With this being a short week (Cabot is closed Thursday and Friday), I wanted to relay a few details on the current state of the small-cap market and stocks in our portfolio that are making headlines. There will be no Weekly Update on Friday.
The big picture is looking better this week. Small caps rode the momentum from the end of last week to a 52-week high yesterday. And early market action today suggests they’ll be able to hold onto those gains.
As has been the case several times in 2017, the strength and swiftness of this “recovery” caught me by surprise! But, over the years, I’ve learned not to do anything too drastic, whether I’m feeling bullish or bearish. With only one sale in our portfolio in November, we’ve benefited from the recent rally in stocks. After an average gain of 2% last week and 2.4% over the past two days, our portfolio is up an average of 40%! That means, on average, we’re beating our benchmark by about 23% during the same holding period.
Not everything is working, evidenced by the underperformance of our most recent additions. But we’ll give them some time to turn around. And we’re being patient with BioTelemetery (BEAT) as well. On the plus side, we’ve been able to take advantage of weakness by turning a few stocks to Buy that we had on Hold for some time, including Primo Water (PRMW) and Asure (ASUR), which are looking much better than they did a month ago.
There’s only one major announcement this week. And it’s a good one!
AxoGen (AXGN) has recovered nicely after the stock gapped down following news of secondary offerings (AxoGen and an early investor both sold shares). Shares hit a 52-week high yesterday on high volume and look like they could keep climbing. The story keeps getting better too. Management held an analyst day this week and the big topics of discussion were its ramping effort to expand into breast reconstruction neurotization, an estimated $200 million market, and neuroma pain, which is usually traced back to a tangled mass of disorganized nerve and fibrous tissue following surgery. With respect to breast reconstruction neurotization, AxoGen is launching PR and awareness campaigns, resident and fellow education efforts, and a clinical study called Sensation-NOW (Sensation Neurotization Outcomes for Women). With respect to neuroma pain, the company has been granted a patent for a new product, called NerveCap, which is pretty much what it sounds like: a little peripheral nerve end cap that separates the nerve from surrounding tissue. Both these projects are in early stages, but AxoGen is clearly moving ahead. And with the recent equity raise, the company added $15.4 million to its balance sheet, meaning it has $37.4 million in cash and $25 million in debt. Given the stock’s performance, it looks like the market believes the modest dilution to fund the growth initiatives was well worth it. I agree! Keeping at Buy. Buy.
