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Micro-Cap Insider
Micro stocks. Maximum profits

February 16, 2022

I try not to spend too much time doing macro analysis, but one thing I’ve spent some time thinking about is the coming shift in consumer spending from goods to services.

This Saturday, my wife and two young kids (6-year-old girl and 3-year-old boy) will fly down to Sanibel Island, Florida, for a week of vacation.

It will be wonderful to see my parents, who are down there for the winter, and my sister will be down with her kids so we have built-in play dates (makes for more fun for the adults). I can’t wait!

I try not to spend too much time doing macro analysis, but one thing I’ve spent some time thinking about is the coming shift in consumer spending from goods to services.

I first heard the idea from Gavin Baker, a very smart portfolio manager, who runs a growth fund called Altreides Management.

Basically, the theory is that retail businesses and D2C companies have been ordering significant inventory to meet high demand for certain goods. There is a lag of 50 days between when they order the goods and when it arrives. It’s always hard to order the right amount of product because it’s hard to predict demand in 50 days. But it’s gotten even harder because supply chain bottlenecks have increased the order lag from 50 days to 100+ days.

And because of shortages, certain companies have been double ordering inventory to ensure they can meet demand. The risk is that consumers eventually switch from spending their money on goods to services as the pandemic fades.

If this happens, companies that sell goods could suffer from a double whammy: 1) lower demand and 2) inventory destocking.

This could be painful.

Of all the stocks that I’m recommending, Leatt Corporation (LEAT) is the only one that would suffer in this scenario.

The other thing that has me worried about Leatt is that founder Chris Leatt has been selling stock for the first time ever. He has filed a 13d-2 plan which basically allows him to automatically sell shares over time. Per the SEC filing, he can sell up to 200,000 shares over a 12-month period. This would represent ~10% of his stake in the company.

Peter Lynch always says not worry about insider selling. Insiders could sell for a variety of reasons (they have to buy a house, pay for college, etc.) but only buy for one reason (they think the stock is going up).

Further, this is the first time he has ever sold shares. At some point, all founds want to take some chips off the table.

Nonetheless, I wonder why he’s deciding to sell at this moment. In the last quarter, Leatt grew revenue 94% and yet is only trading at 8x earnings. It seems like an incredibly compelling set-up. So why would he sell know?

Given the shift in consumer spending from goods to services and insider selling, I’m downgrading Leatt (LEAT) to SELL.

A couple caveats:

  • I could be completely wrong and reading into something that doesn’t exist (goods to services transition).
  • I still fundamentally like Leatt and will continue to follow it and may recommend it again.

On to the rest of the portfolio, this week there wasn’t much company-specific news but I did have two things that I wanted to highlight:

  • Aptevo (APVO) received a $10MM milestone payment, which improves its liquidity.
  • Medexus (MEDXF) reported earnings and saw a strong rebound in sales and profitability. The company believes it’s on track to get a decision by the FDA on Treo in the second half of the year. More details below, but Medexus continues to be a high conviction idea.

The next issue of Cabot Micro-Cap Insider will be published on Wednesday, March 9. As always, if you have any questions, please email me at

Changes This Week
Sell Leatt Corporation (LEAT)

Aptevo (APVO) announced that it received a $10MM milestone payment from Ruxience. With this the company is optimistic that Ruxience will lead to additional earnings of $22.5MM over the next two years. This $10MM will be used to pay down their MidCap Financial debt, reducing its principal on the debt to $5MM, overall strengthening their balance sheet. Aptevo continues to suffer in the biotech bear market. Nonetheless, I think there are many positive catalysts on the horizon. Aptevo will report additional data from its ongoing trials in 2022 and any positive news will move the stock upwards. Original Write-up. Buy under 15.00

Atento S.A. (ATTO) had no news but has started to perk up over the past month. I think it’s mainly due to the news that an activist investor, Kyma Capital, now owns 5% of the company, and is engaging with the management team to unlock value. This is a strong positive, given healthy fundamentals and an incredibly cheap valuation. 2022 could be the year that Atento gets sold. Original Write-up. Buy under 30.00

BBX Capital (BBXIA) recently announced yet another share repurchase authorization, this time for an additional $15MM. I’m looking forward to BBX reporting its annual results so that I can add up all the shares that have been repurchased since the initial spin-off. Well over 20% of shares outstanding have been retired. While BBX has performed very well since our initial recommendation, it remains a high-conviction idea, given 1) positive fundamentals (real estate in Florida is hot) and 2) a very cheap valuation (the stock is still trading at a 50% discount to book value). Original Write-up. Buy under 11.00

Cipher Pharma (CPHRF) has stabilized after selling off in November and December. The stock is currently dirt cheap, has no debt, and with significant optionality. Finally, insiders own a significant portfolio of shares outstanding and are incentivized to maximize value. The company is buying back shares aggressively. Original Write-up. Buy under 2.00

Crossroads Systems (CRSS) is my latest recommendation. It is a “jockey bet.” In other words, we are betting on the management team and board of directors to create significant value going forward. The investors that control Crossroad Systems are the same investors that control P10 Holdings (PX), a Cabot Micro-Cap Insider recommendation that is up over 300% since I originally recommended it. I think a similar situation could play out with Crossroad Systems as the stock is cheap, trading slightly above book value, yet has significant option value that is being heavily discounted by the market. Currently, Crossroads’ adjusted book value is $12.70. The stock trades a few dollars above this level, but I view adjusted book value as a good downside scenario. The management team and board of directors have a track record of creating shareholder value (it paid a special dividend of $40/per share in 2021 due to windfalls from the PPP program).Original Write-up. Buy under 15.00

Dorchester Minerals LP (DMLP) paid out its latest dividend of $0.639 per unit on February 10, 2022. On an annualized basis, Dorchester is yielding 11.3%. The stock continues to look attractive. I’m optimistic that the current COVID wave caused by the Omicron variant will be the last and we will see strong economic activity in 2022 that drives energy prices higher. Original Write-up. Buy under 24.00

Epsilon Energy (EPSN) had no news but is benefitting from surging natural gas prices. The company reported a strong quarter in November, generating $3.3MM of free cash flow. Given no debt and a large and growing cash balance, I expect the management team to announce a large special dividend or accelerated share repurchase within the next few quarters. Original Write-up. Buy under 5.50

Esquire Financial Holdings (ESQ) reported a great quarter recently. For the year, the company generated $2.26 of EPS, up 37% from last year. Asset quality remains high as the company’s allowance for bad loans is just 1.7% of total loans. Esquire dominates its niche, the liquidation industry. Due to its specialty and expertise, it has been able to grow very well, and I expect that growth to continue. Importantly, the company’s investment in digital marketing and sales is paying off as digital accounts for half of commercial loan originations in 2021. This expertise will enable Esquire to growth beyond its current New York and New Jersey focus. Despite strong historical growth (~20% per year), the stock trades at ~10x forward earnings. Looking out a couple of years, Esquire should be trading significantly higher. Original Write-up. Buy under 35.00

IDT Corporation (IDT) has recently stabilized although it is down considerably from its all-time high. What drove the sell-off? It’s hard to say with certainty, but I think it’s been a combination of three factors: 1) the sell-off in high-growth companies that are valuation comps to NRS and net2phone, 2) a sell-off in the small- and micro-cap markets, and 3) investors thinking that a spin-off may be delayed given the rocky environment for growth stocks. Nonetheless, I’m maintaining my position in the stock. I updated my sum-of-the-parts with lower multiples (to reflect lower multiples for growth stocks) and got an updated fair value of $55 per share. Original Write-up. Buy under 45.00

Leatt Corporation (LEAT) was covered above. I’m closing my recommendation due to 1) a potential sales shortfall in 2022 and 2) recent insider selling. Sell

Liberated Syndication (LSYN) had no news this week. It filed an 8-K in early January announcing that it had canceled 7.5MM shares (22% of shares outstanding!) that had been fraudulently issued to Zhang Parties prior to LSYN’s spin-off. This is a major positive. Zhang Parties have 90 days to challenge the cancellation. Given Zhang Parties didn’t respond to the initial lawsuit that resulted in the cancellation of shares, it’s possible that there will be no challenge. While I do have some questions regarding LSYN’s business trajectory, I think it remains quite attractive at its current valuation. I estimate that it’s trading at 3.0x (EV/revenue) with high-teens revenue growth. Original Write-up. Buy under 5.00

Medexus Pharma (MEDXF) posted their Q3 earnings results and reported sales of $21.3MM, beating consensus of $18.8MM. They also posted positive EBITDA of $1.9MM, which was expected to be negative -$1.6MM. Revenue was $17.9MM last quarter. So sequential improvement of 18% is excellent from my perspective. Looks like IXINITY is getting back on track (Medexus noted IXINITY drove the sequential improvement). Key things to note from the earnings call, the company received a $2MM order for IXINITY late in the quarter so it was a little higher than expected. Next quarter might be a little lower revenue but should be breakeven EBITDA. But remember the company is carrying costs for Treo so excluding that spend, the company would be profitable. I continue to believe that the risk reward for Medexus looks attractive heading into the second half of the year. Original Write-up. Buy under 3.50

NexPoint Diversified REIT (NXDT) had no news this week. It is a closed end fund that is transitioning into a real estate investment trust (REIT). It trades at a 40% discount to NAV and is significantly below where it traded pre-pandemic. Once the transition to REIT is complete, it will be eligible for many more investors to own including funds and ETFs. This will likely drive indiscriminate buying pressure. The CEO owns 14% of the company and has been buying the stock in the open market relentlessly. A near-term re-rate to NAV could drive 50%+ upside, but longer term, a bigger opportunity could materialize as the REIT is repositioned to capture value. Original Write-Up. Buy under 15.00

P10 Holdings (PX) had no news this week. It reported a great quarter in November. 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

Truxton (TRUX) reported a great quarter this week and announced a $1 per share special dividend and $5MM share repurchase authorization. For the full year, EPS increased 29% to $5.02. Meanwhile, the stock trades at just 14.3x earnings. Loan quality remains excellent as the company wrote off just $2k in loan losses. Allowance for loan losses remains very low at 0.9% of all loans. I expect strong performance to continue in the future and anticipate significant upside in the years ahead. Original Write-up. Buy under 75.00

Price on
Aptevo Therapeutics (APVO)32.013/10/216.05-81%Buy under 15.00
Atento SA (ATTO)21.578/24/2123.7530%Buy under 30.00
BBX Capital (BBXIA)3.1710/5/2011.77271%Buy under 11.00
Cipher Pharma (CPHRF)1.809/8/211.67-7%Buy under 2.00
Crossroad Systems (CRSS)14.382/9/2214.833%Buy under 16.00
Dorchester Minerals LP (DMLP)*10.4510/14/2022.98144%Buy under 24.00
Epsilon Energy (EPSN)5.008/11/215.7515%Buy under 5.50
Esquire Financial Holdings (ESQ)34.1011/10/2136.617%Buy under 35.00
FlexShopper (FPAY)----SOLD
IDT Corporation (IDT)19.372/10/2140.94111%Buy under 45.00
Leatt Corporation (LEAT)24.0010/13/2128.0017%Sell
Liberated Syndication (LSYN)3.066/10/203.4513%Buy under 5.00
Medexus Pharma (MEDXF)1.785/13/202.5443%Buy under 3.50
NexPoint Diversified Real Estate
Trust (NXDT)
14.151/12/2215.006%Buy under 15.00
P10 Holdings (PX)**2.984/28/2012.55321%Buy under 15.00
Truxton Corp (TRUX)69.5012/8/2172.755%Buy under 75.00

Disclosure: Rich Howe owns shares in BBXIA, LSYN, MEDXF, PIOE, FPAY, IDT, APVO, DMLP, LEAT, and NXDT. Rich will only buy shares after he has shared his recommendation with Cabot Micro-Cap Insider members* Return calculation includes dividends
**Original Price adjusted for reverse split.

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.