The market finished the year strong, with the S&P 500 up 26.9%.
And so far, 2022 is off to a good start.
It hit an all-time high on the first trading day of the year, on Monday. That has only happened five times previously, and in those five years, the S&P 500 went on to generate an average return of 11.6%.
I hope you enjoyed the holidays.
I had a great time. Highlights include seeing both sides of my family, visiting with friends, and skiing for the first time this season.
But I was very happy to be back in a back in normal “work mode” this Monday. To be honest, I’m a little “holiday-ed” out. I love eating and drinking as much as the next person, but after a month straight of it, I’m ready for a break.
I’m going to do a “dry” January and hope to lose the five pounds that I gained in December!
This week, I’m spending most of my time finalizing my research for my next Cabot Micro-Cap Insider recommendation, which I will reveal next week.
While the U.S. market is undoubtedly pricey, I’m seeing plenty of attractive situations.
Ideas that are high on my watch list:
- A cheap bank that is paying out all excess cash as special dividends
- A REIT with secular tailwinds and relentless insider buying
- An NOL (net operating loss) shell run by talented capital allocators
The next issue of Cabot Micro-Cap Insider will be published next Wednesday (January 12, 2022). As always, if you have any questions, please email me at rich@cabotwealth.com.
Changes This Week
Increasing buy limit on BBXIA to Buy under 10
Updates
Aptevo (APVO) is all the way back to where it traded prior to the positive news that a patient treated with APVO436 experienced a complete remission. Where do we go from here? I don’t know, but I know there are many positive catalysts on the horizon. First, we have the JPMorgan healthcare conference in January. This can be a catalyst for the biotech sector. Second, Aptevo will report additional data from its ongoing trials and any positive news will move the stock upwards. Original Write-up. Buy under 15.00
Atento S.A. (ATTO) has started to perk up. 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 published a new shareholder presentation which highlights the value of its real estate. 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 10
Cipher Pharma (CPHRF) has stabilized after selling off in November and December. The stock is currently dirt cheap, has no debt, and 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
Dorchester Minerals LP (DMLP) has rebounded with energy prices but still looks attractive from a valuation and fundamentals perspective. The current annualized dividend yield is ~10.2%. Further, we saw an insider (COO) buy more stock on the open market recently. 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 19.00
Epsilon Energy (EPSN) 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) has pulled back slightly with the market despite no company news. 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 risks, and consequently losses have been minimal. Despite strong 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.
FlexShopper (FPAY) continues to tread water as insiders gobble up shares. I expect a strong 2022 for the stock. Given less government stimulus, more consumers will need to use FlexShopper’s solutions which will increase revenue and earnings. My 12-month price target for FlexShopper is 4.70. Original Write-up. Buy under 2.50
IDT Corporation (IDT) had no news this week and has pulled back to the mid-40 range. Results from its recent quarter were solid with consolidated revenue up 8%. Most importantly, NRS revenue increased by 104% and net2phone revenue increased by 37.5%. The company announced that it is making progress towards spinning off net2phone. I expect the transaction to take place in Q1 2022. All in all, the investment case is on track. Original Write-up. Buy under 45.00
Leatt Corporation (LEAT) continues to look very attractive. In November, the company reported an incredibly strong quarter despite supply-chain bottlenecks. The stock initially shot up but has given back much of its gains. It looks compelling, trading at less than 10x annualized EPS. I think ~20x is a more appropriate multiple. Original Write-up. Buy under 40.00
Liberated Syndication (LSYN) disclosed a cluster of insider buying by management and board members at the end of November. This bodes well for the stock and suggests that perhaps financials will be reinstated soon. When financials are revealed, I think they will show a fast-growing podcast company trading at a cheap valuation. Original Write-up. Buy under 5.00
Medexus Pharma (MEDXF) looks completely washed out. Given a recent positive meeting with the FDA, it looks like Treo will be up for approval in the second half of this year. If approval is granted (I estimate 50% probability), I believe the stock is worth $10+. As such, I think the risk/reward looks very favorable at current levels. Original Write-up. Buy under 3.50
Truxton (TRUX) is a rapidly growing bank and wealth management business based in Nashville, Tennessee. Since its initial public offering nine years ago, revenue is up 325% while the stock has generated a 587% total return, beating the S&P 500 by more than 200%. Despite this impressive performance, the stock trades at just 13x earnings given its low liquidity. I expect strong performance to continue in the future and anticipate significant upside in the years ahead. Original Write-up. Buy under 72
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 1/4/22 | Profit | Rating |
| Aptevo Therapeutics (APVO) | 32.01 | 3/10/21 | 7.89 | -75% | 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 | 10.80 | 241% | Buy under 10.00 |
| Cipher Pharma (CPHRF) | 1.80 | 9/8/21 | 1.37 | -24% | Buy under 2.00 |
| Dorchester Minerals LP (DMLP)* | 10.45 | 10/14/20 | 21.06 | 114% | Buy under 19.00 |
| Epsilon Energy (EPSN) | 5.00 | 8/11/21 | 5.61 | 12% | Buy under 5.50 |
| Esquire Financial Holdings (ESQ) | 34.10 | 11/10/21 | 32.53 | -5% | Buy under 35.00 |
| FlexShopper (FPAY) | 2.13 | 12/9/20 | 2.32 | 9% | Buy under 2.50 |
| IDT Corporation (IDT) | 19.37 | 2/10/21 | 45.52 | 135% | Buy under 45.00 |
| Leatt Corporation (LEAT) | 24.00 | 10/13/21 | 32.00 | 33% | Buy under 40.00 |
| Liberated Syndication (LSYN) | 3.06 | 6/10/20 | 3.56 | 16% | Buy under 5.00 |
| Medexus Pharma (MEDXF) | 1.78 | 5/13/20 | 2.16 | 21% | Buy under 3.50 |
| P10 Holdings (PX)** | 1.98 | 4/28/20 | 13.43 | 578% | Buy under 15.00 |
| Truxton Corp (TRUX) | 69.50 | 12/8/21 | 73.90 | 6% | Buy under 72.00 |
| * 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.
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.