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Early Opportunities
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Cabot Early Opportunities Issue: September 20, 2023

In the September issue of Cabot Early Opportunities, we look into what this afternoon’s Federal Reserve meeting could mean for the market. Then we dig into five small-cap companies from the industrial, biotech, software and clean energy markets. There’s something for everybody.


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Stocks in This Issue

Stock NameMarket CapPriceInvestment TypeCurrent Rating
Array (ARRY)$3.78 billion25.0Growth – Solar Panel Mounts Watch
ATI (ATI)$5.60 billion43.5Growth – Industrial Metals Watch
Badger Meter (BMI)$4.68 billion159Growth & Value – Ind. Machinery Buy
Cellebrite (CLBT)$1.44 billion7.62Growth – Investigative Software Buy
Krystal Biotech (KRYS) ★ Top Pick ★$3.39 billion121Rapid Growth – Biotech Buy

What Is This SEP Everyone’s Talking About?


OK, maybe not everyone.

But anybody who closely follows the financial markets is talking about it.

The SEP, or Summary of Economic Projections, is a report that FOMC members put together that projects the Fed’s estimates in the coming years for major economic indicators and the Federal Funds Rate.

In other words, big macro drivers of stock market performance.

The economic indicators are GDP, unemployment and PCED inflation. A dash of Fed Funds Rate projections and commentary on policy makers’ views on risks driving their outlook rounds out the report.

It comes out four times a year. The last time was in June. The next one is today. And the last one for 2023 will be at the December 12 – 13 meeting.

Suffice to say, the financial markets will be intently analyzing September’s SEP and any changes from the June version, which is shown in the image below.


Notice how, back in June, Fed officials expected that headline and core PCED inflation (green highlights) would fall to 3.2% and 3.9%, respectively, by the end of this year, then to 2.5% and 2.6%, respectively, by the end of next year?

With August PCED headline and core inflation at 3.3% and 4.2%, those estimates are looking pretty accurate. Let’s hope they don’t go up.

Now, the key line will be the Federal Funds Rate, or FFR (blue highlights).

Back in June, the Fed thought its target rate would top out at 5.6% this year. The current range is 5.25% to 5.5%.

That implies another small hike this year. Which would have to be today, in November or in December.

However, current market odds are at 98% that the Fed will hold steady today.

Where does this leave us, and why does it matter?

It means a lot of analysts and investors will immediately go to this FFR in the new SEP to see if the Fed has left this year’s estimate at 5.6% (i.e., they’re thinking of another hike, or at least want to keep us guessing for a few more months).

We’ll also be looking at the estimate for 2024, which was at 4.6% in June. That estimate implied at least three 25bps cuts next year. Any changes there will be closely scrutinized.

Now the tricky thing is that the Fed has been talking about how it has “more work to do” and will likely leave rates high for a while. That has many economists thinking the FFR estimate for next year will go up, possibly over 5%.

The market might not like that very much. It would imply few, if any, rate cuts next year. That’s not a great scenario, especially for growth stocks.

On the other hand, a lot of the Fed’s job comes down to messaging. And saying they could keep the FFR higher next year doesn’t mean they will. It might just be a strategy to try and avoid another rate hike this year. Then see how the date comes in (it’s been more or less good so far).

Now, if you could care less about all this, I get it. It’s pretty dry.

But the market is going to react based on any changes to the SEP. And especially major changes. So, I’ll be paying attention, and factoring any changes into our strategies for the months ahead.

What to Do Now

With September a seasonally slow month and many investors waiting to see what the FOMC and SEP have to say after the September meeting (Powell speaks this afternoon), the market hasn’t been sending a lot of buy signals lately.

We’re still taking a balanced approach. We’ll take a swing at three new positions today.

That all said, I’ll be looking over all our positions with fresh eyes throughout today, after the FOMC meeting wraps up, and once I can take stock of the updated SEP, and the market’s reaction.

We may make a few moves in the coming days, depending.


Array Technologies (ARRY)

Array Technologies (ARRY) is one of the world’s largest manufacturers of ground-mounting systems used in utility-scale solar energy projects.

Ground mounting systems include all the supports, electric motors, gearboxes and electronics that support solar panels and continuously orient them toward the sun.

When combined with Array’s software, the equipment helps to maximize energy production, capturing 20% to 25% more energy than a fixed tilt system, while adding less than 10% to the cost per watt.

The company plays in a rapid-growth market. Solar accounted for 54% of all new electricity-generating capacity added to the U.S. grid in Q1 2023. And by the end of this year, gigawatts (GW) from utility-scale solar installations are expected to grow by 61%.

While utility-scale solar capacity is growing briskly, tracker demand is growing about 30% faster, largely due to the aforementioned efficiency gains these systems add to a large installation.

Government policy is a tailwind as well. The Inflation Reduction Act (IRA) helped to extend tax credits for domestic manufacturing through 2030.

Array had a big year in 2022, growing revenue by 92% ($1.64 billion) and delivering $0.38 in EPS.

Revenue growth is expected to reset this year to only around 4%, partially due to orders that are pushed out to next year. However, operational improvements are seen driving EPS up almost 160%, to $0.98. That’s a huge improvement.

And as we look out to 2024, revenue growth is expected to accelerate to about 30% ($2.22 billion), with EPS growing faster (38%), to around $1.35.

It’s an interesting story in an industry that’s taking off. But that growth isn’t yet translating into stock strength for ARRY. We’ll keep a close eye on it and see if that begins to change before we jump in.

The Stock
ARRY came public at 22 in October 2020 and jumped 66% the first day. Things sort of fell apart afterward, and with investors punishing anything growth-related ARRY got hit by multiple drawdowns over the next 20 or so months. In May of last year, it was trading near 5.5. A quick rally pushed ARRY back above 20 by last August. Since then, the stock has been stuck trading mostly in the 15 to 25 range. That 25 level is being challenged right now, and we’ve seen ARRY step above 26 a few times in the last two weeks. This could be the beginning of a long-awaited run higher. WATCH



ATI (ATI) is a Dallas, TX-based materials science specialist. The company produces high-performance materials and components for the global aerospace and defense, medical, and energy markets.

ATI has been around since the mid-‘90s and counts almost all the big boys as customers, including Boeing (BA), General Electric (GE), Airbus (EADSY), and Rolls-Royce (RYCEY).

It is enjoying growth tailwinds these days as customers shift business to Western suppliers in order to reduce reliance on Russian-supplied titanium. ATI is also transitioning away from low/no-margin lines of business, which is helping profitability.

Currently, growth is being driven by aerospace (jet engine shipments) and defense (naval fleets, vehicle armor, military jet engines), which grew to make up 58% of total revenue in Q2 2023.

These two markets also make up 83% of sales in the company’s High-Performance Materials and Components (HPMC) segment, which is not only bigger but more profitable than the Advanced Alloys & Solutions (AA&S) segment, which has a much greater mix of cyclical business, such as electronics and energy.

Those cyclical areas of ATI have been a modest drag on growth lately (down 27% and 10%, respectively, in Q2) but are relatively small revenue contributors.

Stepping back, Q2 revenue was up 9% to $1.05 billion while EPS grew 9.3% to $0.59. Looking out to full-year consensus estimates, ATI should grow revenue by 10.4% to $4.23 billion and EPS by just over 13%, to $2.25.

Revenue growth may decelerate a little next year (+6% expected) but earnings are seen jumping nearly 30%.

If you’re interested in a growing and profitable industrial company that’s making major inroads into aerospace and defense markets due to the shakeup following the Ukraine invasion, ATI should fit the bill.

The Stock
ATI has been trending higher since the beginning of 2021, albeit with a few pullbacks along the way. But the drawdowns have not pulled shares below the stock’s 200-day moving average line. The last two times that long-term trend line has been approached, in October – December of 2022 and briefly in late May of this year, the stock was just consolidating after a multi-week rally. Since May shares have reached a new multi-year high just shy of 48. That was on August 1, the day before Q2 results came out. ATI fell back into the low 40s after the report and for the last couple of weeks has traded mostly in the 44 – 55 range. This looks like another consolidation phase. WATCH


Badger Meter (BMI)

Badger Meter (BMI) is another old-school, industrial-type company that’s enjoying a boom in business due to product innovation, energy/resource efficiency and smart technology.

The company offers a variety of digital smart water solutions, including monitoring water quality, flow and pressure.

Many products integrate with software to allow live monitoring, trend analysis, predictive maintenance scheduling, event notification, and work order management.

Badger Meter serves utility water, wastewater, commercial and industrial markets. Demand is coming from regulation, energy efficiency, scarcity, quality control, infrastructure replacement and population growth.

In addition, utilities increasingly favor smart water meters so they don’t undercharge customers for consumption that is missed by mechanical meters. This is helping to drive strong mechanical meter replacement business.

Over the last six months, revenue has grown by 24%, and the share of revenue from software-as-a-service (SaaS) now accounts for 6%.

In Q2 utility water sales were especially strong (+32%), driven in large part by smart water solutions that connect via cellular networks and have a software component (BEACON), as well as E-Series Ultrasonic meters that measure flow on an LCD display and have no moving parts.

The company is also seeing fewer supply chain disruptions and is still enjoying the benefit of inflation pricing (unclear how long this will last).

Total Q2 revenue was up 27.6% to $176 million while EPS grew over 33% to $0.76. For the full year 2023, which is shaping up to be a standout performance, analysts now see revenue growing 22% to $690.7 million and EPS up 33% to $3.01.

We may easily see growth slow somewhat to a more normal rate in 2024 (consensus calls for about 8% revenue growth and 11% EPS growth).

However, given industry tailwinds, strong execution, Badger Meter’s lack of debt and the stock’s modest yield (0.6%) I expect investors will continue to stick with the stock.

The Stock
BMI is in a sustained uptrend that’s persisted since shares came out of a 45-week consolidation phase that ended roughly 13 months ago. At that time, shares broke above the 110 level (roughly) that had stymied the stock’s advance way back in January 2021. After moving through 110 last October, BMI advanced tentatively for a few months, then shot through the 125 level with conviction after the Q1 2023 report on April 20. The stock kept moving higher, stepped out to new highs above 156 after the Q1 report on July 20, and peaked just shy of 171 on August 15. While BMI has gone sideways in the 155 to 171 range over the last two months, it seems like the next big move will be higher. BUY


Cellebrite (CLBT)

Cellebrite (CLBT) provides Digital Intelligence software solutions for the public and private sectors.

Clients use its software platform to help them navigate the complexities of legally sanctioned digital investigations, doing everything from collecting, reviewing, analyzing and managing data.

The technology is used to help convict bad actors and bring justice for a wide variety of crimes, from drug and human trafficking to fraud to homicide.

As you’d expect this software is typically used by large organizations, including all 50 U.S. states, the country’s biggest police departments, top accounting, pharma, telecom, and software companies, biggest banks and numerous federal offices, including 14 of the 15 U.S. Cabinet Executive Departments.

Besides enjoying strong market demand due to the huge efficiency gains of Cellebrite’s platform, the company is also benefiting from renewed focus on the North American and Western European markets and reduced focus on small, niche markets.

This focus is helping it grow deeper into the key mid-to-large government agency space, where Cellebrite is both selling more modules to existing customers and going deeper into partnering with public agencies.

For example, it has a presence in over 18,000 U.S. law enforcement agencies. These customers tend to start with the core Collect and Review modules for forensics teams. As those teams get comfortable with the solutions more departments and field offices are starting to look at modules that cover sharing, compliance and auditing too.

Cellebrite is also enjoying the ongoing benefits of a transition to the SaaS-based software model, which is more dependable, efficient and aligned with growth-driven strategies.

Two years ago, subscription was 70% of total revenue. In the recently completed second quarter of 2023, it was 88% (the remaining 13% is split 10% professional services and just 3% for perpetual licenses and hardware).

All in, Q2 revenue grew 22.5% to $76.7 million. Adjusted EPS of $0.05 beat by $0.03.

Following the release, management increased full-year guidance, calling for revenue to grow by 15% to 18% versus the previous range of 12% to 16% set back in February.

The Stock
CLBT came public via SPAC IPO in August 2021. Shares were up and down around the 10 level for a few months then began to sell off with the market. The downtrend persisted until around October of last year when CLBT bottomed near 3.8. The stock didn’t do much through the end of the year then got a lift early in 2023 as the market started to come back. CLBT was back above 5 by the end of January, paused for a few months, then broke out above 6.2 in mid-June. Shares inched their way higher through September 5 (just a couple weeks ago) when they topped out at 8.3. The stock has since fallen back into the low-7 area. This looks like a normal pullback for a stock that has gained more fans lately. BUY


Krystal Biotech (KRYS) ★ Top Pick ★

Krystal Biotech (KRYS) is a biotech company with treatments for rare diseases that is transitioning from clinical to commercial stage with the upcoming launch of its first gene therapy, Vyjuvek.

The pipeline is focused on treatments for inherited dermatological and respiratory diseases, with investigational therapies for oncology and ophthalmology as well.

The key to Krystal’s platform is its proprietary skin Targeted Delivery (STAR-D) platform and modified HSV-1 viral vectors.

Glossing over specifics, the key takeaway should be that its pipeline is full of potential gene therapies that have both high cargo capacity and re-dosing ability. These attributes mean Krystal’s therapies could work for large, chronic conditions with very significant markets.

Beyond the technology platform, Krystal has also put together significant manufacturing capacity (over 175,000 sq. ft. in the U.S.) and has partnership opportunities that could help fund pipeline development/commercial launches and/or bring new therapy candidates into the pipeline.

Turning to the here and now, investors have pushed shares of KRYS higher lately due to approval of the first FDA-approved re-dosable gene therapy, Vyjuvek, which is indicated for DEB.

DEB is a very rare genetic disease characterized by fragile skin, recurring and chronic wounds and serious complications. The treatment showed significant rates (high 60%) of complete wound healing after both three and six months.

Not long after being approved in May, management disclosed (at the time of the Q2 report) that it only took six weeks to receive 121 patient start forms. There are rumors that the number could climb into the low-to-mid-200 range by the end of the year. Infusion is set to be handled by Option Care Health (OPCH) and Amedisys, so some of this will depend on how those companies operate.

The bottom line is that analyst consensus estimates are calling for revenue to go from zero in Q2, (remember Krystal hasn’t had a commercial product before now) to $8.7 million in Q3 and $25.8 million in Q4.

That implies 2023 revenue of $33.1 million, then $186.4 million in 2024 (+462%).

While EPS isn’t going to be positive for a while it should go from around -$4.84 this year to -$1.09 in 2024.

These are loose numbers given the early-stage nature of the commercial launch. But what we do know is that Krystal’s platform has been proven to work and that raises the odds of more shots on goal actually going in.

More progress on Phase 1/2 therapies for skin (KB105), lungs (KB407) and solid tumors (injectable KB707 entering Phase 1 in second half of this year) would likely be well-received by investors.

Lastly, Krystal has no debt and $506 million in cash.

The Stock
KRYS went public at 10 in September 2017 then didn’t do much for about a year. In mid-2018 shares took off, eventually peaking near 66 at the end of 2019. 2020 was a down year then KRYS rallied to 85 by the end of March 2021. That’s been a significant level. It was the top for a while as shares floundered for much of 2021 and the first half of 2022. The stock challenged the 85 level in August of 2022, then spent most of the first half of 2023 bumping up against it. There were a few little rallies to 90 but the big break came on May 19 and 22 after the FDA approved Vyjuvek and KRYS shot to 120. The stock has since traded in the 107 to 132 range. We’ll jump in here, around 120. BUY


Previously Recommended Stocks

On August 17 we sold Snowflake (SNOW) and half our position in e.l.f. Beauty (ELF) for returns of -5% and 32%, respectively.

Today we are trimming our Watch List to make room for new additions. We’re dropping Dutch Bros (BROS), Tecnoglass (TGLS) and Arhaus (ARHS)

An updated table of all stocks rated BUY, HOLD and WATCH as well as recently 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.

Active Positions

Company NameTickerDate CoveredRef Price9/20/23Current GainNotesCurrent Rating
Academy SportsASO8/16/235849-15%Top PIckHold
AppLovin’APP8/16/2339402%Buy 1/2
Badger MeterBMI9/20/23NEW159NEWBuy
DatadogDDOG6/21/239493-2%Top PickHold 1/2
Comfort SystemsFIX7/19/231681828%Buy 1/2
e.l.f. BeautyELF4/19/239411220%Sold 1/2, Hold 1/2
HubSpotHUBS4/19/2341751223%Top PickHold 1/2
IonQIONQ7/19/2316161%Top PickBuy
Krystal BiotechKRI9/20/23NEW107NEWTop PickBuy
MicrosoftMSFT2/15/2326832922%Top PickBuy
RivianRIVN10/19/22 & 5/22/2323231%Top PickBuy
ShopifySHOP6/21/236358-8%Top PickBuy 1/2
Array TechnologiesARRY9/20/23-25-Watch
Bentley SystemsBSY6/21/23-49-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
AxonicsAXNX5/18/2249.092/2/2361.5725%Sold Final 1/4
TELUS InternationalTIXT1/18/2322.262/15/2321.94-1%
NerdWalletNRDS11/16/22 & 1/13/2311.312/16/2318.7866%Sold 1/3
Option Care HealthOPCH10/19/2233.782/23/2331.13-8%Trade Opportunity
PowerSchoolPWSC2/15/2323.732/23/2323.59-1%Bought 1/2, sold 1/2
PinterestPINS9/21/2224.493/8/2325.946%Bought 1/2, sold 1/2
BioAltaBCAB11/16/22 &1/13/236.043/10/232.59-57%
Sight SciencesSGHT1/18/2312.383/10/239.79-21%Bought 1/2, sold 1/2
NerdWalletNRDS11/16/22 & 1/13/2311.313/10/2319.3271%Sold second 1/3
NerdWalletNRDS11/16/22 & 1/13/2311.315/3/2310.36-8%Sold final 1/3
SiTimeSITM3/15/23124.195/4/2389.96-28%Bought 1/2, sold 1/2
Catalyst PharmaceuticalsCPRX12/21/2218.995/17/2312.43-35%Bought 1/2, sold 1/2
Xponential FitnessXPOF9/21/2219.865/22/2327.5239%Sold second 1/3
SamsaraIOT3/3/2319.276/2/2323.6323%Bought 1/2, sold 1/2
Xponential FitnessXPOF9/21/2219.866/27/2317.5-12%Sold final 1/3
AirbnbABNB1/20/22 & 8/4/22139.026/29/23125.71-10%
Si-BoneSIBN5/17/2324.567/17/2326.156%Bought 1/2, sold 1/2
FerrariRACE5/17/232948/4/23313.677%Top PIck
PulmonxLUNG3/15/23118/4/2313.3621%Bought 1/2, sold 1/2
SnowflakeSNOW10/19/22 & 3/8/231578/17/23148.49-5%
e.l.f. BeautyELF4/19/23948/17/23123.5732%Sold 1/2, hold 1/2

The next issue of Cabot Early Opportunities will be published on October 18, 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.