Issues
This month we’re jumping into a highly specialized financial services company that helps immigrants send money to friends and families overseas.
You can think of it as the modern version of Western Union (WU). But there’s more to the story than that. Starting with a vision that’s a lot more about helping customers than overcharging them.
The hook is that revenue growth is off the charts. And it’s profitable!
All the details are inside this month’s Issue.
You can think of it as the modern version of Western Union (WU). But there’s more to the story than that. Starting with a vision that’s a lot more about helping customers than overcharging them.
The hook is that revenue growth is off the charts. And it’s profitable!
All the details are inside this month’s Issue.
This month we’re digging into an emerging software star that specializes in helping brands communicate with consumers like you and me.
The details behind the technology are a bit technical. But if you’ve noticed an uptick in personalized emails and text messages letting you know it’s a good night to get takeout, or that those shoes you’ve been pining for are back in stock, you get the picture. Enjoy!
The details behind the technology are a bit technical. But if you’ve noticed an uptick in personalized emails and text messages letting you know it’s a good night to get takeout, or that those shoes you’ve been pining for are back in stock, you get the picture. Enjoy!
This month we’re digging into a recovering healthcare specialist that is both a self-help and an AI automation story.
After a few missteps in 2022, a significant acquisition and a new management team have the stock on the right track again.
Moreover, high healthcare utilization and a rapid acceleration in the company’s automation capabilities suggest strong revenue and profit margin growth throughout 2023 and into 2024. Enjoy!
After a few missteps in 2022, a significant acquisition and a new management team have the stock on the right track again.
Moreover, high healthcare utilization and a rapid acceleration in the company’s automation capabilities suggest strong revenue and profit margin growth throughout 2023 and into 2024. Enjoy!
This month I’m featuring an innovative software company with an AI angle.
While AI is all the rage, bordering on hype, this company’s learning platform has been harnessing the technology for a few years. The latest iterations of AI are likely to help make its product better and open new monetization opportunities.
It’s a neat story and the company has terrific products that are loved by users. Because of the recent run in tech stocks, we’ll start with a half-sized position. Enjoy!
While AI is all the rage, bordering on hype, this company’s learning platform has been harnessing the technology for a few years. The latest iterations of AI are likely to help make its product better and open new monetization opportunities.
It’s a neat story and the company has terrific products that are loved by users. Because of the recent run in tech stocks, we’ll start with a half-sized position. Enjoy!
For the second month in a row we’re going where the growth appears most resilient. Which means MedTech.
This month it’s another company focused on the spine. But a very specific area. The company specializes in implants for sacroiliac joint (SI) fusion. It already reported Q1 results (beat expectations) and the stock is acting well.
Enjoy!
This month it’s another company focused on the spine. But a very specific area. The company specializes in implants for sacroiliac joint (SI) fusion. It already reported Q1 results (beat expectations) and the stock is acting well.
Enjoy!
We’re digging into another compelling MedTech story this month.
The company in focus is a spine specialist. It’s been grabbing market share from larger players by growing a portfolio that covers the full spectrum of spine care, from imaging and surgery planning to surgical tools and implants.
It’s a great example of how intense focus on a specific market can set one player apart from the big boys. Enjoy!
The company in focus is a spine specialist. It’s been grabbing market share from larger players by growing a portfolio that covers the full spectrum of spine care, from imaging and surgery planning to surgical tools and implants.
It’s a great example of how intense focus on a specific market can set one player apart from the big boys. Enjoy!
This month we are going with a small industrial company that is showing how consistent focus on operational improvement can pay dividends.
Once thought of as a highly cyclical company with management that tended to drop the ball, execution has improved dramatically. In 2022 revenue was up 14% and EPS was up 41%.
With exposure to megatrends like infrastructure and global electrification, I see more upside ahead.
Enjoy!
Once thought of as a highly cyclical company with management that tended to drop the ball, execution has improved dramatically. In 2022 revenue was up 14% and EPS was up 41%.
With exposure to megatrends like infrastructure and global electrification, I see more upside ahead.
Enjoy!
This month we are dialing up the risk a little with a small software company that has a potentially disruptive platform that streamlines back-office processes for small and mid-sized businesses.
There are risks. The economy isn’t super strong, and this is a competitive market. But this company has a truly innovative set of solutions, is in one of the market’s most beat-up sectors and has new products and a low-cost customer acquisition strategy.
It’s also profitable and generates positive free cash flow, two attributes that make it an attractive acquisition target.
Enjoy!
There are risks. The economy isn’t super strong, and this is a competitive market. But this company has a truly innovative set of solutions, is in one of the market’s most beat-up sectors and has new products and a low-cost customer acquisition strategy.
It’s also profitable and generates positive free cash flow, two attributes that make it an attractive acquisition target.
Enjoy!
This month we’re going with a small software company serving a resilient industry that has been slow to adopt to cloud technology, but which is coming on strong now.
Despite the tough macro environment this company has been beating expectations for many quarters. Management has been raising revenue guidance too, and a tweak to the business model is starting to pay dividends.
Enjoy!
Despite the tough macro environment this company has been beating expectations for many quarters. Management has been raising revenue guidance too, and a tweak to the business model is starting to pay dividends.
Enjoy!
This month we’re going with a little-known consulting company that’s growing revenue and EPS in the double digits as it helps organizations adapt to the changing times.
It is growing especially quickly in areas like digital transformation, which is challenging for lumbering organizations in the healthcare and education segments where the firm generates the bulk of its revenue.
With a fresh revenue and profit growth strategy and a plan to return more money to shareholders, this little company’s stock looks great.
Enjoy!
It is growing especially quickly in areas like digital transformation, which is challenging for lumbering organizations in the healthcare and education segments where the firm generates the bulk of its revenue.
With a fresh revenue and profit growth strategy and a plan to return more money to shareholders, this little company’s stock looks great.
Enjoy!
With market jitters returning following the Fed’s meeting yesterday, we’re going back to a segment that’s served us well so far this year – MedTech.
Today’s portfolio addition is another highly specialized company that’s doing things far better than the competition and growing by over 30%.
Enjoy!
Today’s portfolio addition is another highly specialized company that’s doing things far better than the competition and growing by over 30%.
Enjoy!
The market has been trying to climb off its knees this week as we’re finally getting some solid evidence that both inflation and the job market are cooling.
In a seemingly odd twist, in the short term what’s bad for the economy is probably good for the stock market. While that doesn’t mean we’re out of the woods just yet, I’m going to up our risk profile slightly with a potential big winner in the battery industry.
This company is currently qualifying batteries for wearable technologies and expects to move into more consumer markets, as well as the EV market, in the coming years. All the details are inside the October Issue.
Enjoy!
In a seemingly odd twist, in the short term what’s bad for the economy is probably good for the stock market. While that doesn’t mean we’re out of the woods just yet, I’m going to up our risk profile slightly with a potential big winner in the battery industry.
This company is currently qualifying batteries for wearable technologies and expects to move into more consumer markets, as well as the EV market, in the coming years. All the details are inside the October Issue.
Enjoy!
Updates
The market has been on edge since the Fed’s hawkish tone and updated Summary of Economic Projections (SEP) last week. But if we can get oil and interest rates to back off a little and some stock-specific catalysts during the upcoming Q3 earnings season maybe we can finally take our macroeconomist hats off and get back to doing what we’d rather do. Which is talk about some of the great small growth stories out there!
The highlight of my week so far just might be waking up this morning and realizing I can count the remaining days in September just using my fingers. That’s not because the weather hasn’t mostly been beautiful in Rhode Island. It has. It’s because, as you know, the market has struggled this month.
There have been a number of conferences going on lately, so today’s update is partially focused on what our attending companies had to say.
There were no really big reveals, but also no change in tone from the management teams I listened to – and certainly nothing edging toward the more negative side of the scale.
Big picture, I’d say leadership teams continue to be somewhat conservative. Given that we only have a couple weeks left of Q3 they should have a pretty good handle on how the quarter should shake out (and the year for that matter).
There were no really big reveals, but also no change in tone from the management teams I listened to – and certainly nothing edging toward the more negative side of the scale.
Big picture, I’d say leadership teams continue to be somewhat conservative. Given that we only have a couple weeks left of Q3 they should have a pretty good handle on how the quarter should shake out (and the year for that matter).
Small caps had a decent week with the S&P Small Cap 600 ETF (IJR) rising just over 2% since our last update. This is a welcome relief on a number of levels, including from a technical perspective.
In late July the ETF looked like it was going to challenge the year’s high (from February) near 108. Momentum stalled at 105 as the calendar turned to August. By the 18th (two weeks ago) the IJR was just below 100, sitting on its 200-day moving average line.
In late July the ETF looked like it was going to challenge the year’s high (from February) near 108. Momentum stalled at 105 as the calendar turned to August. By the 18th (two weeks ago) the IJR was just below 100, sitting on its 200-day moving average line.
After three rough weeks in August, small caps have finally begun to stabilize around their 200-day moving average line.
I’d like to say blame for the weak performance rests fully on the shoulders of small-cap financials due to rising yields, commercial real estate mortgage default risk, etc.
But the truth is most sectors have been weak. Small-cap health care looks downright awful, with the Invesco S&P Small Cap Healthcare ETF (PSCH) hitting a new low for the year late last week.
I’d like to say blame for the weak performance rests fully on the shoulders of small-cap financials due to rising yields, commercial real estate mortgage default risk, etc.
But the truth is most sectors have been weak. Small-cap health care looks downright awful, with the Invesco S&P Small Cap Healthcare ETF (PSCH) hitting a new low for the year late last week.
Welcome to this week’s Cabot Macro Investor update.
I’m joking. We’re still all about small-cap stocks. But now that earnings season is over it’s all about the macro again. So we’ve got to address it.
In the second half of July, I felt like we were due for a pullback.
I’m joking. We’re still all about small-cap stocks. But now that earnings season is over it’s all about the macro again. So we’ve got to address it.
In the second half of July, I felt like we were due for a pullback.
The last two weeks have been a lot less fun than June and most of July. But big picture, a pullback is not remotely surprising.
Through yesterday’s close, both the large and small-cap indices were down about 2.6% from their recent highs. The Nasdaq was down almost 5%.
What is a little surprising is the rapid change of tone out there. This can be squarely blamed on Fitch’s downgrade of U.S. debt and Moody’s bearish notes on those 10 banks they think don’t look so hot.
Through yesterday’s close, both the large and small-cap indices were down about 2.6% from their recent highs. The Nasdaq was down almost 5%.
What is a little surprising is the rapid change of tone out there. This can be squarely blamed on Fitch’s downgrade of U.S. debt and Moody’s bearish notes on those 10 banks they think don’t look so hot.
Earnings season is now in full swing, but central bankers stole the show this week.
On Wednesday the FOMC hiked by another 25bps (as expected) and Fed Chair Jerome Powell gave the market just enough for the bulls to remain in control, for now.
The highlights: First, he said he thinks the Fed can get inflation down to 2% by 2025 while avoiding a recession. The Fed’s staff no longer predicts a recession.
On Wednesday the FOMC hiked by another 25bps (as expected) and Fed Chair Jerome Powell gave the market just enough for the bulls to remain in control, for now.
The highlights: First, he said he thinks the Fed can get inflation down to 2% by 2025 while avoiding a recession. The Fed’s staff no longer predicts a recession.
Aside from AI, a few other big-picture themes came into sharper focus for me this week.
All are positive for small caps.
First, economists and analysts are reducing their recession risk outlooks as the economy continues to hold up reasonably well. That’s good for small caps as they are more economically sensitive than mid and large caps.
All are positive for small caps.
First, economists and analysts are reducing their recession risk outlooks as the economy continues to hold up reasonably well. That’s good for small caps as they are more economically sensitive than mid and large caps.
With the 4th of July holiday last Tuesday it felt like 75% of the country was on vacation for the week and whatever happened in the market was a mirage.
This week things came into sharper focus. And the bull argument firmed up with the better-than-expected June CPI reading yesterday morning. The annualized 3.0% CPI inflation rate is the lowest in more than two years and came in below estimates of 3.1%.
That report helped the S&P 600 Small Cap Index, as represented by the iShares Core S&P Small-Cap ETF (IJR), jump up to its highest level since March 10 and move convincingly through the 100 level.
This week things came into sharper focus. And the bull argument firmed up with the better-than-expected June CPI reading yesterday morning. The annualized 3.0% CPI inflation rate is the lowest in more than two years and came in below estimates of 3.1%.
That report helped the S&P 600 Small Cap Index, as represented by the iShares Core S&P Small-Cap ETF (IJR), jump up to its highest level since March 10 and move convincingly through the 100 level.
Small caps put together a decent week as the iShares Core S&P 600 Small Cap ETF is up 3.6% from last Thursday’s close.
Digging a little deeper, we’ve seen a lot of strength in small-cap industrials and tech plus some stability in small-cap financials and energy.
Digging a little deeper, we’ve seen a lot of strength in small-cap industrials and tech plus some stability in small-cap financials and energy.
Small caps are off about one percentage point over the last week while the S&P 500 is almost dead flat.
All things considered, that feels like a win to me – largely because the Fed signaled potential for two more rate hikes throughout the year. The Fed’s rate hike program has been the market’s bogeyman for over a year. The message the market is sending now is that, yeah, you might keep us on our toes, bogeyman, but we’re not scared any more. You can be dealt with.
All things considered, that feels like a win to me – largely because the Fed signaled potential for two more rate hikes throughout the year. The Fed’s rate hike program has been the market’s bogeyman for over a year. The message the market is sending now is that, yeah, you might keep us on our toes, bogeyman, but we’re not scared any more. You can be dealt with.
Alerts
Braze (BRZE) delivered Q2 results after the close yesterday that beat expectations. Revenue grew 33.6% to $115.1 million, beating by $6.4 million while EPS of -$0.04 was up from -$0.16 in Q2 last year and beat by $0.10.
Intapp (INTA) delivered Q4 results after the close yesterday that beat expectations. Revenue grew 25.3% to $94.6 million, beating by $1.5 million while EPS of $0.04 was up from -$0.04 in Q4 last year and beat by $0.03.
It’s nice to see Duolingo (DUOL) responding well to another very solid earnings release. The company reported that Q2 revenue grew 43.5% to $126.8 million (beating by $3.1 million) while adjusted EPS of $0.08 improved from -$0.38 in the year-ago quarter and beat by $0.27.
SI-Bone (SIBN) reported yesterday afternoon that revenue rose by 30% to $33.3 million (beating by almost $2 million) and EPS came in at -$0.30, a penny better than expected. Management raised full-year guidance by $3.5 million to $133 million (at the midpoint), about $1 million more than the Q2 beat.
Sell Terex (TEX)
We jumped into TEX four months ago on March 3, literally just a few days before the stock took a dive that ended up sending it 30% lower over the next few weeks. We held on and those of you that added shares along the way should have a much better return than the roughly 7% gain showing in our official portfolio. With so many growthier stocks acting well and TEX up over 50% from its April lows, I’m going to take the modest gain and boot it from our portfolio today. To be clear, I don’t hate TEX and think the bullish thesis I presented back in March still holds true. That said, the reality is there are just too many other stocks with better upside potential right now and I want to maintain concentration in those while taking down our market exposure ever so slightly through next week’s Fed meeting (our next Issue is due out in two weeks). SELL
We jumped into TEX four months ago on March 3, literally just a few days before the stock took a dive that ended up sending it 30% lower over the next few weeks. We held on and those of you that added shares along the way should have a much better return than the roughly 7% gain showing in our official portfolio. With so many growthier stocks acting well and TEX up over 50% from its April lows, I’m going to take the modest gain and boot it from our portfolio today. To be clear, I don’t hate TEX and think the bullish thesis I presented back in March still holds true. That said, the reality is there are just too many other stocks with better upside potential right now and I want to maintain concentration in those while taking down our market exposure ever so slightly through next week’s Fed meeting (our next Issue is due out in two weeks). SELL
Sell Terex (TEX)
We jumped into TEX four months ago on March 3, literally just a few days before the stock took a dive that ended up sending it 30% lower over the next few weeks. We held on and those of you that added shares along the way should have a much better return than the roughly 7% gain showing in our official portfolio. With so many growthier stocks acting well and TEX up over 50% from its April lows, I’m going to take the modest gain and boot it from our portfolio today. To be clear, I don’t hate TEX and think the bullish thesis I presented back in March still holds true. That said, the reality is there are just too many other stocks with better upside potential right now and I want to maintain concentration in those while taking down our market exposure ever so slightly through next week’s Fed meeting (our next Issue is due out in two weeks). SELL
We jumped into TEX four months ago on March 3, literally just a few days before the stock took a dive that ended up sending it 30% lower over the next few weeks. We held on and those of you that added shares along the way should have a much better return than the roughly 7% gain showing in our official portfolio. With so many growthier stocks acting well and TEX up over 50% from its April lows, I’m going to take the modest gain and boot it from our portfolio today. To be clear, I don’t hate TEX and think the bullish thesis I presented back in March still holds true. That said, the reality is there are just too many other stocks with better upside potential right now and I want to maintain concentration in those while taking down our market exposure ever so slightly through next week’s Fed meeting (our next Issue is due out in two weeks). SELL
Sell Terex (TEX)
We jumped into TEX four months ago on March 3, literally just a few days before the stock took a dive that ended up sending it 30% lower over the next few weeks. We held on and those of you that added shares along the way should have a much better return than the roughly 7% gain showing in our official portfolio. With so many growthier stocks acting well and TEX up over 50% from its April lows, I’m going to take the modest gain and boot it from our portfolio today. To be clear, I don’t hate TEX and think the bullish thesis I presented back in March still holds true. That said, the reality is there are just too many other stocks with better upside potential right now and I want to maintain concentration in those while taking down our market exposure ever so slightly through next week’s Fed meeting (our next Issue is due out in two weeks). SELL
We jumped into TEX four months ago on March 3, literally just a few days before the stock took a dive that ended up sending it 30% lower over the next few weeks. We held on and those of you that added shares along the way should have a much better return than the roughly 7% gain showing in our official portfolio. With so many growthier stocks acting well and TEX up over 50% from its April lows, I’m going to take the modest gain and boot it from our portfolio today. To be clear, I don’t hate TEX and think the bullish thesis I presented back in March still holds true. That said, the reality is there are just too many other stocks with better upside potential right now and I want to maintain concentration in those while taking down our market exposure ever so slightly through next week’s Fed meeting (our next Issue is due out in two weeks). SELL
Expensify (EXFY) reported underwhelming Q1 2023 results after the bell yesterday. Our goal here was to get into what seems like a promising long-term opportunity with a small specialist (expense management and other financial tools for small and very small businesses) before the trends turned more positive.
Intapp (INTA) reported another solid quarter after the closing bell yesterday, sending shares up around 15% today.
Alphatec reported preliminary Q1 results on April 19 when the company announced the acquisition of the REMI Robotic Navigation System.
Sprout Social beat on the top and bottom lines after the close yesterday. Revenue rose 31% to $75.2 million (beat by $130K) while EPS of $0.06 improved from a loss of -$0.03 in the year-ago quarter and beat by $0.07.
Terex reported Q1 2023 results that beat expectations after the close yesterday. The company also raised full-year guidance by more than the Q1 beat. The result should quiet some of the concerns of a slowdown and help the stock do well today.