Moving More Conservative
The market has been a little iffy over the last five or so sessions. This action, coming on the back of great earnings from mega cap tech stocks last week, but not great reactions, suggests a more conservative stance is appropriate right now for some of our high-growth names.
That’s not to say we should go crazy hitting the sell button as some things are still working reasonably well, others are holding steady, and there do look to be some attractive entry points shaping up. But clearly this earnings season is also showing that the bar is set extremely high for growth stocks and that the onus is on the buyers to step up and turn things around. So far, that’s not happening.
Many companies that greatly surpass expectations are still having negative reactions in the days after reporting. That’s a little concerning as we move deeper into what will be a really busy two-week stretch for earnings from our portfolio stocks.
Adding to the blah feeling is Yellen’s comments today that interest rates may have to rise to help cool off the red-hot economy. While an uptick in rates is expected at some point before too long, given where many stocks are now the amplification of that comment has most definitely added to the selling pressure today.
As always, a lot depends on what your portfolio construction looks like, your risk tolerance and what your cash needs/desires are in the coming months. For our portfolio, on balance, it appears time to lighten up a little and hit the pause button on too much new buying. We’ll continue to evaluate things on a stock-by-stock basis as we work through earnings over the coming days.
With that in mind, here’s a list of suggested actions today.
Goosehead Insurance (GSHD). We’ve trimmed this position before and with the stock trading down in the few days after reporting let’s let another chunk go. We’ll keep a close eye on the 95 level (stock at 101.6 today). Should GSHD break below 95 we’ll likely sell our final quarter. SELL A QUARTER, HOLD LAST QUARTER
Cerence (CRNC). Cerence won’t report until next week and the stock doesn’t look broken, but it’s also not the strongest one out there. We’re holding three-quarters of our original position and given the trend in earnings reactions it feels like we could lock in another partial profit here. Ideally, this is the wrong decision and CRNC pops after earnings. SELL A QUARTER, HOLD HALF
Biolife Solutions (BLFS) is having a tough day today (down 10%) and is back to where the stock found support a couple weeks ago. Given the recent trend I thought BLFS was acting very well. Today’s selloff could simply reflect the issuance of shares (6.65 million) to fund the Stirling Ultracold acquisition, and not signal a change in perception for the stock. But still, it’s hard to ignore on a day when the broad market is weak. Let’s move to hold and give BLFS a few days to settle down. HOLD
Porch Group (PRCH) was looking much improved over the past two weeks, but today’s selloff is undoing a good chunk of that progress. Shares are still above where they bottomed a few weeks ago and seem awfully beat up here, suggesting they could be a good value. But again, given the broad action the best move is likely to sit pat. Moving to hold. HOLD
Repligen (RGEN) is a perfect example of the somewhat worrisome earnings reaction trend. Management reported what can only be described as a massive quarter, yet the stock is trading off today (it had initially jumped higher when the market opened). Revenue was up 88% to $142.8 million (beating by $25.8 million) while adjusted EPS was up 113% to $0.68 (beating by $0.28). Repligen also increased full-year guidance, by a lot. Revenue guidance was increased from $500-$525 million to $565-$590 million while adjusted EPS guidance goes up from $1.86-$1.94 to $2.21-$2.28.
As expected, Covid-19 has helped the business considerably and accounted for 25% of revenue in Q1 as well as 53% of total growth. That said, the non-Covid portion of Repligen’s business is also cranking and grew by 31%.
Big picture, this company is firing on all cylinders. Order flow is picking up, new products are being launched, the acquisitions are flowing, operating margin is expanding and both revenue and EPS are headed significantly higher. Maybe these are the best of days? Perhaps, but I do think the pandemic has shined a light into the critical role bioprocessing plays in today’s world and as one of the few, and increasingly important, players out there, Repligen represents a scarce asset in my book.
I think today’s selloff is more a reflection of general market weakness and nothing specific to the stock. If you’re feeling a little put off by the market lately then it’s a hold, but if you’re looking to put some money to work and can afford to be patient, I think RGEN is still a buy. BUY