This week, I’m looking forward to Thanksgiving, my favorite holiday!
What I love about Thanksgiving is there is minimal preparation (luckily, I don’t have to do the cooking!) and no gifts to give or receive. It’s just about getting together with friends and family and being thankful.
It will be great to spend all day at my parents’ house with my extended family to eat good food, catch up, and watch some good football.
Speaking of football, the Patriots (I live near Boston) are in first in the AFC East! I did not think they would turn their season around so quickly. While the Pats won’t play on Thanksgiving, I’m looking forward to their clash with the Titans on Sunday.
Historically, the market performs really well around holidays. I would expect a strong market today (11/24) and Friday. The market usually finishes strong to end the year, and it will be interesting to see if this year follows the typical historical pattern.
One thing that I’m thinking about is tax-loss harvesting. Most of my investing is done in my retirement accounts, so I personally don’t need to do much tax-loss harvesting.
But many people tend to sell their losers in December to realize their losses.
As such, I think Drive Shack (DS) might be a tax-loss harvest candidate. As such, I’m moving the name to sell (see more details below). I will likely revisit the name in 2022 as I still like its long-term potential.
This week, we have a few updates that I want to highlight:
- Moving Drive Shack (DS) to Sell (as mentioned above)
- Updated thoughts on the roller coaster that has been Aptevo (APVO)
- Increased buy limited for Dorchester Minerals (DMLP)
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
Moving Drive Shack to Sell
Increasing buy limit Dorchester (DMLP) to Buy under 19.00
Updates
Aptevo (APVO) has been a crazy roller coaster. The stock has sold off sharply in the past week due to Tang Capital selling a significant portion of its stake. 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. Despite the jump up, the stock still looks very attractive from a valuation perspective. It has an enterprise value of $11MM 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 15. 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) reported another great quarter. The company reported revenue up over 100% as BBX Sweet Holdings came out of bankruptcy and rebounded strongly while the real estate business continues to perform well. BBX is extremely well positioned given its single and multifamily real estate portfolio located in Florida. Book valued increased from $17.53 to $19.72. 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. Still, 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. Given its attractive valuation and fundamentals, I’m increasing my buy limit for the stock to 19.00. Original Write-up. Buy under 19.00
Drive Shack (DS) recently reported strong revenue of $76.4MM, slightly above its pre-announced revenue of $75MM. Revenue is at the highest level in three years. Despite this, the stock has performed poorly and is below its 50-day moving average. I believe Drive Shack might be a “tax-loss selling” candidate. As such, I believe it’s possible we could see continued selling pressure through year end. As such, I’m going to move Drive Shack to SELL. I will revisit in the new year as I continue to believe in the long-term story of Drive Shack. Original Write-up. SELL
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 risks, and consequently losses have been minimal. 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: LEAT 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, 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) reported quarterly results recently. While the stock has traded down, I think it was a positive update. The company’s liquidity remains strong (there will be no need to raise equity) and revenue grew sequentially. Medexus continues to work through the IXINITY inventory issue and should return to growth in the next quarter or so. Further, the company is a quarter or two away from hitting operational break-even. Meanwhile, the company will meet with the FDA to discuss its plan to refile Treosulfan and we will hear how that meeting goes by the end of the year. This could be a major de-risking event. 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 11/23/21 | Profit | Rating |
| Aptevo Therapeutics (APVO) | 32.01 | 3/10/21 | 17.03 | -47% | 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 | 10.05 | 217% | Buy under 9.00 |
| Cipher Pharma (CPHRF) | 1.80 | 9/8/21 | 1.60 | -11% | Buy under 2.50 |
| Dorchester Minerals LP (DMLP)* | 10.45 | 10/14/20 | 18.36 | 89% | Buy under 19.00 |
| Drive Shack (DS) | 2.61 | 5/12/21 | 2.03 | -22% | Sell |
| Epsilon Energy (EPSN) | 5.00 | 8/11/21 | 5.08 | 2% | Buy under 5.50 |
| Esquire Financial Holdings (ESQ) | 34.10 | 11/10/21 | 35.00 | 3% | Buy under 35.00 |
| FlexShopper (FPAY) | 2.13 | 12/9/20 | 2.46 | 15% | Buy under 2.50 |
| IDT Corporation (IDT) | 19.37 | 2/10/21 | 61.08 | 215% | Buy under 45.00 |
| Leatt Corporation (LEAT) | 24.00 | 10/13/21 | 31.89 | 33% | Buy under 40.00 |
| Liberated Syndication (LSYN) | 3.06 | 6/10/20 | 3.85 | 26% | Buy under 5.00 |
| Medexus Pharma (MEDXF) | 1.78 | 5/13/20 | 2.28 | 28% | Buy under 3.50 |
| P10 Holdings (PX)** | 1.98 | 4/28/20 | 13.23 | 568% | 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, DS, SLNG, DMLP, and PFMT. 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.