January 26, 2023

Our area was nailed with rain last night, knocking out internet service at our house. After spending a good part of the day skipping around town to get WiFi and doing what I can on a cell signal, my patience with technology is about gone. Coffee shops are great, but where are my mega screens?!

The bottom line regarding the market is that yesterday was a significantly encouraging day, in my view.

The market opened down on Microsoft’s (MSFT) soft guidance. A few months ago the major market indices would have closed down 2%, or more. But yesterday they battled back and the damage in many individual stocks was quite limited.

Today we’re up. This is good.

Sure, the economic outlook for the U.S. is deteriorating somewhat. January’s flash purchasing managers indexes (PMIs) were up a little, but still below 50. Slowing growth in the U.S. is the trend and with EPS estimates falling it’s becoming a contrary outlook to say no recession in 2023.

But things are looking better in Europe and China. And big picture, that’s good.

Also good is that yields have calmed down and the market is now pricing in a 25bps hike at the February 1 meeting. After that things are a little iffy, but at the most we should look for one more 25bps hike.

All this means there is still a path to a softish landing this year, and that means upside potential for stocks. The S&P 600 Index is bumping up against resistance in the 1,230 to 1,250 range, right where it was a couple of weeks ago.

A move up through this area would be very nice indeed.

Recent Changes
None

Updates

Enovix (ENVX) is flattening its management structure. The current Chief Commercial Officer Cameron Dales is departing and his functions are sliding to the Senior VP of Sales and Business Development, Ralph Schmitt. Also, the Chief Technology Officer and co-founder, Ashok Lahiri, is retiring on February 1 and will serve on the technical advisory board afterward. This announcement comes about a month after Enovix announced that Raj Talluri would take over as CEO on January 18. This is more evidence of the company transitioning from start-up phase into commercial production phase. As always, the devil is in the details and whether or not investors appreciate the management shift will come down to execution. HOLD

Flywire (FLYW) will report Q4 results on Tuesday, February 28. This week Morgan Stanley picked up coverage on the name with an equal weight rating and 26 price target (stock at 26.3). The bank’s note said, “Attractive vertical exposures, strong NRR, and competitive differentiation position FLYW for share gains, which we think valuation reflects. Faster growth and/or better than expected margin expansion could catalyze upside.” A Q4 beat and upside 2023 guidance would be good. BUY

Earnings Date: Tuesday, February 28

Huron Consulting (HURN) sold off to about 67 a couple weeks ago and has been bouncing off the 67 to 68 range, and trading as high as 74 since. As I mentioned last week I’d like to see a little more momentum out of HURN. Maybe the Q4 report will help with that, though it’s not due out until around February 24. The stock reacted well to the last three earnings reports. BUY

Inspire Medical Systems (INSP) continues to hold up well and a recent price target increase from Piper Sandler (to 300) is one more sign of analyst bullishness. Pretty much everybody likes the stock it seems.

Recall that a couple of weeks ago management released preliminary Q4 results that imply full-year 2022 revenue of $407.7 million (+75%) versus consensus at $390 million (+67%). The company is hiking selling prices in the U.S., submitting Inspire 5 for approval and expanding more overseas (European revenue already ramping). HOLD TWO THIRDS

Earnings Date: Tuesday, February 7

Intapp (INTA) moved above the May 2022 high last week and despite a pullback the last couple of days is still up there. There’s no news to report, but fiscal Q2 earnings are out after the close on Monday, February 6. The most recent update from management was in November when they called for $332 to $336 in fiscal 2023 revenue. BUY HALF

Earnings Date: Monday, February 6

Procept BioRobotics (PRCT) was sold a couple of weeks ago to lock in a gain of about 40% on our remaining half-sized position. SOLD

Rani Therapeutics (RANI) has provided a few updates in recent weeks but there’s nothing new this week. Continue to hold. HOLD

Repligen (RGEN) was down earlier in the week after larger peer Danaher (DHR) reported uninspired 2023 results that focused on core growth, which strips out COVID-related bioprocessing and testing. Danaher’s fiscal year 2023 guide implies bioprocessing growth bottoms in Q1 2023 at low-single-digit growth then ramps up so full-year growth is in the high single digits. While RGEN (and other bioprocessing peers) traded down on the result Repligen management has already disclosed their expectations in their base business, saying they see 15% to 20% growth in the base business this year. A 5% increase on prices and a softening dollar should provide a modest margin boost too. Bottom line is that RGEN is one of the fastest growing pure play bioprocessing companies and a trough in the market suggests stronger share price performance throughout the year. HOLD

Sprout Social (SPT) had a volatile day yesterday as the market initially hammered software stocks in the wake of Microsoft’s softish guidance. However, as the day progressed and Microsoft’s results were digested (personal computing is the real weak spot there) cloud names, including SPT, came back. The stock finished the day up and a little uptrend continues to form. As I discussed last week this group of stocks now trades at a discount to their historical average valuation, especially when adjusting for growth. Sprout just made a small acquisition, snapping up Repustate, a company specializing in sentiment analysis and natural language processing. The acquisition isn’t significant in size but it helps Sprout build out social listening and social customer care solutions. HOLD HALF

Earnings Date: Tuesday, February 21

TransMedics Group (TMDX) continues to trade near all-time highs. There’s nothing new on the fundamental front. HOLD THREE QUARTERS

Xometry (XMTR) has made a nice move off its recent lows as software stocks enjoy a little momentum. There’s nothing new to this specific story, but we certainly welcome a little momentum here. HOLD

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