dollar bull market in history." In March the dollar dropped about 4% on a trade-weighted basis after topping out at its highest level in 13 years, the sharpest monthly decline since Septemer, 2010 (Source: IBID). Roughly 50% of the S&P 500's sales are generated abroad, and several Peattie Capital companies have overseas exposure even greater than that. I am hopeful that the dollar has peaked for this cycle.

A little history

According to a January 25 Bloomberg article, the 2016 drop was the 42nd correction since 1927 and only 13 of those came within a year of a recession (defined as a two quarter contraction in GDP). In addition, half of all years since 1950 have seen at least a 10% correction.

Both 2003 and 2009 experienced a 10% correction in Q1, and both times those represented the lows for the year. Both those years went on on to deliver very strong returns of 26.4% and 23.5% respectively. While that is encouraging, I don't expect that type of market this year. That said, absent a recession I expect more normalized levels of volatility, and further equity appreciation.

For long-term investors I like bank shares, as the flattening yield curve has pressured net interest margins causing the industry to underperform this year. Wells Fargo ("WFC") is my favorite major bank and in the high $40's present a particularly attractive entry point. That said, the "lower for longer" interest rate scenario is a headwind, and shares won't significantly outperform unless (and until) the yield curve steepens.

Stock picking is still a good way to go

Here is an updated version of recent Peattie Capital recommended stocks, using closing prices from March 31.

This chart shows all PCM's recommendations for the past 15 months showing an average return of 12.7%.

Additional recommendations are available on request. This table does not include speculative
and short sale candidates which are only appropriate for clients who have requested them.

PERFORMANCE OF PCM RECOMMENDED STOCKS

Date	Name	Ticker	Action	Price	Close	Gain
3/3/16	Howard Hughes Co.	HHC	Buy	$99.00	$105.89	7.0%
3/3/16	KVH Industries	KVHI	Buy	$9.25	$9.55	3.2%
1/6/16	Align Tech	ALGN	Buy	$65.00	$72.69	11.8%
11/2/15	ViaSat	VSAT	Buy	$65.50	$73.48	12.2%
9/2/15	Google	GOOG	Buy	$590	$744.95	26.3%
8/4/15	DexCom, Inc*	DXCM	Buy	$85	$84.20	(0.9%)
7/2/15	Cogent Communications	CCOI	Buy	$32.50	$39.08	23.5%
6/2/15	Express Scripts*	ESRX	Buy	$86.00	$81.55	(5.2%)
5/4/15	Align Technology	ALGN	Buy	$59.00	$72.69	23.2%
3/4/15	Sabre Corp	SABR	Buy	$21.60	$28.92	35.7%
2/5/15	Cogent Communications	CCOI	Buy	$38.50	$39.08	6.0%
1/5/15	Monmouth Realty	MNR	Buy	$11.60	$11.89	9.1%

NOTES: Gains include dividends. All numbers are unaudited. The risk of loss always exists, and past results are not necessarily indicative of future results. *Position sold at manager's discretion

Recommended stocks: LSB Industries ("LXU") and Marine Harvest ("MHG")

LXU is a small industrial company based in El Dorado, OK. with two operating segments: chemical production and sales (62%) and climate control ("HVAC") for both commercial and residential use (38%). The HVAC division is a reasonably steady mid-single digits grower, however the chemical division has experienced serious problems, causing LXU's share price to dive from $45 last summer to below $5 in December.

LXU has struggled with significant cost overruns expanding it's ammonia plant in El Dorado, OK., a project which was originally budgeted at $450mm. Last fall there were questions about the company's solvency as a result of these overruns, which accelerated the stock price's fall. However the company completed a preferred stock offering to stave off that possibility. In the March conference call, management stated they would not need any incremental financing to complete the plant which is essentially finished and will begin operations in Q2, albeit at a cost exceeding $830mm.

LXU had other issues in 2015 also, including an unexpected outage at one of its other plants and competitive pricing pressures. While pricing remains an issue, capex is under control, and the company is poised to grow EBITDA significantly from the $33mm it generated in 2015 ($64mm in 2014). The two sell-side analysts who cover LXU both have EBITDA estimates over $100mm in 2016, and sharply accelerating EBITDA growth in 2017. In addition, LXU has a (mostly) entirely new Board of Directors, including activist investors Starboard Capital, and the new CEO spoke openly on the conference call about the company's strategic options, including possibly breaking up the company.

LXU is emerging from a tsunami of challenges and is a viable company with very bright prospects and near-term catalysts. I think the risk/reward for LXU is outstanding at today's price, and I recommend buying shares up to $12.35.

I originally recommended MHG in November, 2014 at $13.95, and since then the shares have returned 17%, more than tripling the S&P 500's roughly 5% total return. MHG is a play on the increasing global demand for salmon, which is currently supply constrained. I get very interested when I see supply/demand imbalances in any industry.

The supply of salmon is dropping as a result of algae in Chile, the second largest salmon producing area in the world, and there are regulatory limits in Norway, the largest producing region. Meanwhile, there are a number of growing trends (health, increasing discretionary income) driving demand. There's no telling for sure how long these imbalances will last, but for now the price of salmon is rising, and MHG is a direct beneficiary of that. In addition, the company pays a $0.64 annual dividend, generating a yield of 4.1% at today's price. I recommend buying shares of MHG up to $15.50.

Please don't hesitate to contact me with question or comments and just let me know if you'd like to be removed from distribution.

CLOSE THIS ISSUE

March 3, 2016

Range of Returns	February	YTD

All PCM Accounts	(2.6%) - (0.1%)	(10.3%) - (5.8%)
S&P 500	(0.4%)	(5.5%)

February: Volatility continues

At its nadir in mid February, the S&P 500 was down over 5% for the month, but markets rallied strongly the past couple weeks and ended February with just a small loss. The sharp reversal caught most portfolios defensively positioned and as a result performance did not keep pace with the rebound in the latter half of the month, despite strong performance from a number of longs after they reported earnings.

While it's frustrating not keep pace to start the year, I maintain that had the markets continued down, portfolios would've been protected and held their value reasonably well, in keeping with overall goal for most (not all) portfolios to participate in up markets and avoid permanent loss of significant capital during down markets. My strategy will continue to be to stick with my highest conviction positions, and I remain open to good opportunities on both the long and short sides.

A number of holdings reported earnings in the past week or two and in many cases I have been buying back the short side of the box as their earnings and guidance have exceeded expectations. There are still a few boxed positions, and very high cash levels, as much as 40% in some cases. Broadly speaking I think there are opportunities right now are in value-oriented names, or names that have gone through their own singular bear market despite good (and improving) fundamentals, and currently I am redeploying cash in a few of those types of names.

So far two industries performing very well are utilities and consumer staples, which have both outperformed the market since last July. These industries are as defensive as it gets, and currently trade at 17x and 21x 2016 earnings, notably above their long term averages of 15x and 17x respectively (Source: David Rosenberg "Breakfast with Dave" Feb. 29). In addition, gold has gained about 17% year-to-date.

Taken collectively, these suggest there is a clear preference for more defensive areas. While a number of portfolios have exposure to these sectors, I am reluctant to initiate new positions or add to existing ones at today's levels. That may change.

US economy continues to plod along

Q4 U.S. GDP was revised up to +1% last week (originally reported as +0.7%), and a variety of indicators remain in positive territory. Consumer data is good (particularly recent spending trends) and construction spending increased 1.5% in January and is up 10.4% year on year (Source: Rosenberg "Breakfast with Dave" March 2). In addition, bank lending has accelerated at a 10% annual rate over the past 13 weeks (Source: IBID). My conclusion is that the U.S. economy continues a slow march forward.

That said, 2% growth after seven years of extraordinarily low interest rates isn't terribly encouraging, and begs the question what tools will be available to fight the next recession, whenever it may happen.

On the international front, many economies remain weak, and negative interest rates abound. In addition, there are the usual questions about China's growth, whether oil producing nations can agree to production cuts, and the potential impacts on bank balance sheets and possible contagion effects if energy loans are written down. While these are serious issues, historically the U.S. does not follow the rest of the world into recession.

Overall, a little more cautious

The markets are still trading 10% below the highs of last summer, and the technicians I follow are very concerned about a series of lower highs in the market since last May's peak (among other things). Absent a recession, however, 10%-15% selloffs don't become worse. Nor are there any significant systemic risks (like the financial crisis), and we're not coming off a huge run up like the tech bubble. Current valuations are neither cheap nor inflated as far as the broad market is concerned.

That said, the best risk managers I know, Hays Advisory, stated in their Feb.25 outlook that while "short term risk has decreased, long term momentum risk is very much in place." By definition, no one knows what the surprises will be, (unexpected resurgence of inflation as wages firm? President Trump?) and I anticipate maintaining a mildly defensive position overall.

More so than usual, it is a complicated and tricky time as the markets are coming off an extended period of a very friendly and accomodating Federal Reserve. Counter balancing one another are reasonably good fundamentals and a slowly growing US economy on one side with inconsistent and weak growth internationally and a breakdown in the technicals on the other.

Several Peattie Capital positions report strong earnings

Several core holdings reported terrific earnings the past two weeks and shares bounced in each case over 10%. Some examples are ViaSat ("VSAT"), Sealed Air ("SEE"), Cogent Communications ("CCOI"), Akamai ("AKAM"), and most recently Navigator Holdings ("NVGS"). A couple highlights from the conference calls were SEE's CEO Jerome Perribere stating that he just didn't see a slowdown, and the CEO of AKAM announcing he would buy $10mm of AKAM shares.

Each of these is a name that I anticipate owning for the forseeable future, which is not to say that they will be immune from market swoons. However, based on what I know today, they are names that I believe will grow nicely, and create significant shareholder value over time. In the event of a selloff these would be the types of names to box, rather than sell.

Stock picking is still a good way to go

Here is an updated version of recent Peattie Capital recommended stocks, using closing prices from February 29.

This chart shows all PCM's recommendations for the past 13 months showing an average return of 7.9%.

Additional recommendations are available on request. This table does not include speculative
and short sale candidates which are only appropriate for clients who have requested them.

PERFORMANCE OF PCM RECOMMENDED STOCKS

Date	Name	Ticker	Action	Price	Close	Gain
1/6/16	Align Tech	ALGN	Buy	$65.00	$66.03	1.6%
11/2/15	ViaSat	VSAT	Buy	$65.50	$73.01	11.5%
9/2/15	Google	GOOG	Buy	$590	$697.77	18.3%
8/4/15	DexCom, Inc*	DXCM	Buy	$85	$84.20	(0.9%)
7/2/15	Cogent Communications	CCOI	Buy	$32.50	$36.70	15.0%
6/2/15	Express Scripts*	ESRX	Buy	$86.00	$81.55	(5.2%)
5/4/15	Align Technology	ALGN	Buy	$59.00	$66.03	11.9%
3/4/15	Sabre Corp	SABR	Buy	$21.60	$27.15	26.9%
2/5/15	Cogent Communications	CCOI	Buy	$38.50	$36.70	(1.1%)
1/5/15	Monmouth Realty	MNR	Buy	$11.60	$11.08	0.8%

NOTES: Gains include dividends. All numbers are unaudited. The risk of loss always exists, and past results are not necessarily indicative of future results. *Position sold at manager's discretion

Recommended stocks: Howard Hughes Corp ("HHC") and KVH Industries ("KVHI")

Howard Hughes Corp is a real estate company which owns a variety of properties and communities from New York to Honolulu. In a recent analysis, Horizon Kinetics (Market Commentary January, 2016) calculated that the intrinsic value of one property alone, South Street Seaport, was roughly $4bn. This compares to HHC's current market cap of $3.8bn

Other properties include the 22,000 acre Summerlin Community in Las Vegas, the 28,000 acre Woodlands community in Houston (Exxon has just finished building its new corporate campus adjacent to the Woodlands with 10,000 employees expected to work there), and the Ward Centers shopping district in Honolulu which includes 60 acres of oceanfront property one mile from Waikiki. This property is especially exciting as it has received approvals to build several condo towers near the beach, and the first such tower sold out all 204 units (avg. price $1.6mm) in two days. Book value of this property was $475mm at year end 2014.

On March 1, HHC reported a terrific Q4 and 2015, with net operating income jumping 58% to $117.6mm. Quarterly reports can be lumpy as a result of the timing of property sales, which is also part of the company's model. HHC also has $300mm of tax loss carryforwards, which will help shield some of the cash flow that these (and other) properties will begin to generate. At some point, HHC may convert to a REIT or pay dividends, although I don't expect either of these to happen the next couple years.

Shares of HHC peaked in 2014 near $160, subsequently dropping 50% to $80 in January. It is under-owned, under-followed, and best I can tell is an "orphan stock" that is, not in any index. Furthermore, there is little debt and no currency exposure. I recommend buying shares anywhere near today's prices, and will use $99 as my benchmark as that is where it is trading now.

I mentioned last month that KVHI had dropped from nearly $16 last spring to a recent low of about $8, despite being well positioned in the fast growing marine satellite communications industry. I continue to believe that KVHI offers one of the best risk/reward profiles of any stock I know and buying shares anywhere near current levels will prove very rewarding, although I will use $9.25 as the benchmark as that is where they are trading now.

Please don't hesitate to contact me with question or comments and just let me know if you'd like to be removed from distribution.

CLOSE THIS ISSUE

February 2, 2016

Range of Returns	January	YTD

All PCM Accounts	(3.9%) - (7.5%)	(3.9%) - (7.5%)
S&P 500	(5.1%)	(5.1%)

Different year with many of the same issues

After dropping about 10% to start the year, markets recovered somewhat late in the month after the FOMC meeting and mildly dovish commentary. However, there remains an abundance of uncertainties globally and investors are increasingly nervous. Foremost among them are concerns about the selloff in oil (and the market's correlation to oil prices), China's growth, the timing and pace of domestic interest rate hikes, a potential slowdown in U.S. economy (particularly puzzling after seven years of extraordinarily low interest rates), soft global economic conditions, implications of negative interest rates, election year uncertainty, the accumulation of debt, income inequality, and recently the outbreak of the Zika virus.

Most Peattie Capital portfolios were down about 5% in January, and, depending on specific client profiles, I have been actively raising cash or boxing core positions. Some accounts also have a number of shorts.

Flashing yellow light

There were no earnings reports until late in the month (mostly) so markets responded to headlines, particularly regarding China and oil. In addition, January is a time for re-allocating of assets by major institutional investors, which can create volatility.

One other possible explanation for the selloff is the liquidating of equities by major Sovereign Wealth Funds whose fiscal needs are no longer being met by oil revenues. In other words, it's been a kind of margin call on oil dependent nations who find themselves running deficits instead of surpluses. According to David Rosenberg ("Breakfast with Dave" Feb. 1, 2016), Saudi Arabia has withdrawn $70 billion in the past six months to meet domestic spending requirements. Others, (Norway, Qatar) are in a similar predicament.

The very narrow market and poor performance of the transports and smaller companies are also noteworthy as they tend to be associated with weak markets. In addition, the bounce off last August's low didn't reach the previous high and as such is ammunition for the technicians who are concerned that we are entering (or already in) a bear market. To be sure, this is not a replay of the tech bubble nor the 2007-2008 financial bust when there was valid concern about the viability of our financial system. However, even with this correction valuations are still only near long term averages, and they tend to swing from overvalued to undervalued (and back again) over lengthy cycles.

Q4 economic data was mixed, with consumer confidence and spending doing well but business spending contracting: capital spending dropped at a 2.5% annual rate in the quarter, commercial construction by 5.3% and exports by 2.5% (Source: Rosenberg). My conclusion is that the economy continues its slow, steady progress. It's not great, but it's not in recession territory either.

Overall, I am more defensive, as this has been a lengthy expansion and the market shows no mercy for companies missing estimates or providing disappointing guidance: United Rentals ("URI") and Alliance Data ("ADS") - neither a Peattie Capital position - each dropped 20% after doing so last week.

Thoughts on oil: finally (!!) signs of production cutbacks

I mentioned last month that I was starting to get a bit more constructive on oil, which is not to say that I am expecting a major rebound. However many domestic producers are announcing significant spending cuts, which will eventually mean less production.

While it's impossible to know how long this will take and when energy shares will stabilize, production cutbacks are a necessary and welcome step in the right direction. The wild card is that there is no way to know how global producers will behave so even if U.S. production drops, global oversupply could continue.

If I'm right about the forced selling by Sovereign Wealth Funds, then I would expect more downward pressure in equities. While this is not a systemic threat, redemptions and margin calls could force even more selling, creating a self-reinforcing selling cycle. In other words, selling could beget more selling. I think this issue bears watching.

Several big winners....

A couple Peattie Capital positions reported terrific earnings last week. Ingredion ("INGR") reported Wednesday night and the shares bounced 10% by Friday's close. INGR has returned 34.5% since I recommended it in June 2014 at $76.50.

Even more impressive was Align Technologies' ("ALGN") report Thursday night, which triggered a 12% gain Friday. ALGN was my recommended stock in May, 2015 and again in January, and subsequently the shares have returned 12.1% and 1.2% respectively. I am looking to add ALGN shares even though it is already one of my biggest positions.

KVH Industries ("KVHI") has been one of my largest holdings for several years, and, having dropped from nearly $16 last spring to $8 recently, has been a material drag on performance. I continue to believe in KVHI and have added shares judiciously during January. After all, it's not whether you're right or wrong that matters, but rather how much money you make when you're right and how much you lose when you're wrong that makes a difference. After a 20% bounce last week KVHI is now flat on the year and shares are still cheap as far as I'm concerned.

Google ("GOOG") was the recommended stock last September at $590 and it has worked well as the new CFO has provided much needed discipline and clarity. GOOG's earnings trounced expectations and shares jumped last night after the company reported, subsequently closing today around $764. My only concern is that companies don't fare very well after their market cap clears $500bn, and GOOG is now well over that mark. For many accounts it is a core holding, but I won't be looking to buy more at these levels.

...and a loser

Royal Caribbean ("RCL") has been the recommended stock several times over the past couple years, and up until late December it had been a big winner. Shares were already down roughly 20% in 2016 before today, when RCL reported Q4 and 2015 earnings. Clearly the market was disappointed and the shares closed today around $71, down 31% from their nearby high of $103.

I like the the cruising industry and RCL expects to earn roughly $6 in 2016 (up about 24%) and then $7 in 2017. In that scenario, shares are available for 10x, which is a very reasonable multiple. For anyone with a mid to long term horizon I think RCL is a wonderful opportunity near $70.

Stock picking is still a good way to go

Here is an updated version of recent Peattie Capital recommended stocks, using closing prices from January 31.

This chart shows all PCM's recommendations for the past 13 months showing an average return of 3.8%.

Additional recommendations are available on request. This table does not include speculative
and short sale candidates which are only appropriate for clients who have requested them.

PERFORMANCE OF PCM RECOMMENDED STOCKS

Date	Name	Ticker	Action	Price	Close	Gain
1/6/16	Align Tech	ALGN	Buy	$65.00	$66.14	1.8%
11/2/15	ViaSat	VSAT	Buy	$65.50	$62.50	(4.6%)
9/2/15	Google	GOOG	Buy	$590	$742.95	25.9%
8/4/15	DexCom, Inc*	DXCM	Buy	$85	$84.20	(0.9%)
7/2/15	Cogent Communications	CCOI	Buy	$32.50	$33.41	4.9%
6/2/15	Express Scripts*	ESRX	Buy	$86.00	$81.55	(5.2%)
5/4/15	Align Technology	ALGN	Buy	$59.00	$66.14	12.1%
3/4/15	Sabre Corp	SABR	Buy	$21.60	$25.61	19.8%
2/5/15	Cogent Communications	CCOI	Buy	$38.50	$33.41	(9.7%)
1/5/15	Monmouth Realty	MNR	Buy	$11.60	$10.28	(6.1%)

NOTES: Gains include dividends. All numbers are unaudited. The risk of loss always exists, and past results are not necessarily indicative of future results. *Position sold at manager's discretion

Recommended stock: There is no recommended stock for this newsletter

Please don't hesitate to contact me with question or comments and just let me know if you'd like to be removed from distribution.

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January 6, 2016

Range of Returns	December	YTD

All PCM Accounts	(2.5%) - (0.2%)	(7.3%) - 3.3%
S&P 500	(1.8%)	(0.7%)

2015: An extraordinarily narrow market

It was an extremely difficult year to make money in equities in 2015 as most major indices closed slightly down for the year excluding dividends and with barely 1% gains with dividends. For the first time in as long as I can remember, cash almost bested both U.S. stocks and bonds. Between negligible earnings growth, endless chatter about the timing of a rate hike, a second year of inexorable dollar strength, the energy collapse, the Chinese slowdown and subsequent yuan devaluation, Hillary's tweet regarding drug pricing, and the usual global political tensions, major headwinds cut across many industries and markets.

According to this weekend's Barron's (2015 Tally: Stocks Drop Nearly 1%), excluding the eight largest names in the S&P 500, the index would've been down 4%, and the average S&P 500 stock was also down 4%. Here's a brief sampling of some other returns (Source: Wall St Journal, Jan 2-3, 2016 and Hayes World Wrap Jan. 4, 2016 for international and emerging stocks and oil):

DJ Transports: (17.8%)

Barron's 400: (4.5%)

Russell 2000: (5.7%)

Value Line: (11.2%)

Berkshire Hathaway: (11.5%)

Average hedge fund: (3.0%)

International stocks: (5.3%)

Emerging markets stocks: (14.6%)

Crude Oil (WTI): (45.3%)

While I am most interested in industry and stock selection, my wish list for 2016 includes two macro items: 1) Credible data regarding how fast the Chinese economy is growing (or not), and 2) An end to the dollar's rise. My guess is that the Chinese conundrum is what concerns markets most of the global issues, and a reversal (I'd even take a slowdown in the growth rate) of the U.S. dollar would be a big boost for earnings of U.S. companies with overseas operations.

In every January newsletter I've mentioned that this is a tricky month because of re-balancing by institutional funds and so I don't read too much into early-month weakness. That said, a good rule of thumb is to watch whether the Dow's December closing low gets taken out during the first quarter, as when that happens further weakness usually follows (Source: Stock Trader's Almanac). The December closing low for the Dow was 17,425 on Friday the 18th, and so far that has held despite a very rough start to 2016.

Peattie Capital accounts also down a little

Most Peattie Capital portfolios were down about 5% net of fees, a little weaker than the major indices which, by definition, have the largest companies in them. Measured against smaller cap indices, performance was better, but as the saying goes, relative valuation doesn't pay the bills.

In some cases portfolios have large and unrealized gains in names that I still like very much, such as Sealed Air ("SEE") and Maquarie Infrastructure ("MIC"). In another case I believe shares are fundamentally misvalued (KVH Industries). I have trimmed shares of SEE and MIC in IRA accounts where the gains aren't taxable, but selling them in taxable accounts at today's prices would not only trigger a meaningful capital gain but also create the "when to get back in" question.

Portfolio changes

Each of these three names is a significant holding in many portfolios (at least 5%), and during the year they had corrections of 24%, 22%, and 40% respectively, enough to more than offset the sizeable gains in a couple other big positions such as Royal Caribbean ("RCL"), Google ("GOOG") and Epam Systems ("EPAM"). Portfolios typically consist of about 25 positions, and this kind of concentration can lead to above average volatility.

Several portfolios now have a small short exposure, somewhere between 1%-5%, and in addition most accounts have a 10-15% cash position as well.

Ideas for 2016

It's worth repeating that in the 10 times the market has closed between -3% and +3% since 1945, the following year the market was up an average of 12.8% and was higher 80% of the time. There was only one year when it was flat for a second year, 1948, when it fell 0.7% (Source: Barron's November 25, 2015).

In addition, presidential election years have averaged 9.5% gains since 1900, probably a result of politicians spending to pump up the economy to help get elected. That said, pre-election years tend to be strong as well, averaging 11.5% gains, which clearly was not the case in 2015.

In today's environment, I like larger companies and most portfolios include names like Carnival ("CCL"), Google ("GOOG"), and Adobe ("ADBE"). Each of these is growing earnings, and has some combination of expanding margins, increasing addressable market, strong revenue growth, reasonable valuation, and catalysts. This is not to say that they will be immune from market volatility, but based on what I know today, any meaningful correction, say 10%, would be a buying opportunity. I also like the defense industry and have begun buying shares of Northrop Grumman ("NOC").

Broadly speaking, markets continue to follow the macro headlines, which center on political tensions, the ongoing energy correction and global economic concerns, particularly in China. Consensus estimates for the U.S. are for "more of the same" with tepid GDP growth in the 2.0%-2.5% range, tightening labor conditions, and low inflation.

The energy industry is pricing in lots of bad news, but I have noticed that some of the biggest exploration and production names are no longer going down in lockstep with the price of oil. When and at what price oil bottoms is beyond me, but it's notable when stocks don't go down on seemingly bad news (or up on good news) and I have begun to nibble at Chevron ("CVX") for certain accounts.

Overall, I remain modestly bullish, but recognize this rally has continued for nearly seven years, and some of the technical aspects are flashing yellow. Sentiment is overwhelmingly negative and individuals have steadily pulled funds out of equity mutual funds, which is a net positive from a contrarian perspective. Valuations are somewhat extended, but not overly so given the exceptionally low level of interest rates and the positive, albeit modest growth in the U.S. economy.

Stock picking is still a good way to go

Here is an updated version of 2015 Peattie Capital recommended stocks, using closing prices from December 31.

This chart shows all PCM's recommendations for the past 12 months showing an average return of 7.0%.

Additional recommendations are available on request. This table does not include speculative
and short sale candidates which are only appropriate for clients who have requested them.

PERFORMANCE OF PCM RECOMMENDED STOCKS

Date	Name	Ticker	Action	Price	Close	Gain
10/2/15	ViaSat	VSAT	Buy	$65.50	$61.01	(6.9%)
9/2/15	Google	GOOG	Buy	$590	$758.88	28.6%
8/4/15	DexCom, Inc*	DXCM	Buy	$85	$84.20	(0.9%)
7/2/15	Cogent Communications	CCOI	Buy	$32.50	$34.69	8.9%
6/2/15	Express Scripts	ESRX	Buy	$86.00	$87.41	1.6%
5/4/15	Align Technology	ALGN	Buy	$59.00	$65.85	11.6%
3/4/15	Sabre Corp	SABR	Buy	$21.60	$27.97	30.7%
2/5/15	Cogent Communications	CCOI	Buy	$38.50	$34.69	(6.3%)
1/5/15	Monmouth Realty	MNR	Buy	$11.60	$10.46	(4.6%)

NOTES: Gains include dividends. All numbers are unaudited. The risk of loss always exists, and past results are not necessarily indicative of future results. *Position sold at manager's discretion

Recommended stock: Align Technologies ("ALGN")

I first recommended ALGN last May at $59, and I continue to believe that it is approaching a "tipping point" of awareness and adoption as invisible braces are far preferable to traditional wires to straighten teeth. So far the company's patents have held up and I have yet to see a comparable, lower cost competitor challenge them. I have been adding shares of ALGN to most portfolios and recommend doing so up to $65.

Please don't hesitate to contact me with question or comments and just let me know if you'd like to be removed from distribution.

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