January 25, 2024

It’s been another strong week for stocks despite rising concerns about overseas conflicts disrupting the flow of oil and that the market is overshooting just how fast the Fed will cut rates this year.

It wasn’t long ago that investors were factoring in an 80% chance of a March Federal Funds Rate (FFR) cut. Today that probability is down to just 40%.

That said, what’s most important is the expected trend in the FFR. While the timing of the first rate cut and the pace of subsequent cuts remains open to debate, there’s no arguing that the market still sees rates significantly lower at the end of 2024.

The current FFR is 5.25% to 5.5%. Looking out only as far as September, there’s a 96% chance that the FFR will fall to between 4.0% - 4.75%, and a 49% chance it will be in the 4.25% - 4.5% range.

This is why the market isn’t blinking – the expected path of lower rates remains very much intact.

Next Wednesday we will know more. That’s when Jerome Powell will take the stage again after the Fed releases its FFR target following the January meeting. There is no meeting in February, so March 20 is the next date.

Stepping back from the macro talk and refocusing on stocks, small and large caps are running neck and neck since last Thursday’s close, both up 2.3%.

The best-performing sector in both asset classes is tech (+5.1% large caps, +4.6% small caps) followed by energy and financials. Somewhat interesting is that all small-cap sectors, with the exception of consumer staples (-0.2%), are positive while large-cap consumer discretionary, staples, healthcare, materials and utilities are all negative.

In other words, the small-cap strength is more broad-based than that of large caps over the last week.

In our portfolio, all positions except Docebo (DCBO), which is off 1.9%, are up from last Thursday’s close (through late morning today). The charge is being led by Weave (WEAV), +14.3%, TransMedics (TMDX), +7.2%, and Braze (BRZE), +6.3%.

If you want something to worry about, it’s probably worth considering just how bullish investors feel right now. Bullish sentiment is quite high, which can sometimes signal the market needs to chill out.

However, if we assume that the FFR will come down roughly as expected and that there is no hard landing, then consider how investors will feel when those fat-yielding money market fund rates start to decline.

What seems like an easy 4.5% to 5% on cash right now won’t be so attractive when those rates are heading toward 3.5% to 4.0% within 12 months (and lower after that). Should that cash start to creep into equities it’ll be a nice tailwind.

And it doesn’t take a lot of imagination to see how putting some of that money to work in stocks sooner rather than later could pay off. Food for thought.

It’s another week without a lot of stock-specific news. But that will change soon as earnings season for our positions fires up the week after next. Enjoy the relative calm!

Recent Changes:
None

Updates

Alphatec (ATEC) is looking to become the standard bearer in spine surgery and has a portfolio of surgical solutions and procedures for spinal conditions, ranging from degenerative disc disease to complex deformity and trauma. The stock’s done well so far in 2024, and we’ve already received preliminary Q4 results (they were better than forecast). On Monday ATEC jumped above overhead resistance at 15.5 and shares closed just shy of 16 yesterday. The next zone of resistance is 16.6 and if we get through that then we’ll set our sights on the 18 – 19 zone. BUY

Earnings Date: Tuesday, February 27

Braze (BRZE) has a customer engagement software platform that customers/brands use to connect with consumers in real-time. Braze’s tools allow brands to listen and understand consumers, and then engage them with contextual messages that are as relevant and authentic as human interactions. One of the key advantages is Braze has clean, first-party data. That means Braze clients have a direct relationship with their customers. We’re looking for low-to-mid-20% revenue growth in 2024 (not factoring in acquisitions). Shares keep inching higher and are within striking distance of their 52-week high. HOLD

Expected Earnings Date: March 29

Docebo (DCBO) is a player in the Learning Management System (LMS) market. Its platform is modern, easy to use, cloud-based, customizable and features AI-driven solutions. It is used for both internal (employees) and external (customers, partners, suppliers) workers. This is a differentiator. I’m looking for Docebo to grow revenue by about 15% this year and 23% in 2024. EPS should be positive in both years, growing from $0.54 in 2023 to $0.76 in 2024 (i.e., by 41%). The stock didn’t do much over the last week. BUY

Expected Earnings Date: March 7

Enovix (ENVX) is an early-stage battery architecture company developing a 100% silicon anode battery for consumer electronics (now) and electric vehicle (EV) markets (down the road). Overseas production of batteries destined for wearables is set to take off this year. The next potential catalyst is confirmation that factory acceptance testing (FAT) for additional lines (FAT already completed for Line 1) is complete by the end of this month and that sampling for large customers is still set for some time in April. After that, we expect to hear that high-volume manufacturing is ramping up (second half of 2024). That will be a significant event as it means revenue will start coming in. That said, Enovix will likely seek to raise capital this year too. I would expect management to try and tap the market immediately after significant positive news/share price moves. Last Thursday Cantor Fitzgerald reiterated an overweight rating and 30 price target (stock closed just under 10 yesterday). BUY

Expected Earnings Date: February 29

Intapp (INTA) provides industry-specific, cloud-based software for the global professional and financial services industry. We’ve been looking for the stock to punch back above 40, which it did on January 11. Since then, INTA has been inching higher. The stock closed just shy of 45 yesterday and is now looking at the 52-week high (also all-time high) of 50.5 (struck last June) as the next target. Management is set to hold its first Investor Day on February 22, which is likely helping the stock (getting the story out is good). Citigroup initiated coverage this week with a price target of 57. BUY

Earnings Date: Tuesday, February 6

Liquidity Solutions (LQDT) operates the world’s largest business-to-business (B2B) eCommerce marketplace for matching buyers and sellers of surplus and salvage assets. One of the company’s smaller businesses, Machinio (acquired in 2018), is an online marketplace for selling machinery and equipment and operates under a subscription model (i.e., relatively high-margin business). Last Friday management announced that MCMG, an Asia-based multinational company, will work with Machinio to sell 6,000 refurbished pieces of construction equipment. This isn’t a massive deal by any stretch, but it’s nice to see continued traction in Machinio, which is a nicely growing part of the overall business. BUY

Earnings Date: Thursday, February 8

Remitly Global (RELY) has a platform providing financial services for immigrants and their families in over 170 countries around the world. Shares have struggled since management revealed marketing investments last quarter, which they said signaled Remitly was going on the offensive, not playing defense. Then last week Wells Fargo was out with a report and an Underperform rating, which knocked RELY down another notch. I decided to reduce our position by a half last week and since then shares are about flat. Watching closely. No firm earnings date yet but it’s expected in about four weeks. HOLD HALF

Expected Earnings Date: February 28

TransMedics Group (TMDX) is an organ transplant specialist, focused on the heart, lung and liver markets. The company’s revolutionary technology is called the Organ Care System (OCS), which replaces the old standard of care (cold storage) that is too static to meet the dynamic needs of today’s organ transplant market. The OCS is also the foundation of TransMedics’ National OCS Program (NOP), a turnkey solution for transplant centers that provides outsourced organ retrieval and OCS organ management. The goal of the NOP is to streamline delivery of donor organs from anywhere in the U.S. to a transplant center. Last year, TransMedics acquired an aviation business so it can control even more of the organ transplant supply chain. This is a major initiative, and initial uncertainty from investors has become cautious optimism given the most recent quarterly report and future potential. Not to mention international expansion opportunities. Shares have been making a series of higher highs and higher lows since the Q3 report in early November. Suffice it to say the next report is a big one. Investors are now back to expecting great things from the aviation business. HOLD A QUARTER

Expected Earnings Date: February 21

Weave (WEAV) has a customer experience and payments software platform designed for small and medium-sized healthcare businesses (dental, optometry, veterinary and medical practices). The platform includes payments, texting, scheduling, reminders, reviews, phones, insurance verification, digital forms and more. Weave is seeing customers who went away to more generalist software solutions start to come back. That’s a good sign that very specific software solutions still have a place in the market (2023 was a year when investors were concerned that customers would dial back on pure-play software spending). Looking into 2024, Weave should grow revenue by at least 15.5% to $195 million and slash the EPS loss by half, to around -$0.07. The stock is currently trying to punch through its 52-week high of 12.5 (struck on July 31). BUY HALF

Expected Earnings Date: February 28

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