March 16, 2022

Markets continue to be rocky.

But I’m feeling pretty good about the outlook. There are a couple reasons.

First, sentiment is quite poor.

The current U.S. Investor Sentiment % Bull – Bear Spread is -22%. When sentiment is low, forward returns for the stock market are quite good.

For example, the reading on March 12, 2020 was -22% as well. The S&P 500 is up 59% since then.

Second, volatility is high. The VIX index has closed above 30 for 11 days in a row. Typically, after long stretches of heightened volatility, the market performs well.

Third, the market is already down >12% this year. Typically, forward returns look quite attractive after >12% pullbacks.

The above data points aren’t a signal to go “all in” on the market. Instead, my point is this is probably as good a time as ever to buy stocks that have solid fundamentals and attractive valuations.

This week, there are a couple of things I want to highlight (full details below):

• Libsyn (LSYN) announced that insiders have bought more shares in the company in a private transaction at $3.75 per share. This is a positive.
• Atento (ATTO) has hired Goldman Sachs to explore strategic alternatives, according to Bloomberg. Perhaps the company gets sold in 2022!
• Dorchester Minerals (DMLP) disclosed through SEC filings that two insiders bought shares in the open market.
• Zedge (ZDGE) reported a great quarter with 32% revenue growth. The stock looks very cheap.

The next issue of Cabot Micro-Cap Insider will be published on Wednesday, April 13. As always, if you have any questions, please email me at rich@cabotwealth.com.

Changes This Week
No changes

Updates
Aptevo (APVO) had no news this week. The stock continues to look incredibly cheap, but the entire biotech market is in a bear market. What could get the stock going again? It’s tough to say with certainty, but Aptevo will report additional data from its ongoing trials this year, and any positive news will move the stock upwards. Original Write-up. Buy under 15.00

Atento S.A. (ATTO) has hired Goldman Sachs to review strategic alternatives, according to Bloomberg. My thesis has always been that Atento is likely to be sold to a strategic partner and it looks like the sales process has begun. The stock looks very cheap. Original Write-up. Buy under 30.00

BBX Capital (BBXIA) will report earnings today (March 16) after the close. I’m expecting another strong quarter. I’m looking forward to seeing how much stock the company has repurchased in the past year. It is well over 20% of shares outstanding. Original Write-up. Buy under 11.00

Cipher Pharma (CPHRF) has started to trend back up 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

Crossroads Systems (CRSS) had no news this week. I continue to think it looks attractive. The stock is trading slightly above book value ($12.70) yet has significant optionality. The management team and board of directors have a track record of creating shareholder value (company 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) disclosed that two insiders bought shares in the open market this week. Insider buying is always a positive. The company is benefitting from soaring commodity prices due to the geopolitical conflict in Ukraine. Dorchester will pay out all windfall profits to shareholders. The company paid out its latest dividend of $0.639 per unit on February 10. On an annualized basis, Dorchester is yielding 11%. The stock continues to look attractive. Original Write-up. Buy under 25.00

Epsilon Energy (EPSN) recently announced a new capital return policy (as was hinted at in its last earnings release). It will start paying a quarterly dividend of $0.0625 per share on March 31. This works out to a 3.9% dividend yield. In addition, the company approved a share repurchase authorization to buy 1.1MM shares at an average price of no more than $6.76 per share. I look forward to the company’s quarterly report, which should be released later in March. Original Write-up. Buy under 6.00

Esquire Financial Holdings (ESQ) had no news this week. The company reported a great quarter in January. For the year, Esquire 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 accounted for half of commercial loan originations in 2021. This expertise will enable Esquire to grow 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) reported earnings this week. The headline number didn’t look great, but the investment case remains on track. Revenue was down slightly year over year, but IDT’s two key segments, NRS and net2phone, generated excellent results. NRS revenue grew 104% to $10.6MM while net2phone subscription revenue increased 32.5% to $12.5MM. IDT announced its goal is to spin net2phone off before the end of its fiscal year (July 31 year-end). The investment case remains on track and my price target is 55 based on an updated sum-of-the-parts analysis. Original Write-up. Buy under 45.00

Liberated Syndication (LSYN) announced that it sold 1.1MM shares to insiders including Camac Partners at a price of $3.75. The proceeds are being used to pay for a milestone payment due to AdvertiseCast. While I’m happy to see insiders buying, I’m a little annoyed because the company didn’t need to raise capital to pay the milestone payment as it had $8MM of cash on its balance sheet. It gives the appearance (whether accurate or not) that insiders are keeping the company dark for longer and benefiting from a depressed price by participating in a private financing round. Nonetheless, I’m bullish on the stock and expect 2022 to be a good year. Original Write-up. Buy under 5.00

Medexus Pharma (MEDXF) recently announced that it has acquired exclusive rights to sell Gleolan in the United States. Medexus estimates that this is a $14MM USD opportunity. Medexus currently sells Gleolan in Canada and is very familiar with the product. This is a big positive as it increases the company’s revenue run rate by ~16%. In February, Medexus 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 a 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) reported excellent year-end results last week. Revenue increased 123% y/y. Adjusted EBITDA increased 162% y/y to $83MM. P10 Holdings has equity stakes in six private equity-focused strategies: 1) RCP Advisors, 2) TrueBridge Capital Partners, 3) Enhanced Capital, 4) Five Points Capital, 5) Hark Capital, and 6) Bonaccord Capital Partners. All of these managers have strong track records which will enable them to continue to raise additional assets under management. This drives continued revenue and earnings growth. P10 is currently trading at 19x 2021 adjusted EBITDA which is a very reasonable valuation for such a stable business with strong organic growth potential. Original Write-up. Buy under 15.00

Truxton (TRUX) reported a great quarter in January 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

Zedge Inc (ZDGE) reported a great quarter with 32% revenue growth. Revenue came in at $6.9MM, beating consensus of $6.0MM. EBITDA of $3.4MM grew 16% and beat consensus expectations of $3.1MM. EPS of $0.16 beat consensus expectations of $0.12. The only downside is that management didn’t increase revenue growth guidance which was maintained at 25% to 30%. The management team is very conservative and guidance looks conservative given revenue grew 60% in Q1 and 32% in Q2. The investment case remains on track. Original Write-up. Buy under 6.00

* Return calculation includes dividends
**Original Price adjusted for reverse split.
Disclosure: Rich Howe owns shares in BBXIA, LSYN, MEDXF, PIOE, IDT, APVO, DMLP, and NXDT. 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.
Sell means the original reasons for buying the stock no longer apply, and I recommend exiting the position.
Hold means just that; hold what you have. Don’t buy, or sell, shares.
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.