A quick note about next week. Cabot’s offices will be closed Thursday and Friday for Thanksgiving, so I’ll send a short and sweet update on Wednesday covering any significant news.
As far as today goes, the S&P 600 Small Cap Index has come up against a wall at 1,230, which is where support was in January and February.
Suffice to say it would be meaningful if we can get through this level. And if so, we’d then set our eyes on the 1,300 target, which is where the index turned south just before Jerome Powell’s August “There Will Be Pain” speech in Jackson Hole.
Big picture, the small-cap asset class is still trading at a heck of a discount compared to both large caps and its own historical valuation. But … the Fed. We need more evidence that inflation is cooling and that they’ll pause in early 2023.
Moving on from the index, on a more growthy note, software stocks are all over the place in the wake of the CPI and PPI readings. If you’ve been paying attention you’ve noticed how much they exploded higher at first. This is a good indication of how sensitive these types of stocks are to both real and perceived changes in interest rates, at least in the short-term.
On to our portfolio, there are no major changes this week. We are, hopefully, moving deeper into a “bad to less bad” phase of this market. If we believe historical precedent and the inflation trends it could be a lot more fun to be an investor in 2023 than it has been in 2022.
But let’s not look too far forward just yet. The Fed is up in mid-December, and that meeting will likely dictate the market’s tune into the end of the year.
Enovix (ENVX) made progress getting back up to its 200-day line and has pulled back a little there. The company put out a couple of press releases saying it has placed the remaining purchase orders for its Gen2 line. Co-founder and CTO Ashok Lahiri will be speaking at the 22nd Annual Advanced Automotive Battery Conference (AABC) December 5-8. This is a higher risk, higher potential return stock (similar to a small-cap biotech). Invest accordingly. BUY
Flywire (FLYW) has also pulled back from its 200-day line, which has become a pattern since mid-August. On a more positive note, the company has said it’s partnering with HDFC Bank Limited, India’s largest private-sector bank, to help Indian payers take care of international education fees digitally. This has been a growth market for Flywire. BUY SECOND HALF
Inspire Medical Systems (INSP) destroyed Q3 expectations and boosted full-year guidance by more than the beat. The only new news is that management will present at the Piper Sandler conference on November 30. HOLD
Procept BioRobotics (PRCT) grew Q3 revenue by 135% to $20.3 million, the fifth quarterly revenue beat in a row. Management raised full-year 2023 guidance to $72.5 million (+110%) from the previous range of $66 - $68 million (implies Q4 should be better than expected too). The stock looks good and we’ll keep at hold. HOLD
Rani Therapeutics (RANI) gave a Q3 update saying that Phase 1 data for RT-102 was good (RaniPill capsule containing human parathyroid hormone analog, or PTH) and that bioavailability of PTH was 300% to 400% higher than given via injection. Preclinical development of RT-111 (RaniPill Go capsule, with STELARA) was initiated with the Phase 1 study planned for 2023. In the coming months we’re looking for phase 1 repeat-dose top-line data of RT-102 (Q4 2022), initiation of the RT-102 phase 2 study in second half of 2023, and the initiation of three additional phase 1 studies in 2023. The company ended the quarter with just under $100 million in cash, which should stretch into 2024. HOLD
Repligen (RGEN) beat Q3 expectations and the stock was looking good, until the last two days. I know management spoke at the Stifel Conference (Nov. 15/16) and then Stephen’s Conference (Nov. 15/17) but I haven’t seen any news come out of those. Other MedTech tools/bioprocessing stocks DHR and TMO have also sold off. Keeping my eyes open and RGEN at hold. HOLD
Sprout Social (SPT) beat on both the top and bottom line, delivering Q3 revenue of $65.3 million (+33%), a $310K beat, and adjusted EPS of -$0.02, a $0.02 beat. Full-year guidance was increased modestly to about $254 million and implies 35% growth. The stock has looked better than the vast majority in SaaS land. HOLD HALF
TransMedics Group (TMDX) reported Q3 revenue of $25.7 million (+378%) and EPS of -$0.25 (beat by $0.15). Management raised full-year guidance from $67 - $75 million to $80 - $85 million, far above consensus (about $76 million). The stock moved above resistance at 56 on the news but hasn’t really broken out. It’s moving sideways in a tight trading range now. HOLD THREE QUARTERS
Treace Medical (TMCI) fell early this week on a short-seller report. I provided an update via Special Bulletin saying we’d move to hold half until we could get a better handle on things. I saw an update from Morgan Stanley in which the analysts pushed back against the short seller’s claims (they continue to like the stock). I think this will blow over as well, but at the same time in this environment it’s wise to be a little cautious. We’ll keep at hold half for now. HOLD HALF
Xometry (XMTR) delivered a solid Q3 as revenue rose 83% to $103.6 million (beating by $200K) and adjusted EPS of $0.11 beat by $0.13. The catch was that fourth-quarter guidance of $104 to $106 million (+55% to 58%) was below expectations of $116 million. Management said it needed to tweak its algorithm after the company spent a few weeks taking tons of orders at lower-than-ideal prices. This sounds like a short-term issue that’s since passed. Still, we’ll keep the stock at hold a bit longer. HOLD
Please email me at email@example.com with any questions or comments about any of our stocks, or anything else on your mind.