Sell ONTF and QTWO
With the weakness in growth stocks persisting into this week, we’re going to offer up a couple of sacrificial positions to the market Gods. Beyond the rather obvious benefits of reducing exposure when the market is falling and having that capital available when things turn around, both these companies have near-term growth challenges that held shares back recently.
First up is On24 (ONTF). The bulk of this stock’s decline came after the most recent earnings report. Since then, nothing has really changed. We could wait another quarter and see what’s new, but a wiser strategy seems to harvest the loss (should have tax benefits) and move on. SELL
Second on the chopping block is Q2 Holdings (QTWO). I’ve been supportive of this stock as I think the long-term growth story is intact. But over the last week I’ve seen two analyst notes that dig deeper into the cadence of new bookings (access to management is helpful in these situations) and suggest that the more impactful deals, when they are signed, won’t likely have a revenue impact until calendar year 2023 (implementations can take over a year). This all stems from the challenges of in-person dealmaking in the banking environment and delayed implementations during the pandemic, and the lingering impacts now. I would be fine stomaching a lower growth rate in the first half of 2022 as I think investors would be more or less OK being patient if there was high confidence in the turnaround. But my concern is that larger investors have also read these notes and are beginning to throw in the towel as the current market retreat is opening up opportunities in higher-growth stocks that could bounce back more quickly should things turn up. As I write, QTWO has just broken to new lows for the year. To land the plane … let’s not fight this fight right now. Instead, let’s book the gain (roughly 220%) on our remaining stake and monitor QTWO for signs of a rebound. SELL REMAINING STAKE