February 9, 2023

This week has been taking place in the shadow of last week’s market-moving events.

Of course, I’m talking about the FOMC meeting and the resulting 25bps hike, followed by Jerome Powell’s press conference where the term “disinflation” reverberated around the conference room over and over. The event sent the market higher in a risk-on rally that extended the move from the day before.

It was so lovely. Until the Friday jobs stunner.

The issue is that the Fed thinks the job market is too strong and it will drive wage gains and therefore inflation. Some argue against this thinking, saying inflation is more a function of money supply. There is no simple answer.

Either way, the Fed wants to halt wage gains and therefore we want the jobs market to cool down (assuming we want the Fed to stop hiking and the market to go higher).

This week we’re getting some earnings reports and that’s pushing individual stocks around. But the broad market is back to moving on the big-picture events. Rebounding yields on the 10- and two-year have been problematic this week.

Fortunately, our earnings season is off to a great start with both Intapp (INTA) and Inspire Therapy (INSP) delivering the goods.

Stepping back a little, the S&P 600 Small Cap Index made a nice move last week such that it moved above the August 2022 high of 107. We’ve drifted back down to around 105 over the last few days, a move I think we can blame on rebounding yields.

I expect macro events will continue to drive the broad market for the next few weeks. Next week we’ll get more inflation insights with both the PPI and CPI reports coming out.

As it stands right now our next earnings reports are Sprout Social (SPT) on February 21 and Enovix (ENVX) and Repligen (RGEN) on February 22.

Recent Changes
Intapp (INTA) moves to HOLD

Updates

Enovix (ENVX) came up a little with the market rally last week and has held up so far this week. The only news is that management will report Q4 results on February 22 after the market closes. We’ll be looking for more updates on the transition to commercial production and (c’mon guys) good news regarding new production lines. HOLD

Earnings Date: Wednesday, February 22

Expensify (EXFY) is our newest addition. It is a financial services software company with a cloud-based expense management platform for managing and submitting expense receipts, billing and invoicing customers, and even some payroll-related offerings. This is not a complicated platform. The whole strategy here is to have a product that people can adopt for free to solve an annoying problem, then as they continue to use it the solutions are pulled into their organization and a decision maker signs up for a paid subscription. That’s a completely different selling motion from a solution that needs to enter an organization at the “top” and then filter down. There are risks in the current market as Expensify’s clients skew toward small businesses. However, it is a “trade down” type solution that can replace more expensive offerings that are overkill. If you listen to management you hear them talk about their long-term growth strategy. They seem confident. They have a plan and they’re working it. It calls for 25%+ longer-term growth. The company and employees have been buying back shares. And expectations are relatively low. It’s an interesting setup and one of our first attempts to snatch a “deal” on a forgotten stock that could deliver huge returns in the coming years. No earnings date yet. BUY

Flywire (FLYW) made an effort to move through its August 2022 highs last week but has pulled back since. Still, the uptrend remains intact. I suspect we’ll need an earnings beat to catalyze a breakthrough. On that note, the Q4 report will be out on Tuesday, February 28. Analysts are looking for revenue growth of 27% to $65.5 million and for EPS of around -$0.12. Guidance for 2023 should imply at least 30% revenue growth ($350 million) and EPS of -$0.19 or better. BUY

Earnings Date: Tuesday, February 28

Huron Consulting (HURN) pulled back to its 200-day line on the last trading day of January and has been looking better since. Still, the stock has been a relative laggard in our portfolio. We’ll look for the next earnings report to change that. No official earnings date released yet but look for the event around February 24. BUY

Inspire Medical Systems (INSP) reported after the bell yesterday and I sent out a Special Bulletin with my take on the quarter this morning. The stock has reacted well, as I indicated it should. The recent high of 262.5 has fallen on an intraday basis and I’m looking for INSP to make that a new area of support. HOLD TWO THIRDS

Earnings: Done

Intapp (INTA) reported after the bell on Monday and I sent a Special Bulletin Tuesday morning detailing my take. The stock had a fantastic reaction (+18% yesterday) and is tacking on a little more today. At this level and after a 20% two-day move Intapp is moving to hold. One thing – in my review I mentioned there has been no growth in net new customers. To clarify, Intapp has been adding about 50 new customers per quarter for the last three to four quarters. It did so again in the most recent one. So it is adding customers, just at a steady pace. HOLD

Earnings: Done

Rani Therapeutics (RANI) hasn’t done anything lately and there is no news. HOLD

Repligen (RGEN) has come up off the January lows and is back above its 200-day line. This week we heard rumors that Catalent (CTLT), another player in the bioprocessing space, might be a target for larger player Danaher (DHR). It’s not remotely surprising to hear some acquisition rumors in the space and there’s little doubt Repligen is a potential target as well. That said, I’m not calling for a takeover as I think RGEN shareholders wouldn’t “give it up” without a very hefty premium. Earnings will be out February 22. HOLD

Earnings Date: Wednesday, February 22

Sprout Social (SPT) rallied after Facebook (META) reported but has come back in since. There’s been no new company-specific news since the Repustate acquisition was announced HOLD HALF

Earnings Date: Tuesday, February 21

TransMedics Group (TMDX) continues to look fantastic trading near all-time highs. There’s nothing new on the fundamental front, and we don’t have an earnings date yet. HOLD THREE QUARTERS

Xometry (XMTR) rallied to 40 from the January lows as a broad move in software stocks helped get the stock moving again. We’ve pulled back some and from here what we really need is an earnings update that gives us more clarity on the state of U.S. manufacturing and how Xometry is affected, how tweaks to the algorithm are working, and a better sense of the profit margin profile. No earnings data announced yet. HOLD

Please email me at tyler@cabotwealth.com with any questions or comments about any of our stocks, or anything else on your mind.