I hope you had a wonderful Thanksgiving!
Mine was perfect. We had a great holiday in Milton, MA, with my parents, my family, my sister and her family.
After essentially skipping Thanksgiving last year, it felt especially great to get my extended family together.
On Friday, we drove down to New Canaan, CT, to see my wife’s extended family (so we had Thanksgiving twice!).
While the long weekend was wonderful, it did feel great to get back to work on Monday.
Market volatility has picked up, but the new COVID variant doesn’t seem too concerning to me. From early data, it looks like symptoms are very mild (although it does spread quickly).
Perhaps, the market “was looking” for a reason to sell off and this new variant just gave it the excuse that it was looking for. I would expect the market to finish the year strong as is usually the case when the S&P 500 index is up >20% through November.
Who knows what 2022 will bring, but I will continue to take what the market gives me. In other words, I will look for attractive individual set ups.
I recently applied the “taking what the market will give me” principle in real life.
Last month, my mechanic informed me that my 2006 Toyota 4Runner didn’t have much life remaining given corrosion on its underside.
He assured me that I had 6 to 12 months remaining, but I questioned whether I should continue to drive it given safety concerns. My wife and I agreed that I would just use it to bop around town, and that the kids would not ride in it. I would drive it until it literally fell apart and then get a new car.
But then it struck me. Why not see what I can get for it given the used car market has gone nuts.
Sure enough, there was a deal to be had.
Carvana offered me $5,300, but the local Toyota dealership beat Carvana by offering $6,000 of trade in value.
I took the deal!
This week, we have a few updates that I want to highlight:
- BBX Capital (BBXIA) repurchased Angelo Gordon’s ~10% stake in its business. This is mixed but a net positive.
- We saw more insider buying at FlexShopper (FPAY).
- Medexus (MEDXF) had it’s meeting with the FDA about Treosulfan.
The next issue of Cabot Micro-Cap Insider will be published on December 9, 2021. As always, if you have any questions, please email me at rich@cabotwealth.com.
Changes This Week
No changes
Updates
Aptevo (APVO) continues to be very volatile. The stock sold off sharply as Tang Capital sold its stake, selling a significant portion. However, on November 23, 2021, Aptevo announced that another patient experienced a complete remission in its ongoing Phase 1b study of APVO436 in AML. This is major news and the stock jumped up sharply on heavy volume. After the huge up day, the stock has trended down and looks very attractive. It has an enterprise value of $12MM but if you include the value of Ruxience milestone payments ($32MM) and the value of the IXINITY payments (I estimate $20MM), the company is trading at a negative enterprise value. If Aptevo releases additional press releases with additional positive data, the stock could soar. Original Write-up. Buy under 15.00
Atento S.A. (ATTO) reported earnings on November 15th. Revenue grew by 4.5% but missed consensus expectations. The revenue miss was driven by the non-renewal of lower-margin contracts in Brazil. On the positive side, EBITDA margins expanded to 13.9%. Full-year sales guidance was maintained (mid-single-digit revenue growth and ~13% EBITDA margin). All in all, the investment case is on track. Original Write-up. Buy under 30.00
BBX Capital (BBXIA) announced that it spent $14.5MM to buy back 1.3MM share ($11.15 per share purchase price) from an affiliate shareholder (later revealed to be Angelo Gordon). On the one hand, this is a positive as the company is buying back stock below book value and is willing to buy back stock above the current price. On the other hand, you could view this negatively as “the adult has left the room.” The Levin family doesn’t have the best reputation from a corporate governance perspective and having Angelo Gordon as a minority investor made me more comfortable given their institutional pedigree. Net-net, I view this transaction positively as the company is aggressively shrinking its share count and taking shareholder-friendly actions. Book value per share ($19.73) before this transaction will go up given the buyback happened well below book value. Further, book value is probably understated given the strength of BBX’s real estate portfolio. The investment case remains on track. Original Write-up. Buy under 9.50
Cipher Pharma (CPHRF) reported a weak quarter as revenue declined sequentially. Nonetheless, revenue is still up 3% YTD, and the stock remains extraordinarily cheap. The company has generated $9MM of free cash flow YTD, or $12MM on an annualized basis. As such, it’s trading at a price to FCF multiple of 4.6x. Further, it has $20MM of cash on its balance sheet and is buying back stock in the open market. Downside protection remains strong given no debt, strong free cash flow generation, and $0.65 of cash per share on the balance sheet. Original Write-up. Buy under 2.00
Dorchester Minerals LP (DMLP) has traded down slightly recently as energy prices have retreated. The stock looks compelling. Energy prices remain elevated, and Dorchester is currently trading at a dividend yield of 10.8%. I think the dividend will be increasing next quarter if energy prices remain elevated. Original Write-up. Buy under 19.00
Esquire Financial Holdings (ESQ) is my latest recommendation. It is a niche bank focused on lawyers and the litigation industry. Due to its specialty and expertise, it has been able to grow very well. Lawyers are low credit risk, and consequently losses have been low. Despite strong growth, the stock trades at a very cheap valuation. Looking out a couple of years, Esquire should be trading significantly higher. Original Write-up. Buy under 35.00.
Epsilon Energy (EPSN) reported a strong quarter recently. It generated $3.3MM of free cash flow in the quarter. Going forward, free cash flow generation should increase given less of its gas sales are hedged. Year to date, the company has repurchased 2.2% of shares outstanding. Cash continues to build, and the company currently has $20.6MM of cash on its balance sheet. Management wrote the following in its press release, “Once our 2022 development capital needs are defined, we will evaluate the appropriate amount of capital to retain in the business.” This seems to hint that management is likely to announce a special dividend or large accelerated share repurchase authorization. I see significant upside over the next 12 months as the company benefits from high natural gas prices. Original Write-up. Buy under 5.50
FlexShopper (FPAY) reported earnings recently. As I thought might be the case, we saw more insider buying following the quarter. While FlexShopper’s stock is not performing as well as I think it should, I’m reassured that every time there is weakness, insiders step up to buy shares in the open market. In the quarter, revenue grew 26% y/y to $30.9MM. Gross lease origination was down 30% which implies lower revenue in the future. However, given that government stimulus appears to be fading, I believe more consumers will need FlexShopper’s solutions which will enable originations to ramp up. All in all, I still believe in the FlexShopper story. My 12-month price target for FlexShopper is 4.70. Original Write-up. Buy under 2.50
IDT Corporation (IDT) reported a great quarter with strong growth across the board in October. Mobile Top-up revenue increased 41% y/y; this is the sixth consecutive quarter of 20%+ revenue growth. National Retail Solutions (NRS) revenue increased 76% y/y, with performance being driven by an increase in average revenue per user (ARPU) and terminal growth. Management expects continued upside in ARPU, driven by merchant services, advertising, and data. Net2phone subscription revenue increased 46% y/y, with 80%+ gross margin. Lastly, Traditional communications reported its third consecutive quarter of revenue growth and generated $29mm of EBITDA. Original Write-up. Buy under 45.00
Leatt Corporation (LEAT) reported a ridiculously good quarter recently. Revenue was up 94% to $22.1MM. EPS increased 163% to $0.79. It’s incredibly impressive that this growth was achieved despite supply-chain bottlenecks. The stock has shot up but still looks reasonable. The stock is only trading at 10.6x annualized EPS. Perhaps 20x is a more appropriate multiple? As such, I’m increasing my limit to buy under 40. Original Write-up. Buy under 40.00
Liberated Syndication (LSYN) recently announced that it hired a new full-time CEO to add to its recently hired CFO. This is a positive as the company had been operating without a CFO or CEO. However, I do have strong confidence in President Laurie Sims, who has been leading the business. I’m hopeful that financials will be re-stated by the end of the year or, at worst case, in January. At that point, I think the financials will reveal a fast-growing podcast company trading at a cheap valuation. Original Write-up. Buy under 5.00
Medexus Pharma (MEDXF) had its meeting with the FDA to discuss its plan to get Treosulfan approved. Meeting minutes will be published within 30 days, and we will learn how the meeting went. This could be a major de-risking event if the meeting went well and Medexus has a plan to get Treo approved without a new trial. The way that I’m thinking about it is Medexus should be a $10+ stock if Treosulfan is approved. I think there is at least a 50% chance it is approved next year. In the case that it is not approved, I don’t think there is much downside to the stock as the base business (as long as IXINITY reverts to growth) easily supports the current valuation. Original Write-up. Buy under 3.50
P10 Holdings (PX) recently reported a great quarter. Adjusted EBITDA increased 147% to $21.8MM. Adjusted EPS increased 66% to $0.15. Meanwhile three brokers (JPMorgan, KBW, and UBS) all initiated coverage with Buy ratings. The investment case remains on track as fundamentals are strong, yet the stock remains cheap on a relative and absolute basis. Original Write-up. Buy under 15.00
| Stock | Price Bought | Date Bought | Price 11/30/21 | Profit | Rating |
| Aptevo Therapeutics (APVO) | 32.01 | 3/10/21 | 9.96 | -69% | Buy under 15.00 |
| Atento SA (ATTO) | 21.57 | 8/24/21 | 28.00 | 30% | Buy under 30.00 |
| BBX Capital (BBXIA) | 3.17 | 10/5/20 | 9.86 | 211% | Buy under 9.00 |
| Cipher Pharma (CPHRF) | 1.80 | 9/8/21 | 1.35 | -25% | Buy under 2.50 |
| Dorchester Minerals LP (DMLP)* | 10.45 | 10/14/20 | 17.79 | 83% | Buy under 19.00 |
| Drive Shack (DS) | - | - | - | - | Sold |
| Epsilon Energy (EPSN) | 5.00 | 8/11/21 | 5.45 | 9% | Buy under 5.50 |
| Esquire Financial Holdings (ESQ) | 34.10 | 11/10/21 | 33.01 | -3% | Buy under 35.00 |
| FlexShopper (FPAY) | 2.13 | 12/9/20 | 2.53 | 19% | Buy under 2.50 |
| IDT Corporation (IDT) | 19.37 | 2/10/21 | 54.28 | 180% | Buy under 45.00 |
| Leatt Corporation (LEAT) | 24.00 | 10/13/21 | 30.89 | 29% | Buy under 40.00 |
| Liberated Syndication (LSYN) | 3.06 | 6/10/20 | 3.50 | 14% | Buy under 5.00 |
| Medexus Pharma (MEDXF) | 1.78 | 5/13/20 | 2.15 | 21% | Buy under 3.50 |
| P10 Holdings (PX)** | 1.98 | 4/28/20 | 13.77 | 595% | Buy under 10.00 |
| * Return calculation includes dividends | |||||
**Original Price adjusted for reverse split. |
Disclosure: Rich Howe owns shares in BBXIA, LSYN, MEDXF, PIOE, FPAY, IDT, APVO, DMLP, and LEAT. Rich will only buy shares after he has shared his recommendation with Cabot Micro-Cap Insider members.
Buy means accumulate shares at or around the current price.
Hold means just that; hold what you have. Don’t buy, or sell, shares.
Sell means the original reasons for buying the stock no longer apply, and I recommend exiting the position.
Sell a Half means it’s time to take partial profits. Sell half (or whatever portion feels right to you) to lock in a gain, and hold on to the rest until another ratings change is issued.