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January 13, 2023

Book A Few Profits & Average Down In Two Names

For the last 12 months or so we’ve seen a lot of stocks rally, falter, rally, falter, and so on. Many, especially those with “growth” attributes, have struggled time and time again to break above overhead resistance. This has created a very tough environment for investors conditioned to buy and hold.

Until the evidence shows this pattern has changed we’re not going to get too attached to positions. Right now, after a solid week in the market, we have some gains. We also have a new Issue coming out next week. Given all the factors I’m going to take down our exposure in a few positions that have worked well recently while adding to a few that haven’t. This will leave us with a slightly more targeted portfolio heading into next week.

I should add that nothing has changed on a fundamental level with stocks we’re adding to or selling today. This is simply portfolio management.

Here are the SELL trades:

Chewy (CHWY) is up about 8% since I added it less than a month ago. I still like it and think it can work in 2023. That said, CHWY is also up nicely after a four-day rally and trading near its closing highs dating back to August. It could break out, but it also may fail. Let’s book the modest profit now and walk away with a win. I’ll keep CHWY on my radar (especially if it ends up breaking out soon). SELL

Xponential Fitness (XPOF) has been kind to us. The stock is up 25% since I added it in September. This week it was trading near all-time highs. Let’s sell a third of our position here and let the rest ride. SELL A THIRD (BILL) hasn’t done anything impressive lately so we’re going to let our final one-quarter size position go. I’ve been hanging on since this is the type of stock that could easily pop 10% to 30% on a good earnings report or announce it’s being acquired and go even higher. On the other hand, it’s one of the “old” growth names in software (despite just coming public in 2019) and I see a lot of other small- and mid-cap software names acting better. With just a one-quarter size position we’re not giving up too much opportunity if BILL does pop. Let’s say “see ya” for now and clear a spot in our portfolio while booking a gain of around 30%. SELL FINAL QUARTER

Here are the BUY trades:

NerdWallet (NRDS) sold off in December but seems to have found support in the mid-8 range. It’s up over the last week. We have a half-sized position and I want to add the other half today before NRDS (hopefully) crosses back above its 200- and 50-day moving average lines. If NRDS fails to move higher in the next week or two I may cut the position. BUY SECOND HALF

BioAlta (BCAB) was destroyed this week after releasing trial results for a compound that showed a 40% response rate in NSCLC, above the 20% threshold that could lead to FDA approval. There are other shots on goal here, as I covered in my Special Bulletin earlier in the week. In the wild world of small-cap biotech investing a name like this could be up 100% or more on a positive catalyst (BCAB went from 3.66 to 12.15 in less than ten sessions back in August). We’ve given BCAB three days to let the sellers do their thing. Let’s average down and fill the second half of our position now. Suffice to say this is a more risky stock than others in our portfolio. But I like the risk vs. reward profile now. BUY SECOND HALF

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.