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Early Opportunities
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Cabot Early Opportunities 120

In the April Issue of Cabot Early Opportunities we take a look at the red-hot real estate market and muse on the dramatic and lasting impacts from the Covid-19 pandemic.

We also take hints from the market’s action that it continues to be a time to focus on diversifying new buys across different markets. We take this evidence to heart and add five stocks that offer exposure to everything from resort travel to Afib surgical tools to digital transformation services.


Cabot Early Opportunities 120

Stock NameMarket CapPriceInvestment Type
AtriCure (ATRC)
$3.10 billion68.00Rapid Growth – MedTech
Bentley Systems (BSY)$13.6 billion49.71Growth – Software
Endava (DAVA)$4.48 billion82.29Rapid Growth – Digital Transformation
HubSpot (HUBS)$23.1 billion497.7Rapid Growth – Software
Vail Resorts (MTN)$12.5 billion310.3Growth – Hospitality & Leisure


Current Investing Environment

Going Once, Going Twice, Gone!
In the last 48 hours I have received two unsolicited offers to buy property we own. The first was for our second home in Vermont, a handyman’s special I bought in 2004 and sank nearly a decade of blood, sweat and tears into while completing a significant remodel, most of which I did myself. Now that it is pretty much done (as far as any house ever is) I’m in no mood to sell. We use it frequently to ski, and like knowing we have a store of value if our college savings plans go awry.

The second was for our primary residence in Rhode Island. We’d gladly let that one go as it was never meant to be a house for a family of four. The catch is that there isn’t exactly a big inventory of next-size-up houses, at least none that are desirable in the areas we’d prefer.

I’m not sure what to make of this situation. On the one hand, from our vantage point, it’s certainly nice to already own residential real estate and not be first-time homebuyers right now. I feel for those who have been priced out and/or cannot find something suitable within their budget.

On the other hand, it seems the housing market is undergoing a structural change that could put what were once reasonable homes (a relative scale, for sure) out of reach. This is due to the confluence of both demographic and pandemic-induced changes.

The rising generations, that for so long did not seem interested in buying, now are. And the throngs of people who previously needed to work in and around major urban areas are suddenly free to go wherever they wish without and geographic-related salary reduction (at least for now).

My examples of offers for homes in Vermont and Rhode Island aren’t outliers. The same trend in the housing market appears to be happening around the country. We are currently visiting my in-laws in North Carolina. Their development typically sees 12 new homes built every year. There are 38 under construction this very moment.

Stepping back, this scenario is reminiscent of the dramatic structural shifts in work-from-home stocks that began roughly a year ago. That trend caught fire quickly, burned intensely for several months, then began to cool. But it is far from being snuffed out – work from home and the wider group of Internet, e-commerce, cloud, digital, etc. stocks, while well off their highs, are still up significantly from where they were pre-pandemic.

Will the housing market follow a similar curve?

Real estate is far less liquid than equities. Whereas stocks offer little to no utility (maybe dividend payments, in some cases), real estate offers it in spades. In many ways homeownership represents a form of consumption with a (usually) appreciating asset.

I don’t bring this up because today’s Issue is focused on housing related stocks. There is no such common thread. Rather, it’s on my mind because the strength in the housing market helps illustrate just how dramatic and widespread the trend shifts are as a result of the Covid-19 pandemic.

As we move forward the simple and often repeated narrative of “everything will go back to normal once enough people have been vaccinated” will likely prove to be far from accurate. More likely is that a new normal will emerge, and it will be different from what was expected.

As investors we need to keep our eyes open and ears to the ground as we seek out opportunities to participate in what that new normal could be. Today’s Issue covers five candidates, all of which have been acting reasonably well.

What to Do Now
Continue to lean cautiously bullish but don’t expect stocks to post performance similar to what many enjoyed in the back half of 2020 and early 2021. There are a lot of unresolved questions around just how well the economy will bounce back, and where the strengths and weaknesses will shake out for individual companies as we move into and through summer.

On the plus side, earnings season is upon us so we will continue to gain fresh insights into a variety of markets and companies in the coming weeks.

On balance, we see a healthy economy taking shape. But that doesn’t necessarily mean a booming stock market. Though it would be odd if we had one without the other, in reality we experienced just that in much of 2020 and early 2021, so nothing is off the table.

In summary, these are strange times and while the big picture is positive it’s altogether possible, if not likely, that individual stocks will hit air pockets in the coming months.

Given that, combined with a longer-term positive outlook, it is wise to remain diversified, keep an open mind, and be prepared to be somewhat nimble when it comes to portfolio management.


AtriCure (ATRC)


AtriCure (ATRC) is a small-cap MedTech company that plays in the atrial fibrillation (AF, or Afib) and left atrial appendage (LAA) management markets, which top 30 million people worldwide and six million in the U.S.

Afib is the most common form of cardiac arrhythmia and is a condition where the patient’s upper heart chambers (atria) are directed to beat irregularly by abnormal electrical impulses.

Left untreated Afib leads to chest pain, shortness of breath and difficulty moving around. It often progresses to blood clots, which can cause strokes if they block arteries to the brain. The condition is commonly treated with drugs.

However, when there is progression from occasional Afib to persistent/permanent (i.e. non-paroxysmal) Afib, surgical ablation (burning of tissue around veins) is the next treatment step. Surgical AF is AtriCure’s sandbox and represents a roughly $1 billion market (1.6 million people).

The company’s most used products (Isolator Synergy clamps, COBRA Fusion, Linear Pens, etc.) are used during a Maze procedure. This is when electrophysiologists use ablation catheters to ablate (burn) tissue, after which scar tissue is formed. This scar tissue does not conduct electricity so it isn’t a threat of carrying signals to the heart’s atria chambers. AtriCure’s Open Ablation tools generated 46% of revenue ($94 million) in 2020.

Beyond surgical ablation, AtriCure is working to reduce strokes caused by Afib. This can be done by blocking off the heart’s left atrium, one of the main sources of blood clots that travel to the brain. AtriClips (various models available) are the ticket here, and these tools form the foundation of a flourishing Appendage Management business that pulled in nearly $80 million in revenue in 2020 (38% of total sales).

A newer business line is AtriCure’s application of ablation techniques to pain management. The company’s cryoICE and cryoSPHERE products build on a long-standing practice of applying freezing temperatures to specific areas of peripheral nerves to reduce pain (think hard core version of an ice pack on a swollen knee).

CryoICE and cryoSPHERE are used for ablating through freezing and post-operative pain management. The comprise the Minimally Invasive Ablation business segment, which is relatively small now (15% of total revenue) but could grow to be meaningful over time.

AtriCure was a solid double-digit grower before the pandemic, but a sharp reduction in procedures drove 2020 revenue down by 11% to $206.5 million. Business is coming back now and in recent months AtriCure has progressed clinical studies that could add label expansions and new tools (Lariat for LAA) later in 2021 and into 2022.

Look for the company to grow revenue north of 20% this year (to $250 million) and at a similar pace in 2022. Adjusted EPS will still be negative (around -$1.24 this year) but trending in the right direction into 2022 (-$0.92 expected). Management will announce Q1 2020 results next Tuesday.

The Stock
ATRC has been up and down over the years. The stock had been acting very well in 2019 before a 48% drawdown during the market crash. ATRC’s recovery was swift. Shares eclipsed their pre-pandemic high of 44.5 last May and topped out near 52. There was a long slide back to 34 that ended abruptly in November, after Q3 earnings came out. ATRC then raced to new highs above 60, even touching 68 in early March. Stepping back we see a stock that’s pushing the upper end of the 60 to 70 consolidation range that’s held since the beginning of February, potentially setting ATRC up for the next run higher.


Bentley Systems (BSY)
Bentley Systems (BSY) is a relatively new software stock to the public markets, having just come public via IPO on September 23, 2020. It’s not the fastest grower out there – revenues should be up 14% this year and 10% in 2022 – but it’s profitable (estimated EPS this year is $0.65) and with a focus on infrastructure software Bentley Systems plays well into the Biden administration’s plans.
Digging in, Bentley Systems develops software that is used to design and build large-scale infrastructure systems. Think corporate campuses, industrial facilities, roads and bridges, water and wastewater systems and so on.

The company offers a wide variety of solutions, a sampling of which includes MicroStation-based apps for modeling and simulation, ProjectWise for project delivery, AssetWise for asset and network performance and the iTwin platform for infrastructure digital twins.

The company was founded back in 1984 by the Bentley brothers. They’ve worked to build a software suite that permits digital workflows across engineering disciplines, distributed project teams (good during pandemics), and across all variety of computing devices (desktops, servers, mobile, etc.).

If you’ve invested in portfolio holding Altair Engineering (ALTR) and like that company for engineering and simulation software for automotive, aerospace and other industrial applications, Bentley Systems is sort of similar, but for infrastructure engineering.

Bentley is a global player and has been supplementing organic growth with tuck-in acquisitions. The recent acquisition of The Cohesive Companies (November 2020) is an example. This company will expand Bentley’s capabilities for marine and industrial infrastructure. The February 2021 purchase of E7 Pty Ltd (based in Australia) is another example. That company is a leader in field-based construction delivery software for heavy civil construction.

Given the likely focus on infrastructure investments in the U.S. and in other regions of the world to help jumpstart economies, coupled with Bentley’s high recurring revenue base (85% of 2020 revenue was from subscriptions, which grew by 12%), the business is looking forward to a healthy 2021.

Revenue is expected to rise 14% to $910 million this year. That would represent a nice step up from the 9% growth in 2019. While adjusted EPS could dip a little this year (to around $0.65) that should be a temporary dip as EPS should jump 10% in 2022.

The Stock
BSY came public on September 23, 2020 at 22 and jumped 52% the first day. The stock shot up to 40.8 in October before pulling back into the low 30s, then rallied as high as 55 in January. A dividend initiation in November may have helped. Since hitting 55 BSY has pulled back and mostly traded in the 41 to 50 range, despite a double dip to 38 (January and March). With shares near 50 and lockup expiration having passed in mid-March BSY looks like a software stock to buy now.


Endava (DAVA)
We’ve covered Endava (DAVA) before but stepped aside about a year ago when there were better growth opportunities available. Today, with a lot of ultra-rapid growth stocks looking just so-so the steady and profitable growth profile of Endava (20% plus revenue and EPS growth) has put it back on the top of my buy list.
Big picture, Endava is a way to play digital transformation, a huge trend that only gained momentum during the pandemic. More specifically, Endava provides IT services that help customers digitally engage with their customers in effective and efficient ways.

The U.K.-based company was founded in 2000 and went public in 2018. The business was set up to address the empty space between traditional IT services and consultants. This was done by building multi-disciplinary teams with industry-specific knowledge and expertise across strategy, customer experience and engineering.

It’s been a winning formula, and the future looks good too. There were certainly some hiccups during the worst of the pandemic, but management has recently said client conversations are getting more encouraging and urgency is high. Whereas clients have traditionally requested teams within a six-week period, they are now frequently asking for teams in place in two to four weeks. That level of demand has helped bring pricing back to normal (it was down during the depths of the pandemic).

Endava is relatively insulated from industries that will be slower to recover from Covid. The bulk of revenue is from work related to payments and financial services, technology, media and telecom, and consumer, healthcare, logistics and retail. As other areas such as travel, hospitality and cross border payments bounce back there could be a growth “kicker” moving into the back of this year. Revenue retention is solid – in a typical year 80% to 90% of revenue comes from clients that were with Endava in the prior year.

M&A is part of the growth story here. Endava seeks to achieve 20% organic growth and provide a boost through acquisitions. Look for most if not all of free cash flow to be poured into tuck-in acquisitions, likely in the APAC, U.S. and EU regions (Endava has teams spread across the globe).

Growth is consistent. Revenue was up 26% in 2019 and 19% in fiscal 2020 (ended in June), despite the pandemic. In fiscal 2020 adjusted EPS grew by 28%. In fiscal 2021 (which ends in a couple months) analysts see 34% revenue growth, to $590 million, while EPS should expand 25% to $1.55.

Top- and bottom-line growth in 2022 is seen around 20%, but will likely get a bump from unannounced acquisitions.

The Stock
DAVA went public in July 2018 at 20 and jumped 26% its first day, then stayed strong afterwards. Shares peaked at 57 in February 2019, just before the pandemic. The market crash took a bite, driving DAVA down 52%. But the recovery was steady and DAVA jumped to a new all-time high above 57 after earnings were reported last September. There was a wobble in November when shares fell from 70 to 60, but the stock recovered and went on to make a series of higher highs, ultimately topping out at 91 on March 1. Shares have pulled back about 10% since, but look to have support near 80, setting up what looks like a good entry point for new money.


HubSpot (HUBS)
In 2004 two MIT graduate students, Brian Halligan and Dharmesh Shah, noticed that shopping and buying behaviors were changing. People no longer wanted to be interrupted by increasingly obnoxious marketing messages, like direct mail, telemarketers, cold calls and spam emails. Those forms of outbound marketing began to be ignored because, as David Meerman Scott articulated so well, consumers didn’t like it when companies tried to "… buy, beg, or bug their way in.”

Brian and Dharmesh were early in seeing the power of inbound marketing. The big idea behind the movement was that people would rather be helped and entertained than bombarded with senseless and unrelatable offers. A more effective strategy was to promote companies, products and services through blogs, video, podcasts, e-newsletters, SEO, social media and other forms of inbound content.

The result of Brian and Dharmesh’s vision was HubSpot (HUBS), which was born in Cambridge, Mass. in 2005. The company is a cloud-based provider of inbound marketing tools for website content management, blogging, email campaigns, SEO, social media monitoring, CRM and more.

HubSpot primarily serves small and mid-sized companies. Its single console platform provides ease of use and a wide range of tools for marketing professionals to do their thing, namely generate leads, convert leads to customers and drive customer retention.

The company has been hugely successful to date, and the future looks just as bright as the past. Digital transformation is a massive trend among companies both large and small, and HubSpot already has over 100,000 customers.

Recent efforts to build out new products (called Hubs), such as Service Hub and Operations Hub, expand the potential market beyond HubSpot’s core Marketing and Sales Hubs. And with a large and established partner network (hundreds of digital marketing agencies) and a large inbound sales organization HubSpot is working to move beyond its small business focus and grab more of the enterprise market.

Altogether, it is possible the company can grow revenue by 30% or more over each of the next three years, and in the mid-to-high 20% range for several years thereafter. Consensus estimates peg 2021 revenue at $1.16 billion, up 31% over 2020.

HubSpot is also profitable. Adjusted EPS is seen near $1.56 this year (up 18%) then jumping by over 40% to $2.22 in 2022. The durable growth profile and leadership position in a hot market with soaring demand makes the company extremely attractive now, especially given it trades at only a slight valuation premium to the larger software peer group.

The Stock
HUBS came public in 2014 and was a solid performer through mid-2019. Then a sharp correction, a short recovery, and big drawdown during the Covid market crash reset the stock for a big rally since. HUBS broke out above its pre-pandemic high of 208 last summer. There have been some pullbacks for sure (mostly in the 10% to 20% range) but the big picture pattern has been one of higher highs and higher lows. A big breakout sent the stock from 420 to 547 in February, then a 24% retreat took some of the shine off in March. Since retesting lows near 415 a few weeks ago HUBS has been looking fantastic. The stock trades near 530 now, just below the all-time high.


Vail Resorts (MTN)
Vail Resorts (MTN) is a premier mountain resort company and leader in luxury, destination-based travel. Resorts are primarily focused on skiing; however, with four-season operations there is a lot of revenue generated from non-skiing activities.

The company is intently focused on providing experiences to consumers through its three interdependent segments; Mountain (90% of revenue), which includes ski tickets/passes, dining, ski school and other ancillary services, Lodging (9.7% of revenue) and Real Estate (less than 1% of revenue).

Vail Resorts owns and/or operates more than three dozen ski resorts across North America, including Vail, Beaver Creek, Keystone, Breckenridge, Heavenly, Kirkwood, Canyons, Park City, Whistler Blackcomb, Mt. Brighton, Wilmot, Stowe, Okemo and Mt. Sunapee. It also operates a handful of resorts in Australia.

Guests are typically high-end vacation travelers, even relative to other ski resorts. This, combined with the skiing focus, requires a specific approach to data and marketing to understand, predict and influence guest behavior.

Under the leadership of CEO Robert Katz, Vail has excelled in this department, using data analytics and marketing to build a somewhat unique business that features advanced commitments (season passes versus day tickets) from customers and generates recurring revenue and high cash flow.

This is a relatively new development in the ski industry, which has seen its fair share of failed business models over the decades. Vail’s approach helps to smooth out variables such as snowfall, travel patterns and economic cycles.

A prime example of data driving the business is Vail’s recent decision to discount 2021-22 season ski passes by 20%. This decision comes on the back of the successful move (which helped loyalty) to offer Covid pass credits to 2020-21 season pass holders who missed out on the final four to six weeks of the season when ski areas were forced to close down last year. The behind-the-scenes calculations are about customer lifetime value (LTV), which go up materially when customer retention is high.

Repeat customers buy ski passes, but they also buy higher margin food and beverages, ski and snowboarding lessons, equipment rentals and lodging. That’s good in normal times, but in the coming months and years customer loyalty and engagement is particularly important due to pent-up demand.

Vail’s fiscal year ends in July. In fiscal 2019 revenue was up 13% to $2.27 billion and adjusted EPS was $7.49. No surprise, fiscal 2020 was severely impacted by the pandemic’s effects from February through July, with revenue falling 14% to $1.96 billion and adjusted EPS falling 60% to $3.00.

The first half of fiscal 2021 (August 2020 through January 2021) will also be severely impacted by Covid. Consensus estimates suggest fiscal 2021 revenue will be down around 8% to $1.8 million and adjusted EPS will be off 23%, to $2.31.

Looking out to fiscal 2022 we get into clean numbers, and Vail could grow revenue by 40% to $2.5 billion and see EPS jump 230% to $7.65 as the business accelerates out of the pandemic.

The Stock
MTN has been public since the late 1990s but the current form of the business really took shape after Mr. Katz came in as CEO in 2006. There were a tough number of years afterward, with the Great Recession, a big correction in 2018 (when MTN fell 37% from its all-time high of 302) and finally the Covid-induced crash that pulled MTN down 50% (from 255 to 125). A choppy recovery in the stock began a year ago and MTN was consistently making higher highs and higher lows until November 2020, when shares finally broke out above the 2019 high of 255. Shares consolidated in the 260 to 294 range through mid-February, shot briefly as high as 334, then pulled back 18% to 275 in early March. MTN has been in an uptrend for most of the last month and trades near 310 today.


Previously Recommended Stocks
We’ve trimmed a number of positions since the March 17 Issue of Cabot Early Opportunities came out. Over the last four weeks we’ve said goodbye to APi Group (APG), Certara (CERT), Jfrog (FROG), Datadog (DDOG), ContextLogic (WISH), DraftKings (DKNG), Virgin Galactic (SPCE) and SolarEdge (SEDG).

We also added the second half of our Fisker (FSR) position yesterday, on April 20.

We have no new sales or rating changes today.

An updated table of all stocks rated BUY and HOLD, 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 call or email with any questions.

Company NameTickerDate CoveredReference Price^Price 4/20/21Current GainNotesCurrent Rating
10x GenomicsTXG12/17/1966.78180.74171%BUY
Altair EngineeringALTR8/26/2042.7563.9550%BUY
Bentley SystemsBSY4/21/21NEW49.71NEWBUY
ChewyCHWY1/15/2031.2277.00147%Took Partial GainsHOLD 1/2
CloudflareNET7/15/2035.8572.39102%Took Partial GainsHOLD 1/2
CrowdStrikeCRWD12/17/1949.45206.60318%Took Partial GainsHOLD 1/2
EargoEAR3/17/2152.7446.25-12%Top PickBUY
FiskerFSR2/17/2021 & 4/20/2116.1612.93-20%BUY
Five9FIVN11/20/1964.37172.52168%Took Partial GainsBUY
Kornit DigitalKRNT11/18/2078.0697.7325%BUY
Semler ScientificSMLR3/17/21104.4106.882%BUY
Shift4 PaymentsFOUR12/16/2064.3194.6447%HOLD
Sprout SocialSPT2/19/2020.3857.72183%HOLD
UpworkUPWK10/21/2020.3144.14117%Took Partial GainsBUY
Vail ResortsMTN4/21/21NEW310.29NEWBUY
^ Average of high and low price if published intraday, or closing price if published after 4 PM ET

Company NameTickerDate CoveredReference Price^Date SoldPrice Sold^Gain/lossNotes
Adaptive BiotechADPT4/15/2027.913/2/202153.4291%Sold 1/4
C3.aiAI2/17/21141.853/2/202196.29-32%Added/Sold 1/2 Position
CryoportCYRX10/21/2043.83/2/202156.2929%Sold 1/2
Farfetch LimitedFTCH11/18/2045.113/2/202161.4736%Sold 1/2
Array TechnologiesARRY12/16/2039.523/4/202135.73-10%
DatadogDDOG4/15/2038.693/4/202185.95122%Sold 1/4
Adaptive BiotechADPT4/15/2027.913/4/202146.9968%Sold Remaining 1/2
CryoportCYRX10/21/2043.83/4/202153.7523%Sold Remaining 1/2
SolarEdge Tech.SEDG1/15/20104.183/5/2021248.62139%Sold 1/4
CrowdStrikeCRWD12/17/1949.453/5/2021182.04268%Sold 1/4
CloudflareNET7/15/2035.853/5/202164.1879%Sold 1/4
Farfetch LimitedFTCH11/18/2045.113/10/202155.9024%Sold Remaining 1/2
Castle BiosciencesCSTL1/21/2181.213/16/202163.32-22%
PoshmarkPOSH2/17/2171.483/16/202146.98-34%Added/Sold 1/2 Position
Purple InnovationPRPL1/21/2135.663/16/202131.53-12%
APi GroupAPG2/17/2119.003/25/202118.67-2%
DatadogDDOG4/15/2038.693/29/202178.16102%Sold Remaining 1/4
Virgin GalacticSPCE4/15/20, 6/5/2017.664/15/202124.0436%Sold Second 1/4
SolarEdge Tech.SEDG1/15/20104.184/19/2021251.58141%
Virgin GalacticSPCE4/15/20, 6/5/2017.664/19/202122.5928%Sold Remaining 1/2
^Average of high and low price if published intraday, or closing price if published after 4 PM ET

The next issue of Cabot Early Opportunities will be published on May 19, 2021.

Cabot Wealth NetworkPublishing independent investment advice since 1970.

President & CEO: Ed Coburn
Chairman & Chief Investment Strategist: Timothy Lutts
176 North Street, PO Box 2049, Salem, MA 01970 USA
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