March 28, 2024

The story of the week in the markets has been that central bankers are still leaning toward cutting rates by mid-year (odds still favor a cut in June). That’s helped stocks do pretty well, with outsized performance in energy, banks, insurers and homebuilders.

I’ve been monitoring the performance of small-cap sector ETFs versus those of the comparable large-cap offerings. It’s been interesting to see small-cap financials, materials and industrials performing far better.

It’s also nice to see the small-cap index post better performance than both the S&P 500 and the Nasdaq over the last week (measured from last Wednesday).

Through mid-morning Thursday, the S&P 600 is up 2.2% versus 0.2% for the S&P 500 and 0.3% for the Nasdaq.

As you know, I’ve been patiently waiting for small caps to “have their day” again. The backdrop is there (decent economy, promise of lower rates, trading at a discount, etc.) for small caps to post significant outperformance. And with the market rally seeming to broaden out, we may be in the early stages of this move.

Tomorrow the market is closed for the Easter holiday. But there is a significant event. We’ll get the latest personal income and spending report, which features the core PCE price index, the Fed’s preferred measure of inflation.

The Street is looking for a 0.3% month-over-month increase in February, which would leave the year-over-year rate of growth unchanged, at 2.8%.

Also tomorrow, both Jerome Powell and Mary Daly are scheduled to participate in the San Francisco Fed’s Macroeconomics and Monetary Policy Conference. So next week will likely kick off with the market digesting those two events.

Let’s move on to portfolio updates.

Recent Changes
RxSight (RXST): Buy Second Half

Updates

Alphatec (ATEC) held its 2024 Investor Day last Tuesday (March 19) and the share price reaction has been neutral to slightly positive so far. Management confirmed its intent to grow at an average rate of 20% to get to $1 billion in revenue in 2027 and also to get to break even in 2025. It feels like the company is being a bit conservative, which is hopefully more to set up a beat and raise cadence than because of any emerging challenges. Because we need to see another quarter of solid performance to help the bull case emerge. I’m keeping ATEC at hold. HOLD

Docebo (DCBO) has been drifting lower lately with no news to speak of. Management will present at a William Blair conference in San Diego, CA on April 16 & 17. Beyond that, we’re looking out to early May for the next known potential catalyst (Q1 earnings). BUY

Enovix (ENVX) announced yesterday that it has been awarded “pioneer status” by the Malaysian Investment Development Authority. This is essentially a business-friendly certification that means Enovix is exempt from income tax payments due to its commitment to produce batteries in Malaysia. Looking forward to the company producing first samples off the Agility Line in the coming quarter (April – June). BUY

EverQuote (EVER) continues to act well, as do shares of two of its biggest customers, Progressive (PGR) and Allstate (ALL), thanks to some bullish commentary on auto insurers out of Bank of America this week. EVER is like a levered bet on a recovery in the auto insurance market, which had been in turmoil for over a year but is now seen returning to growth mode. That outlook is supported by commentary out of large insurers on the latest round of earnings conference calls. BUY

Intapp (INTA) is looking to recover from the non-dilutive secondary offering from entities affiliated with Great Hill Equity Partners IV. The company was out with a press release this week announcing a new deal. Sounds like corporate law firm Warner Norcross + Judd LLP has selected Intapp’s DealCloud as its relationship management platform. BUY

Liquidity Solutions (LQDT) has been picking up a little momentum as the stock looks to move north of 18.5 for the first time since the December 7 correction. This week the company announced its Bid4Assets online marketplace (for distressed real estate) will be used by the Schuylkill County, Pennsylvania Sheriff’s Office to host the county’s first-ever virtual sheriff’s sale. There will be 18 properties listed. Bid deposits ($2,500) are due by April 5 with the first sale held on April 12 so if you’re interested get organized! BUY

Remitly Global (RELY) continues to hold up above the key 20 level, despite a close call last week. The stock enjoyed a nice rally on December 21 when Q1 earnings showed that the concerns over marketing that surfaced back in November were overblown. I think investors want to see another quarter of positive progress here. With the next earnings date not expected until early May, it would be nice to see RELY management give an update at a conference, though nothing is currently on the schedule. HOLD HALF

RxSight (RXST) continues to firm up from the little dip the stock had right after I recommended it. It might be helping that there’s some M&A speculation creeping into small-cap MedTech land with ShockWave (SWAV) rumored to have caught the eye of Johnson & Johnson (JNJ). Looking forward to hearing management speak at RxSight’s Capital Markets Day on April 6. Let’s fill the rest of our position. BUY SECOND HALF

TransMedics Group (TMDX) pulled back to its 200-day line around 72.5 last week and has improved a little early this week. Management held a meeting with analysts at J.P. Morgan last week. The notes from that reinforce TMDX management’s confidence in meeting 2024 guidance (consensus is for 52% revenue growth this year), getting to (and maybe beyond) 10,000 annual organs supported by OCS & NOP, building out the Aviation business and expanding margins. I think the dust-up with Arizona Congressman Paul Gosar may be driving some of the subdued enthusiasm here. That said, TMDX has still roughly doubled since early November so it may also just be that investors want to see another quarter of good results on the books given just how much the aviation business has changed the company. Piper Sandler analyst Matt O’Brien just picked up coverage of TMDX with a buy rating and 95 price target. HOLD A QUARTER

Weave (WEAV) is posting classic “nobody knows about me” small-cap stock action, and it can be a little trying because you want a little more excitement around some of these names. However, going back to the basics, Weave has a great little story (customer support software for specialized medical businesses like dental, optometry, veterinary, etc.) and a very nice growth profile (annual revenue growth around 15% with EPS moving into positive territory this year). Fourth-quarter 2023 results came in solid, with 2024 guidance above consensus. The company just announced an integration with Athenahealth. 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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