March 14, 2024

Small-cap stocks continue to underperform their larger peers though, with the exception of this morning, the S&P 600 Small-Cap Index ETF (IJR) has been inching higher toward resistance at 110.

It’s possible that with expectations for the first rate cut being pushed out to June (currently, subject to change) that my expected small-cap rally has been similarly delayed. I have been surprised that this asset class hasn’t seen more momentum.

We’ve also seen a pause in the uptrend for a lot of cloud software stocks, a group we have decent exposure to. Looking at the WisdomTree Cloud ETF (WCLD), you can see this ETF has been mostly treading water around its flatlined 25- and 50-day moving average lines since mid-January.

With earnings season now behind us the next big market event is the March FOMC meeting and Fed Chair Jerome Powell’s press conference, which is scheduled for next Wednesday (March 20).

There’s virtually no chance of a rate cut next week. With market odds at 59% for a cut at the June 12 meeting, you can be sure the market will react to any commentary from Powell regarding his latest thoughts on the Fed’s next move.

Recent Changes
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Updates

Alphatec (ATEC) has been under pressure since Q4 results came out on February 27 as investors have digested a slowing growth profile (not unexpected given the growing revenue base) and a new approach for measuring profitability (due to accounting change for old inventory) that reduces EPS and pushes out time to profitability. On the flip side, momentum in the business continues to be strong and management will hold the 2024 Investor Day next Tuesday (March 19) when they’ll discuss the company’s long-term plans and growth targets out to 2027. In order for ATEC to get back in gear we need to hear that the company is on track to get close to $1 billion in revenue in 2027 (average of high teens annual growth), plans to continue growing surgeon count and procedures, international expansion (very low exposure currently), details on the new-generation robotic navigation system (Valence, 2025 launch) and EOS upgrade/replacement cycle and, last but not least, projected timeline to profitability (currently estimated in 2026). This week both Needham and Morgan Stanley have weighed in with positive comments on the stock, which appears “cheap.” HOLD

Docebo (DCBO) has been treading water in the low 50s since shares broke above that level following earnings on February 23. We’re expecting 20%+ revenue growth with profit expansion this year, as well as new AI-related products with pricing separate from current offerings. The stock’s ability to hold onto post-earnings gains is a positive. BUY

Enovix (ENVX) presented at the J.P. Morgan Industrial Conference this morning and part of the discussion revolved around the timing of getting batteries to market for different applications. The plan has been to first make batteries for IoT products (like watches) with revenue ramping in the back half of this year, then to go after the smartphone market next, with revenue to begin in 2025 and ramp into 2026. This timing is a function of customers needing nine to 12 months to fully qualify high-production batteries once they begin to come off Enovix’s Malaysia production lines. After smartphones we move on to personal computers (PCs) in 2026, then potentially to electric vehicles (EVs). There seems to have been some expectation that smartphone revenue would have been sooner, and while I haven’t reviewed all my notes I don’t recall the new management team saying they would be at the same time as IoT batteries. I expect we’ll see a note from J.P. Morgan analysts begin to circulate today or tomorrow with a buy reiteration. BUY

EverQuote (EVER) has surged back to near 20 over the past week. Shares continue to be a bit erratic, however, the upward trend is undeniable. It’s worth noting that shares of Progressive (PGR), one of EVER’s biggest customers, are in a very solid uptrend as well. Keeping at buy but suggest not buying on big upward surges. BUY

Intapp (INTA) continues to drift lower in the weeks since 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. I thought the presentation was good. The most likely reason for the stock’s downward drift over the last 10 sessions is the non-dilutive secondary offering from entities affiliated with Great Hill Equity Partners IV. Once this offering is flushed out, I expect INTA to recover. BUY

Liquidity Solutions (LQDT) is treading water in the high teens right around its 200-day moving average line. The company recently secured a deal to liquidate manufacturing equipment from the longest-running firearms manufacturing plant in the U.S., which is moving from New York to Georgia. BUY

Remitly Global (RELY) has been holding strong above 20 for the last three weeks after shares blasted above that threshold following earnings on February 21. HOLD HALF

RxSight (RXST) is our newest addition. It’s a small MedTech company disrupting the cataract surgery market with the first, and only, FDA-approved intraocular lens (IOL) technology that lets doctors customize a patient’s vision after cataract surgery. This is done with UV light rays from proprietary equipment that alter the shape of the lens once it’s been implanted. The company is growing north of 40% just in the U.S., has international expansion potential, and is seeing rapid uptake from doctors who, historically, seem happy to switch to better solutions as they come along. The stock has pulled back to its 50-day line since we got in (we started with a half-sized position). With one of the best growth profiles in MedTech and management set to speak at the Capital Markets Day on April 6, I think there are plenty of great days ahead for RXST. BUY HALF

TransMedics Group (TMDX) has been moving sideways over the last couple of weeks with no major news or update on the drama resulting from Congressman Paul Gosar’s (AZ) letter to the company accusing it of holding life-saving medical devices “hostage.” As I said two weeks ago, it seems Gosar has a lot of details wrong, as TransMedics’ response showed (link here). Monitoring the situation but not expecting this to be a lasting issue. HOLD A QUARTER

Weave (WEAV) drifted a little lower over the last week and trades slightly above our entry point. There’s been no major news since Q4 results, which came in solid with guidance above consensus. BUY HALF

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.

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