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Early Opportunities
Get in Before the Crowd

Cabot Early Opportunities Issue: January 18, 2023

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Stocks in This Issue

Stock NameMarket CapPriceInvestment TypeCurrent Rating
TechnipFMC (FTI)$5.78 billion12.9Growth – O&G EquipmentBuy 1/2
Farfetch (FTCH)$2.26 billion 6.17Growth – Online Fashion RetailWatch
Sight Sciences (SGHT)$595 million12.4High Growth – MedTechBuy 1/2
TELUS International (TIXT)$6.04 billion22.3Growth – Digital CXBuy/Trade
Udemy (UDMY)$1.55 billion10.9High Growth – Online LearningWatch

Hey Fed, Are We There Yet?


Last year was all about the Fed and its tightening program.

Finally, after a year of historic interest rate hikes, we should be about at the end. That potential is causing the market to breathe a small sigh of relief.

It’s not just because the market is expecting only a couple more 25-basis point hikes. It’s because the data, which FOMC members say their policies are driven by, show inflation is finally coming down.

Last Tuesday the NFIB Small Business Survey (December data) showed the percentage of small businesses with job openings is falling, as are the percentage of businesses expecting to increase hiring over the next three months and the percentage planning to raise average selling prices.

From the Fed’s perspective, this is good as it reduces the risk of a wage price spiral.

Then last Thursday the CPI inflation report came out and matched expectations. December headline and core CPI were up 6.5% and 5.7%, respectively. Over the last three months on a seasonally adjusted annual rate, they are down to 0.0% and 2.2%, respectively.

That’s a good trend.

The data helped the S&P 600 Small Cap Index jump above its 50 and 200-day lines last week. And over the last two sessions, the S&P 500 index has joined it.

The Nasdaq still has some work to do (above its 50-day but 5% below its 200-day).

Even the most hated ETF of 2022, the ARK Innovation ETF (ARKK), is showing signs of life! It’s up 25% from the December all-time low.

Today we’ll get another batch of data the Fed will take a close look at when the PPI comes out. It’s likely to confirm that inflation is easing but is still too high.

All this amounts to rising odds that the Fed’s tightening program is about over. That’s exactly what the market needs to begin to recover and allow investors the freedom to look at revenue and earnings reports without the shadows cast by the dark clouds that form during periods of persistently large interest hikes

On that note, earnings season is now upon us. And it will ramp up in the coming weeks for the types of stocks that we follow.

It’s too early to draw any conclusions about what will happen. But one thing is for certain, investors are going to care a lot more about what management teams say regarding 2023 than what happened in the last quarter of 2022.

I’ll report back to you with earnings as they come out.

What to Do Now

Continue to add exposure to higher-growth opportunities, but don’t overdo it.

The market has been acting much better over the last week and a half. And the Fed’s tightening program should be winding down. That’s good.

But until the market proves itself to be able to make upside progress you don’t want to get stuck with too many aggressive positions. It could go the other way quickly.



TechnipFMC (FTI) is the largest pure-play provider of integrated deep-water offshore oil and gas development solutions. It sells all types of subsea equipment and controls and provides subsea engineering and construction services. The company also provides equipment and services to the onshore and shallow-water markets.

TechnipFMC’s front-end teams work with customers early on to gain a holistic understanding of the client’s needs. By building out its integrated engineering, procurement, construction and installation (iEPCI) capabilities, along with its Subsea 2.0 platform of modular technologies and fleet of specialized vehicles, TechnipFMC can now deliver and install equipment from the sea floor to the surface.

These integrated solutions drive cost savings and production efficiencies for clients. That has helped the company build a loyal and increasingly profitable customer base. Recent contracts with Wintershall, Shell (SHEL) and TotalEnergies (TOT), among others, show the trends remain strong.

Management says that around 70% of subsea bookings are now direct awarded, including those from integrated Front-End Engineering and Design (iFEED) projects and partnerships. Direct award projects include more favorable pricing terms than competitive bids.

Another driver of profit margin growth is a configure-to-order (CFO) manufacturing model (reduces inventory, lowers capital requirements), which pairs well with the company’s modular Subsea 2.0 architecture.

The bottom line is that EBITDA margin (a measure of profits before interest, taxes, depreciation and amortization) in 2022 should be about 11.6% and could grow to 15%, or higher, by 2025.

Zooming out, TechnipFMC is one of the best ways to gain exposure to a strong offshore and subsea oil and gas market.

Revenue contraction of -2% in 2021 has flipped positive in the last two quarters and should come in at about 4% for the full-year 2022 (8% revenue growth expected in Q4), then accelerate to 10% in 2023.

Expected EPS of $0.11 in 2022 should step up very nicely (about 360%) to $0.51 in 2023.

TechnipFMC has also been strengthening its balance sheet. With free cash flow improving throughout 2022, the company repurchased $430 million in senior notes yielding 6%. In July it initiated a $400 million buyback (14% of shares outstanding). Around $50 million worth of stock was repurchased in Q3, and I expect similar quarterly amounts moving forward. Management has indicated a quarterly dividend is coming in the second half of 2023.

The Stock

Since March 2020 FTI has traded mostly between 6 and 10, with a few pops and drops beyond that range. The most recent low of 5.5 was in July 2022, then management announced a share buyback and reported Q2 earnings and the stock began to climb. It continued to do so through the Q2 earnings release in October when FTI crossed above 10. Shares only pulled back in early December after they topped out at 13.1. After bouncing around in the 11 to 12 range for a few weeks FTI is pushing up against the 13 level again now. With a compelling story, offset by a stock pushing against overhead resistance, we’ll jump into this early-stage recovery story with a half-sized position. BUY HALF


Farfetch Limited (FTCH)

We made money on Farfetch (FTCH) back in 2021 when it was a hot stock in a hot market. Shares are down over 80% from where we sold. And it’s one of many growth stocks that most investors have either completely forgotten about or are unwilling to touch.

The thing is, some of these “untouchable” stocks are going to survive and post eye-popping gains when the market gets back in gear.

The backstory is that Farfetch is a potential frontrunner in the online luxury fashion market. It operates an end-to-end online marketplace that pulls together over 1,300 retailers and brands, connecting the worldwide luxury fashion ecosystem on a digital platform that offers ten times as many products as the closest competitor.

In short, Farfetch is the only online luxury marketplace operating at scale. It has roughly 2.5 million active customers, is based in the U.K., was founded in 2008 and went public in 2018.

A few of the brands selling on the platform include Gucci, Fendi, Saint Laurent, Prada, Burberry, Jimmy Choo, Moncler, Dolce & Gabbana, Ralph Lauren, Palm Angles, County of Milan, Off-White and Heron Preston, among others.

So why is the stock such a disaster?

For starters, there has been a huge reset as consumers shifted spending from goods to services coming out of the pandemic.

That crushed revenue growth, which came in at 64% in 2020 and 35% in 2021. In 2022 revenue growth will be about 2%. Exiting the Russian market hasn’t helped, and neither have turmoil in China and foreign exchange headwinds (two of these three issues are now reversing).

Slower growth also demolished earnings. Farfetch delivered an EPS loss of -$0.55 in 2021 and 2022 will likely come in around -$1.13.

At the December 1 Capital Markets Day, management laid out their plan to return to growth. The plan fell flat with investors, sending shares down 35% the next day.

With the factory reset button now pushed, expectations are very low, as are the share price and valuation.

Management has said it plans to grow gross merchandise value (GMV) by 8% to 10% through 2025, and by just over 20% in 2023). That seems very attainable given the online luxury market is likely to grow 10% to 15% and Farfetch tends to grow faster.

The bottom line is that this business is down, but not necessarily out. If management can string together a few decent quarters and restore confidence it could be one of the better-performing stocks in the market over the next couple of years.

Let’s keep an eye on it via our Watch List.

The Stock

FTCH came public at 20 in September 2018, had a rough start then found its groove during the pandemic. It peaked just shy of 74 in February 2021. The stock then went on a historic slide that didn’t stop until this past May when it was trading near 6.5. FTCH stayed in the 6.5 to 12.9 range until the Capital Markets Day on December 1, when it plummeted another 35%. FTCH kept bleeding until shares hit 3.6 just before Christmas. The stock has been climbing steadily out of the hole since then (up over 50% from the low) and is now about where it was just after the Capital Markets Day. WATCH


Sight Sciences (SGHT)

Sight Sciences (SGHT) went on our Watch List last month and has held up well, despite having a few volatile days. With management issuing preliminary Q4 results last week and analyst estimates looking conservative, we’ll add a half stake in the MedTech stock today.

To refresh your memory, Sight Sciences specializes in eyecare solutions for patients with glaucoma and dry eye disease. These are two of the largest markets in eyecare.

Solutions for glaucoma include OMNI and SION.

OMNI is a minimally invasive glaucoma surgery (MIGS) device indicated for adult patients with primary open-angle glaucoma (POAG). POAG accounts for 90% of all glaucoma cases and is the leading cause of irreversible blindness. Surgeons use OMNI, which looks a bit like an electric toothbrush, to lower interocular pressure (IOP) by targeting any of the three primary points of blockage or resistance.

SION was launched in August 2021 to expand Sight Science’s presence in the glaucoma market. It is a manually operated bladeless surgical tool used in goniotomy to lower eye pressure by removing diseased tissue around Schlemm’s canal.

TearCare is the company’s treatment for dry eye disease. It uses both wearable and smart technology to deliver localized heat therapy. The device comprises SmartLids, which stick to the skin above and below the eye and are connected to a SmartHub, a small device that manages heat and time to the SmartLids on each eye.

Management issued preliminary Q4 2022 results last Monday that were slightly above expectations. Revenue is expected to be up 40% to $20.5 million.

Glaucoma (OMNI and SION) revenue should be up 35% to about $18.8 million while dry eye (TearCare) should be up 130% to around $1.7 million.

This implies 2022 revenue should be up about 46% to $71.3 million. Management continues to say it sees average revenue growth of around 30%, which is about what analysts are modeling for 2023 (implies just over $90 million in revenue).

The biggest risks (both the upside and downside) continue to be positive reimbursement decisions for TearCare (which we want) and competitive risks from stents.

Taking it all in we’ll start with a half-sized position and re-evaluate after the official Q4 results are out in March.

The Stock

SGHT came public in July 2021 at 24 and popped 40% the first day. Shares moved higher until they hit an intra-day high of 42.6 a few weeks later, then trended down until they hit 6.3 in April of last year. A rally to 11.8 over the next three months fell apart and SGHT was below 6 in early October. SGHT has mostly been trending higher since. The stock enjoyed a 35% pop after the Q3 report on November 10 and has tried (and failed) to move above 14 a few times in the last two months. With 11 seeming to act as a floor and shares trading in the low 12s now, we’ll jump in with a half-sized position. BUY HALF


TELUS International (TIXT)

We took a crack at TELUS International (TIXT) in mid-2021 and captured a modest 12% return within a few months. With the stock down nearly 40% since then, looking like it’s coming off an all-time low, and having a solid story offering steady growth and profitability, TIXT has risen to the top of my buy list.

The backstory is that TELUS is a digital customer experience company that serves over 600 major brands around the world. It designs, builds and manages next-gen engagement, HR, AI and content moderation tools that clients use to better serve their customers.

The company is particularly strong in high-growth markets, including tech and games (47% of Q3 revenue), media and communications (24%), eCommerce and fintech (11%) markets.

TELUS was spun out of parent company Telus Corporation (TU), one of Canada’s leading telecom providers, in February 2021. This relationship continues today as TELUS still derives over 16% of revenue from its parent company, which remains a controlling shareholder (owns about 75% of voting shares).

Revenue was up 11% to $615 million in Q3 2022. Full-year 2022 revenue should be up around 13% to $2.49 billion when Q4 is in the books. EPS should be about $1.21 (+21%).

Looking into 2023, revenue should continue to grow by around 12%, to $2.8 billion, while EPS should be up around 13%, to $1.37.

There could be some modest upside potential due to the January acquisition of WillowTree, a high-growth digital customer experience company focused on mobile applications, web interface and marketing, WillowTree grew revenue by 48% to $94 million in the first half of 2022.

Foreign exchange headwinds in mid-2022 may also be abating and help boost investor sentiment.

Telus should deliver Q4 earnings in mid-February and host an Investor Day on February 16.

The Stock

TIXT came public at 25 in February 2021 and, after a rough start (pandemic), rallied to an all-time high of 40 in October 2021. A painful drawdown pulled TIXT to 20.7 by last May. Shares then rallied to 31.5 last summer before giving it all back, and then some, last fall. From mid-November through the end of 2022, TIXT mostly traded in the 18.5 to 21 range. Shares jumped 4.5% early last week, crossed the 50-day line and have traded higher every day since. The 200-day line is about 10% higher. With the trend improving and a conservative growth story, we’ll jump in with a trader’s attitude, looking to make a modest double-digit return in the next couple of months. Conversely, if TIXT looks to be faltering in the near term we’ll likely step aside. BUY/Trade


Udemy (UDMY)

Udemy (UDMY) is an online education marketplace for personal and professional courses. The platform hosts 213,000 courses taught by over 70,000 instructors to nearly 60,000 learners. Courses are offered in 75 languages across more than 180 countries.

The pitch for drawing people to the platform is that Udemy offers the tools learners, instructors and enterprises need to reach their full potential, regardless of where they are and what their interests are.

Online courses span a huge range of subject matters including programming, web development, finance, business, design, marketing, photography, music and more.

If we believe consultants, Udemy is going after a market worth $170 billion now that’s poised to grow to $476 billion by 2027. That breaks down to around a $170 billion market for corporate customers and $320 billion for other online learners.

Considering Udemy’s 2022 revenue will be about $630 million, any way you slice it there seems to be a lot of opportunity here.

While people can go to Udemy and find a course to help them learn to play the drums, practice mindfulness or work on their productivity habits, the bulk of revenue comes from employers, which the company calls its Udemy Business segment.

With Udemy Business, employees can sign up for employer-sponsored, on-demand classes to round out and/or learn new skills that can help their performance, compensation and career track.

This more specialized area of the platform currently hosts about 19,000 courses and is used by a growing number of global companies, including Aflac (AFL), Volkswagen and Box (BOX).

Udemy Business closed a record number of $1 million deals in Q3, and the segment is seen driving around 60% of revenue in 2024, up from about 53% today.

The consumer business, which faces a tougher growth trajectory in a recession, is one of the reasons UDMY stock hasn’t done great recently. Another reason is that the company is not profitable and won’t be for some time, even though management is taking steps to reduce costs.

Udemy grew Q3 revenue by 22% to $158 million and should grow Q4 revenue by about 20%. That implies 2022 revenue growth of 22%, to $630 million. EPS loss should be around -$0.59.

Looking out into 2023 analysts see revenue growth accelerating to 24% and EPS losses shrinking to about -$0.54. That said, more bullish analysts see the strength in Udemy Business and a recovery in consumer courses pushing revenue growth above 25%. Cost-cutting measures could reduce the EPS loss to around -$0.47.

This more bullish scenario is why the stock is going on our Watch List today. If we see more evidence of the bull case unfolding, we may buy the stock.

The Stock

UDMY went public at 29 in October 2021. It enjoyed a few strong weeks then the bear market took over and UDMY fell apart in early 2022. By March 15, 2022, it was a 10 stock. There have been some nice rallies since that showcase the upside potential. But UDMY’s trading range of 9.5 to 17.2 over the last twelve months is unremarkable when looked at from a distance. With shares currently trading near the low end of that range (roughly 11) my best guess is the next big move will be to the upside. But we’ll look for more evidence of that before we jump in. WATCH LIST


Previously Recommended Stocks

Since our last issue, we sold a quarter of our position in Axonics (AXNX), our half-sized position in Halozyme (HALO), our final one-quarter-sized position in (BILL), our half-sized position in Chewy (CHWY) and a third of our stake in Xponential Fitness (XPOF). Details of these trades were communicated via Special Bulletins.

We also dropped coverage of Watch List stocks Paya Holdings (PAYA), DoubleVerify (DV) and Mission Produce (AVO).

An updated table of all stocks rated BUY, HOLD and WATCH as well as recent stocks SOLD, is included below.

Please note that stocks rated BUY are suitable for purchasing now. In all cases, and especially recent IPOs, I suggest averaging into every stock to spread out your cost basis.

For stocks rated BUY A HALF, you should average into a position size that’s roughly half the dollar value of your typical position. We may do this when stocks have little trading history (for instance, IPOs), when there is more uncertainty in the market or with a stock than normal, or if a stock has recently jumped higher.

Those rated HOLD are stocks that still look good and are recommended to be kept in a long-term-oriented portfolio. Or they’ve pulled back a little and are under consideration for being dropped.

Stocks rated SOLD didn’t pan out, or the uptrend has run its course for the time being. They should be sold if you own them. SOLD stocks are listed in one monthly Issue, then they fall off the SOLD list.

Please use this list to keep up with my latest thinking, and don’t hesitate to email with any questions.

Company NameTickerDate CoveredRef Price1/18/23Current GainNotesCurrent Rating
AirbnbABNB1/20/22 & 8/4/22139.02101.27-27%Top PickHOLD
AxonicsAXNX5/18/2249.0967.3437%Top PickSold 1/2, Hold 1/2
BioAltaBCAB11/16/22 &1/13/236.053.36-44%Buy
Catalyst PharmaceuticalsCPRX12/21/2218.9920.146%Buy 1/2
NerdWalletNRDS11/16/22 & 1/13/2311.3110.36-8%Buy
Option Care HealthOPCH10/19/2233.7829.02-14%Buy/Trade
PinterestPINS9/21/2224.4926.629%Buy 1/2
RivianRIVN10/19/2231.1716.93-46%Top PickBuy 1/2
Sight SciencesSGHT1/18/23NEW12.45NEWBuy 1/2
SnowflakeSNOW10/19/22171.27145.72-15%Buy 1/2
TechnicFMCFTI1/18/23NEW12.93NEWTop PickBuy
TELUS InternationalTIXT1/18/23NEW22.31NEWBuy/Trade
Xponential FitnessXPOF9/21/2219.8625.0526%Top PickHold 2/3
Terran OrbitalLLAP11/16/22-1.85-Watch

Recently Sold Positions

Company NameTickerDate CoveredReference Price^Date SoldPrice Sold^Gain/lossNotes
AxonicsAXNX5/18/2249.091/9/2357.3817%Sold Second 1/4
HalozymeHALO12/21/2257.891/11/2350.45-13%Bought 1/2, sold 1/2
Bill.comBILL6/17/2077.731/13/23101.7531%Sold Final 1/4
ChewyCHWY12/21/2240.751/13/2343.577%Bought 1/2, sold 1/2
Xponential FitnessXPOF9/21/2219.861/13/2325.428%Sold 1/3

The next issue of Cabot Early Opportunities will be published on February 15, 2023.

Tyler Laundon is chief analyst of the limited-subscription advisory, Cabot Small-Cap Confidential and grand slam advisory Cabot Early Opportunities. He has spent his entire career managing, consulting and analyzing start-up and small-cap companies. His hands-on experience has taught Tyler that the development of a superior business model is the biggest factor in determining a company’s long-term success. Accordingly, his research focuses on assessing the viability of management’s growth strategies, trends in addressable markets and achievement of major developmental milestones.