February 29, 2024

It’s amazing how much some of our stocks have moved over the last week while the average gain of our portfolio is almost EXACTLY the same as that of the S&P 600 Small Cap Index.

Measuring Wednesday to Thursday early morning, shares of Remitly (RELY) are up 18%, Docebo (DCBO) is up 17% and Enovix (ENVX) is down 12%. Taking a simple average of our positions’ change over the last five sessions, though, the average change is 0.7%. That compares to a 0.8% gain in the S&P 600!

Another interesting wrinkle is that Weave (WEAV) is unchanged over that time frame. But tell that to anybody with a sizeable position in the stock. It hasn’t felt like a nothing week.

Moving on ...

There’s been a lot of attention lately on the recent underperformance of small caps. The S&P 500’s relative outperformance versus the Russell 2000 is at its widest point in decades. In fact, the Russell 2000 is about 17% below its record close of 2,443 (November 8, 2021).

The S&P 500 is up more than 8% since then.

This is especially interesting because over the past week breadth has been improving. The S&P 500 equal-weight index is outpacing the cap-weighted index. The potential read through here is that, provided breadth continues to improve, we should see some of that momentum trickle down to small caps.

Add in that the relatively high mix of variable rate debt in the small-cap asset class should be a tailwind (rates coming down, we think), and this morning’s PCE inflation reading was as expected (Fed’s preferred measure) and it’s not hard to make a case for a multi-year run in my favorite asset class.

Who’s with me!?

Recent Changes:
Liquidity Solutions (LQDT) moves to BUY

Updates

Alphatec (ATEC) reported official results Tuesday afternoon and I detailed them yesterday. Revenue was on the high end of the pre-released (early January) range but the downside surprise was on adjusted EPS as a new definition for handling obsolete inventory pulled the Q4 profit result down, and will do the same for full-year 2024. That all said, and as discussed in my review, Alphatec is playing the long game in spine and, for patient investors looking for pure-play MedTech exposure, is a very attractive stock. There could be a period of blah performance given that guidance for 2024 is likely conservative and Q1 will be the low point (assuming seasonal trends consistent with the past) and as the market digests the lower profit guidance. That’s the reasoning behind keeping the stock at hold yesterday (note: I had the stock at hold going into the earnings report and mistakenly wrote “move to hold” in yesterday’s update). We now turn our sights on management’s long-range plan update, scheduled for March 19. HOLD

Earnings: Done

Braze (BRZE) reports in March so (still) no news to discuss here. Chart looks good. Braze offers a customer engagement software platform that customers/brands use to connect with consumers in real time. HOLD

Expected Earnings Date: March 29

Docebo (DCBO) reported last Friday and I covered the details and kept at buy. The stock had a great reaction and is hanging tough just above the December highs. Nobody knows about this stock. The company should continue to grow revenue north of 20% with EPS growing faster, yet it trades at a discounted valuation. Management will be at the Morgan Stanley TM&T Conference (March 4, San Francisco) and Scotiabank TMT Conference (March 6, Toronto). BUY

Earnings: Done

Enovix (ENVX) reported early last week and there’s nothing new to add. Shares have been generally weak since earnings, not dissimilar to other earlier stage industrial types. Looking forward to first samples from Fab-2 in the second quarter and high-volume production ramping in the back half of the year. BUY

Earnings: Done

EverQuote (EVER) had a great report on Monday (I detailed the results on Tuesday) highlighted by expectations of continued carrier spend improvement. There’s been some conservatism in a few analyst notes given the head fake in Q1 of last year, but it seems highly likely we’re in a different environment right now. EverQuote is like a levered bet on the auto insurance market and I expect the stock to do extremely well if/as the auto market recovers, something that has the big players (Progressive, a major customer, and Allstate) talking about increasing advertising spend and looking for growth. The only fly in the ointment here is that EVER filed a mixed shelf offering (up to $150 million). Nothing imminent here, it’s just to have ready in case the company decides to raise funds. But the potential for some dilution likely explains why the stock gave back its post-earnings rally and was down yesterday. Honestly, I think I’d rather have the company just get it over with. With rates where they are (at least for a little while) they can get a 4% to 5% yield on cash raised through an equity offering, which we’re now going to be expecting to happen at any moment. Big picture, this doesn’t change things. Just means we’ll wake up some morning to a 10% - 15% dilutive offering (just a rough guess) based on shares being down almost 10% yesterday. BUY

Earnings: Done

Intapp (INTA) shares are down over the last week, which has been quiet. Recall last week we had the company’s first Investor Day, which focused on how the company will leverage AI in new and existing products, tighten up its marketing messaging and tweak the business model to operate more efficiently. Overall good stuff, even if the stock isn’t doing a lot currently. BUY

Earnings: Done

Liquidity Solutions (LQDT) reported three weeks ago and shares took a dive but have bounced right back. Looking for a continued stability/upside progress so moving back to buy. BUY

Earnings: Done

Remitly Global (RELY) reported last week and yesterday management spoke at Citi’s Annual FinTech Conference. Not surprisingly, management touched on improving lifetime value, payback on marketing, etc., which was the upside “surprise” in Q4 and helped the stock recover from the post-Q3 report selloff. Looking for shares to hold their gain while still eying a potential upgrade to buy. Management will speak at the Citizens JMP Tech Conference next Monday (March 4). HOLD HALF

Earnings: Done

TransMedics Group (TMDX) reported Monday and I detailed the results soon after. They were very good with revenue beating, guidance ahead of consensus, first quarter of profitability and good work on the TransMedics Aviation business (35% of OCS transplants done in the quarter used Aviation). The company is doing so well Arizona’s finest Congressman, Paul “Even My Family Thinks I’m Crazy” Gosar, sent a hot letter to TransMedics accusing it of holding lifesaving medical devices “hostage.” It seems Gosar has a lot of details wrong, as TransMedics’ response showed (link here). The downside of this is that it’s not the best way to get publicity. The upside is that, clearly, TransMedics is totally disrupting the market. And, from what I can tell, doing it in a way that is good for organ donation centers, good for patients and good for the company and its shareholders. Not saying the prices don’t seem high, but that’s the way it’s “always” been. At least the company is adding value throughout the process. Considering moving to buy but would like dust to settle around this Gosar thing first. HOLD A QUARTER

Earnings: Done

Weave (WEAV) reported Q4 results last week that were very solid and guidance was both above consensus and sets the company up for a beat and raise cadence throughout 2024. Shares sold off the next day, but then this Monday they rallied right back as Raymond James came out with a bullish note and a 15 price target (WEAV was below 11 at the time). Nothing new this week. Still like the stock a lot. BUY HALF

Earnings: Done

That’s it for this week. Please email me at tyler@cabotwealth.com with any questions or comments about any of our stocks, or anything else on your mind.

Currently Open

Copyright © 2024. All rights reserved. Copying or electronic transmission of this information without permission is a violation of copyright law. For the protection of our subscribers, copyright violations will result in immediate termination of all subscriptions without refund. Disclosures: Cabot Wealth Network exists to serve you, our readers. We derive 100% of our revenue, or close to it, from selling subscriptions to our publications. Neither Cabot Wealth Network nor our employees are compensated in any way by the companies whose stocks we recommend or providers of associated financial services. Employees of Cabot Wealth Network may own some of the stocks recommended by our advisory services. Disclaimer: Sources of information are believed to be reliable but they are not guaranteed to be complete or error-free. Recommendations, opinions or suggestions are given with the understanding that subscribers acting on information assume all risks involved. Buy/Sell Recommendations: are made in regular issues, updates, or alerts by email and on the private subscriber website. Subscribers agree to adhere to all terms and conditions which can be found on CabotWealth.com and are subject to change. Violations will result in termination of all subscriptions without refund in addition to any civil and criminal penalties available under the law.