May 25, 2023

The market was looking pretty good through last week. Then this week, with no meaningful progress on the debt ceiling, momentum has deteriorated.

Yesterday afternoon U.S. House Speaker McCarthy was on a roll, saying that things are going a little better, that he won’t put a bill on the floor that spends more than last year and that the President is realizing he has to spend less.

JPMorgan says they put the odds of no debt ceiling deal by early June at around 25% and rising.

The Treasury has asked for payment clarity as debt ceiling default looms.

Meanwhile, Fed minutes from the May meeting came out.

They showed some Fed members talking about bumping up the target inflation rate of 2% once they’ve achieved their goals. Seems a little weird to adjust a goal after you’ve achieved it, but who am I to question the Fed?

There was also talk of how the banking crisis has helped tighten financial conditions (no surprise there), about how a pause in June may make sense (data dependent of course), that a delayed debt ceiling deal may lead to tighter financial conditions (obvious) and that it’s crucial the Fed not signal rate cuts this year or rule our more hikes.

In other words, the Fed wants to keep us guessing. And so do the folks in Washington.

That type of uncertainty is not good for the market. But we’ve been thrown a lifeline today by Nvidia’s (NVDA) insane quarter (largely thanks to AI chips for cloud service providers), which has lifted enough technology stocks to put the market in the green for the morning. The company’s quarter provides further evidence that AI is becoming a foundational technology much like the cloud was over a decade ago.

Still, it’s a little annoying that we’re back to focusing on macro conditions after a relatively good earnings season that had turned the attention back to company specifics.

As important, through last week, analyst consensus earnings were showing growth in 2024 versus 2023. That’s exactly what the market needs to get in gear as it tends to look forward about a year.

In small-cap land, through this week, the S&P 600 SmallCap Index continues to look weak, largely thanks to financials and energy. But most of our stocks are doing just fine.

This morning we’ve heard from more Fed officials saying a pause in interest rates is appropriate. And key Republican Hern says a debt-ceiling deal is “likely” by tomorrow afternoon. It should go without saying that negotiators won’t have a great Memorial Day holiday if they don’t get it done. That may just be a better motivator than the fallout of no deal.

It’s a week of very limited stock-specific news. But here’s what we have.

Recent Changes
None

Updates

Alphatec (ATEC) is down fractionally over the last week. No major developments. Management will go on the road starting next week to speak at Wells Fargo (June 1), Jefferies (June 7) and Goldman Sachs (June 14). BUY

Enovix (ENVX) presented at a JPMorgan conference yesterday. President, CEO & Director Raj Talluri did the speaking. I thought it was a good presentation. He took listeners through the story again and talked about the growth strategy. Nothing new was discussed, but it was good to hear consistency with the Q1 report and affirmation that things are tracking as expected. I think it would be helpful for the stock if the financing deal with YBS in Malaysia could be finalized. Next conference up is B. Riley (today) then Craig-Hallum (May 31). The next milestone for the company is Factory Acceptance Testing for Gen2 in August, to take place at the equipment provider’s site. If all goes well, equipment goes to California and Malaysia for Site Acceptance Testing. HOLD

Expensify (EXFY) has come up from its lows below 6 over the last week. I expect some of the buzz from the ExpensiCon conference is the reason. The company has made a few product-related announcements, including most recently that Expensify Chat is available for accounting firms and their clients. The idea is that keeping communications on the Expensify platform will be a heck of a lot more efficient. It will be interesting to see if this catches on given that, while accountants may work within Expensify, their customers are more likely to want to stick in their comfort zone (email, etc.). That said, anybody working with an accountant knows they set the rules. If they say you need to use xyz platform, you’ll do it. HOLD

Flywire (FLYW) spoke at the JPMorgan conference on Tuesday and mostly reiterated the positive trends discussed on the Q1 earnings call. With education and healthcare being two of its biggest markets, the business should be relatively stable, even if the economy takes a dip. FLYW made a 12-month intra-day high Tuesday. BUY

Huron Consulting (HURN) was moved to sell last week. We booked a very small profit. The stock has just been too volatile for what it is. I didn’t think we were getting properly compensated for dealing with the volatility. SOLD

Inspire Medical Systems (INSP) reached a new all-time high on Monday. And on Tuesday management presented at the Wells Fargo MedTech conference. I haven’t had a chance to review that presentation yet but suspect it’s largely the same pitch from the BofA conference in Vegas, which I summarized last week. HOLD TWO THIRDS

Intapp (INTA) has come up from its lows of last week after it launched a secondary offering priced at 37.5 (just below 40 at yesterday’s close). As I’ve said in the past, these types of offerings give us a good idea of the demand for a stock. Management spoke at the JPMorgan conference. I didn’t get a chance to listen to the call but reviewed highlights of the transcript. Management talked about how Covid helped push more of its target market to the cloud and that it’s continuing to work on its applied AI strategy and rolling out the technology into more solutions (such as relationship intelligence and compliance). HOLD

Rani Therapeutics (RANI) was sold. No new news. SOLD

Repligen (RGEN) had a nice string of five consecutive positive sessions, until yesterday’s little dip. At this price, the stock has recovered fully from the 11% drop on April 25 for the second time. The first little rally was cut short by the earnings report. The evidence suggests that, like a lot of stocks, RGEN simply needs a more constructive broad market to perform better. HOLD HALF

Si-Bone (SIBN) has had another quiet week in terms of news flow, which is a welcome relief after the big moves following earnings and the secondary offering. Shares are off over the last two days, which is not surprising given how strong the stock has been over the last two weeks. Management will speak at the Jefferies Healthcare Conference on June 7. BUY HALF

Terex (TEX) continues to act better, as evidenced by an upward-sloping 20-day moving average line. The company will pay a $0.15 quarterly dividend on June 20 to shareholders of record as of June 5. No major news. BUY HALF

TransMedics Group (TMDX) hasn’t done great since a $400 million convertible note offering was announced. There is some uncertainty in terms of what a TransMedics Aviation business will look like, what the margins will be, etc. As I said last week, I suspect TMDX stock won’t do a ton until we know more about this new proposed venture. 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.