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March 5, 2024

Sell Gen Digital (GEN) and Part of Elastic (ESTC)

Sell Gen Digital (GEN) and Part of Elastic (ESTC)

While the macro-tailwinds (soft landing, eventual rate cuts, etc.) suggest the market will be higher months from now, some of the growthier areas have begun to lose momentum in the last few sessions. The upshot is some of that momentum seems to be shifting to other areas of the market (and some of our less pure-growth type stocks), which is generally good for overall market health.

Still, let’s take down our exposure a little more today. Our portfolio has been stuffed full lately (the right move given how far the market has moved) and there’s no need to be too greedy. Let’s create some room for new additions to come later in the month by exiting a stock that’s not doing much while taking a partial gain on another.

First up is Gen Digital (GEN). We’ve held the stock for a few months and it hasn’t done a lot. I think this is one of those names that, lacking a supportive market rally, will need another quarter or two before the big money can get a good handle on contribution for partner channels and what the all-in new customer adds will look like (topics of discussion on the last earnings call). Given that it’s not the cleanest story and shares are treading water, with some potential to slip below recent support if the broad market weakens, let’s step aside with a very modest, roughly 7% loss. SELL

Second up is Elastic (ESTC), which is on day three after a post-earnings report decline. This is often the stabilization day. Truthfully, I’m on the fence here as ESTC could easily be a takeover candidate and, while earnings results didn’t live up to elevated expectations, there’s nothing really “wrong” with the big picture story. The stock should recover just fine. In these types of situations, it often makes sense to play both sides of the ball. That’s what we’ll do. We’ve been holding a half-sized position. Let’s sell half of that (i.e., a quarter-size position) for a roughly 30% gain. This will leave us with a quarter-size position. SELL A QUARTER, HOLD LAST QUARTER

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.