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March 10, 2023

Trimming BCAB, SGHT and NRDS

The market is reacting to rising risks in the financial system following news that crypto-centered bank Silvergate (SI) will close down and return deposits and that there is a potential run on SVB Financial (SIVB). SVB is the holding company for Silicon Valley Bank, which works with a lot of start-up and venture-backed companies. As of mid-morning the Wall Street Journal is reporting that SVB is seeking a buyer.

On the one hand, financial system turmoil could become a real issue for the market. Tensions are certainly rising. Large, mid- and small-cap financials are all taking a hit.

On the other hand, some financial system turbulence could be exactly what’s needed to get the Fed to back off. This morning the 10-year bond yield is down over 5.5%, to a yield of 3.7%, signaling rising risks in the financial system.

Either way, with this morning’s non-farm payroll report for February coming in hotter than expected (311,000 versus 223,000 expected), CPI and PPI due out next week and the Fed on deck the week after, it feels like we’re in for a period of market volatility.

On the topic of the next FOMC meeting, this morning at 5 a.m. Eastern the market was pricing in a 63% chance of a 50bps hike in two weeks. As of 10:30 a.m. that probability has fallen to 40%!

Let’s be a little proactive and reduce our exposure today by exiting a few weakening stocks. Hopefully, this is a mistake, stocks take off and we’re left feeling like we missed out on the gains. If that’s the case, we still have a decent amount of exposure.

First, let’s walk away from BioAtla (BCAB). I’ve been on the fence with this stock since it’s one that could skyrocket at any time. That said, it’s also one of our weakest positions and one news release could send it lower, adding insult to injury. Let’s sell today. SELL

Sight Sciences (SGHT) is also on the sell block. I had high hopes for the name, and earnings are due out next week. While we could miss a pop if the result is good, we also have a new issue coming out next Wednesday and SGHT is flirting with breaking below its 200-day line. I’d rather reduce exposure in an unknown MedTech name now (i.e. earnings next week during CPI, PPI releases) and add a name I’ve been eying that is a more known quantity in the short term (more on that next week). SELL

Finally, let’s sell another quarter of our stake in NerdWallet (NRDS). The stock is trading a little higher than it was when we sold our first quarter position (for a 66% gain) but market risks are higher now. My concern is that sellers will come after some of these strong stocks if market conditions deteriorate. SELL A QUARTER, HOLD 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.