Kopp Investment Advisors
February 2008 Market Commentary

While the economic news stories of late seem almost uniformly negative, the economic data has been more mixed. You have already seen the negatives in the news. Positive data points have been given little air time. Let's look at a few recent reports.

• Durable goods is the category for larger items such as manufacturing equipment, or for consumers, cars and appliances. The most recent report showed a 5.2% gain in new orders. Unfilled orders, an indicator of what is to come, showed 2.5% growth.
• Many stories were written about fourth quarter economic growth being well under 1%. Looking beyond the headlines to the details, underlying growth was at a more moderate level of about 2%, with inventory adjustments responsible for the difference.
• The main story out of the recent employment report was the loss of 17,000 jobs. Beyond the headline, December numbers were revised to show an additional 64,000 jobs created.

Areas related to housing have been hit harder than other areas of the economy. Real estate will need time to recover from the ending of its recent boom, but even here there are some positive signs. Mortgage rates are almost a full percentage point lower than last summer. The decline reduces the monthly principal and interest payment for a 30-year mortgage by almost 10%. The impact is starting to show up in refinancing activity. While lower mortgage rates alone will not solve all the real estate woes, they will enable more home owners to refinance into mortgages that lower their monthly payments, improving their financial situations. Also, lower rates make the houses on the market more affordable which will help boost real estate activity.

One further point about the economy revolves around the Federal Reserve and the calendar. When the Fed starts to cut interest rates there is a lag before much impact is felt. Look at the calendar. It has been almost six months since the first of the rate cuts. It is likely we will see a positive impact on the economy as this year develops.

As we survey the situation, we are finding stocks with what we believe to be great prospects at prices that seem to us to be very cheap considering their growth potential. Couple this with an economic environment we think is far better than the headline news would lead one to believe and we reach the conclusion that the outlook is very favorable. Patient investors are likely to be nicely rewarded in the times ahead.

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It should not be assumed that our stock selections or investment philosophy will be profitable or will equal any past performance. Small-cap stocks involve greater risks and volatility than those of larger, more established companies. Potential for profit involves possibility of loss. This newsletter is for general information only and is not intended to provide specific advice or stock recommendations to any individual. Future investment decisions and commentary may be made under different economic, market, and industry conditions from those existing at the time these comments were prepared. Although the facts in this newsletter have been obtained from and are based on sources we believe to be reliable, we do not guarantee their accuracy, and such information is subject to change without notice. The information and opinions expressed herein are provided for informational purposes only and do not constitute a solicitation for the purchase or sale of any security or investment advisory service.

02/19/08