June 29, 2023

Small caps put together a decent week as the iShares Core S&P 600 Small Cap ETF is up 3.6% from last Thursday’s close.

Digging a little deeper, we’ve seen a lot of strength in small-cap industrials and tech plus some stability in small-cap financials and energy.

From a macro perspective it’s likely that small caps are getting a bid as soft landing expectations rise and other areas of the market show signs of life. It’s no longer just tech that’s attracting attention.

Comments from Atlanta Fed President Raphael Bostic are also helping to keep investors guessing as to the Fed’s future plans. Speaking in Dublin, he said he doesn’t see as much urgency to move as others. And while Fed Chair Jerome Powell suggested there may be two more rate hikes this year the market is still pricing in a year-end median fed funds rate of 5.35%. That’s just one more hike above where we are now.

Might be time to lock in some 9+ month Treasuries!

Next week will be a weird week as Cabot is closed both Monday and Tuesday for the Fourth of July holiday. I hope you have a great one.

My current goal is to have the July Issue ready to rip Thursday morning. Wish me luck!

Happy 4^th!

Recent Changes: None

Updates

Alphatec (ATEC) has had a great week, likely influenced by a price target increase from Lake Street (from 20 to 32) on Monday. The stock is up about 14% from last Thursday’s close. There’s nothing on the calendar for Alphatec until Q2 earnings, which should be in the first week of August. BUY

Duolingo (DUOL) is up modestly from last Thursday’s close as the slight pullback in software stocks didn’t last very long. There hasn’t been much news on DUOL lately and I think the big event will be the Q2 earnings report – specifically, an update on how the new Duo MAX and Math solutions are doing. These products are not factored into forward guidance and to say investors expect some upside from them would be an understatement. As far as expectations go, we’re looking for Q2 revenue of $124 million (+40%) and EPS of -$0.17. August 9 is the estimated report date. BUY HALF

Enovix (ENVX) continues to impress and is up 33% from last Thursday’s close. The stock is performing well because management keeps doing what they said they would, and have added in a few positive announcements as well. This week shares reacted positively to news that the U.S. Army placed a purchase order to produce commercial cells for use in Army soldiers’ central power source, called the Conformal Wearable Battery. These cells should double the energy density of the Army’s current battery cells and be far more durable, partly because of Enovix’s Brakeflow tech. There’s been enough good news that confidence is coming back to ENVX. And with much more significant announcements over the next 12 months the stock has the potential to do very well. Considering a move back to buy soon. HOLD

Expensify (EXFY) was sold. No news. SOLD

Flywire (FLYW) received new coverage from B. Riley last Friday and a 38 price target. Stock is currently at 31 after pulling back less than one percentage point from last Thursday’s close. We’re currently expecting the Q2 earnings release on August 8. Consensus is for revenue of $73.3 million (+42.4%) and EPS of -$0.15. BUY

Inspire Medical Systems (INSP) continues to hang out near all-time highs despite lack of news for two weeks. The last update (June 9) was that the FDA approved expansion of Inspire’s Indication to include the upper limit of the Apnea Hypopnea Index (AHI) to 100 events per hour from 65 and to raise the Body Mass Index (BMI) warning on the labeling to 490 from 32. More patients are now able to benefit from Inspire Therapy. HOLD TWO THIRDS

Intapp (INTA) had been one of our star players but this wasn’t a great week. Shares are off 10% from last Thursday’s close, with the bulk of that decline coming on Monday when nearly 1.9 million shares traded hands and INTA lost about 7 points to fall to 40. It has come back up to around 43 since but still, that drop was an eye opener. The only real news around it was that a couple executives sold around 24,000 – 25,000 shares Monday. But they still hold over 700,000 shares each so we’re not talking a liquidation event here. Keeping an eye on it. The stock is still doing well all things considered. HOLD

Repligen (RGEN) isn’t doing all that well. The issues aren’t overly specific to the company and are being seen across the bioprocessing industry. Specifically, orders are down as inventory is taking some time to burn through. At the same time, small- and mid-cap biotech customers are trying to save cash so orders from that group are soft. The S&P Biotech ETF (XBI) confirms subdued investor interest in both public and private markets for biotech right now (no upside progress in about 12 months). Back to Repligen, revenue and EPS declines should be troughing right now. Revenue is seen declining 19% in Q2 (closes tomorrow) and -10% in Q3 before bouncing back to grow 7% in Q4. That suggests sales will shrink 8.7% this year, but then grow around 16% in 2024. Looking for management to confirm these are reasonable expectations on the Q2 call, estimated to be on July 25. HOLD A QUARTER

Si-Bone (SIBN) has dipped 2.5% from last Thursday’s close in what’s been an uneventful week for the stock. We’re looking to August 7 for the Q2 earnings report, when analysts see revenue of $31 million (+21.3%) and EPS of -$0.40. BUY HALF

Terex (TEX) keeps moving higher as small-cap industrial stocks are having a moment. The Invesco S&P Small Cap Industrial ETF (PSCI) is making a new 2023 high today and challenging the 2021 high as well. TEX is up 7.5% from last Thursday’s close. As I’ve discussed previously, U.S. federal infrastructure projects should drive some heavy equipment spending, especially for Terex’s materials handling segment. And there’s potential for aerial rental fleets to get updated as well. BUY HALF

TransMedics Group (TMDX) has moved 8% higher over the last five sessions on no news. We’ll take it. The Q2 earnings call should be a significant event here. That’s not just because we’re looking for confirmation that the company should grow revenue by about 87% this year and be on track to deliver first profits in 2024, but because management has discussed getting into an aviation business to fix supply chain challenges in the organ transplant market. HOLD THREE QUARTERS

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