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Small-Cap Confidential
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Cabot Small-Cap Confidential Special Bulletin

We’re making some portfolio adjustments today.

Take Partial Gains In APPF, RPD, EVER, AVLR. Cut Partial Position In QTRX. Moved to hold: EVBG, RGEN.

I’m starting to dislike September very much, at least as far as the market for growth stocks is concerned.

For the third year in a row growth stocks are getting banged up in September (or thereabouts). If you look at charts of portfolio holdings like AppFolio (APPF), Q2 Holdings (QTWO), Everbridge (EVBG) and others from around the market, including Coupa Software (COUP), Shopify (SHOP) and Workday (WDAY), you see that in at least two of the last three years they’ve sold off near September.

All of these stocks have recovered and gone on to new highs each time. But that doesn’t make it feel any better when it’s happening.

Normally I advise buying on pullbacks in growth stocks. But there are pullbacks, and there are corrections. This feels more like the latter. Corrections are typically more painful and go on for longer.

I hate to be reactionary, and it’s a little early to make a definitive call as to where we’re going (the broad market is looking just fine). But we’ve been riding a strong wave for a while and with things getting a little choppy it’s time to take modest measures to protect our gains.

With that in mind we’re going to make a few incremental moves today by selling partial positions. I also have a few notes on other stocks that are moving today. See below.

AppFolio (APPF): Sell a quarter and hold the rest. APPF is still trading well within its consolidation range but if the stock breaks below it (around the 88 mark) it will do so quickly. In this environment I think the chances of a quick breakout are quite low. We’re not giving up much by reducing our position size a little. SELL A QUARTER, HOLD THE REST.

Repligen (RGEN): RGEN broke lower this morning after it was announced last Friday (after the close) that the stock will move out of the S&P 600 Small Cap Index and into the S&P 400 Mid-Cap Index on September 23. I believe this is driving some small cap funds to sell out of the stock now. I could be wrong, but I believe this is a temporary decline and mid-cap index funds will step in, as will funds that want a piece of the now mid-cap company at an attractive price. I’ve had at buy. But just to be safe, am moving to Hold now. HOLD.

Rapid7 (RPD): RPD has been consolidating in the low-to-mid 50s for a few weeks and broke below 52 today. Let’s take a partial profit by selling one-quarter of the position and see how the next couple of days go. SELL A QUARTER, HOLD THE REST.

EverQuote (EVER): EVER has been at hold and just broke lower with the market. The pain here has been limited. But again, let’s just be conservative and sell a quarter position to book a partial gain. SELL A QUARTER, HOLD THE REST.

Quanterix (QTRX): QTRX has been weak for a while and just broke below its 200-day line. Let’s reduce our position size by half. SELL A HALF, HOLD THE REST.

Avalara (AVLR): AVLR is also selling off. As a risk mitigation measure, let’s sell a small position, around a quarter, and hold the rest. SELL A QUARTER, HOLD THE REST.

Everbridge (EVBG): EVBG has now had two big down days and I suspect today is partially triggered by panic selling after the stock broke below its 200-day line. I haven’t found anything negative; no SEC filings, press releases, analyst reports or anything. Sometimes these things can’t be explained. I’ve had a buy, but moving to hold now until we see the stock stabilize. HOLD.