After bumping up against its 200-day moving average line the S&P 500 has pulled back this week. The S&P 600 Small Cap Index has followed suit.
Thus far this doesn’t look like anything other than a normal pullback, and one that’s not at all surprising given the big-picture cross currents out there. An uncontested break and rally above either index’s 200-day line would have been more surprising.
It’s been something of a wait-and-see week as most investors are waiting to hear what Fed Chair Jerome Powell has to say on Friday at the Economic Policy Symposium in Jackson Hole.
Most likely we won’t learn anything new. But the market will still be looking for any comments related to whether or not the current federal funds rate is neutral and/or if it needs to move significantly more constrictive. We may hear more about the Fed’s balance sheet as quantitative tightening is set to ramp up in September.
Take note: The current federal funds rate of 2.25% to 2.5% is well below the current 10-year rate of 3.1% and also below the market’s expectation of a 3.5% to 3.75% rate by year end.
Also notable is that market expectations for the Fed’s target rate following the September meeting are now tilted 60/40 toward a 75bps hike versus a 50bps hike. That’s about the opposite of where the odds were a week or two ago, and it explains some of why the market has softened recently.
Recent Changes
None
Updates
Avalara (AVLR) announced a buyout from Vista Equity Partners a few weeks ago. We elected to sell our remaining stake for a 130% gain and look for other opportunities for that capital. SOLD
CS DISCO (LAW) reported two weeks ago with quarterly results that were OK but not great and forward guidance fell well below expectations. We elected to step aside from LAW and look for fresher opportunities. SOLD
DigitalOcean Holdings (DOCN) announced it will acquire Cloudways, a managed cloud hosting and software-as-a-service (SaaS) provider, servicing small- to medium-sized businesses. The two businesses have been working together since 2014 and DigitalOcean infrastructure powers around 50% of Cloudways customers. The $350 million acquisition will add around $14 million to fiscal 2022 revenue (Cloudways’ total fiscal 2022 revenue should be around $52 million). Cloudways’ three-year compound growth rate is over 50%. The deal will not hurt this year’s profit margin or cash flow. Seems like a logical deal. BUY HALF
Flywire (FLYW) pulled back last week but remains near its 200-day line. The company reported a solid Q2 and with management still investing in growth and a relatively stable business I like the stock. BUY HALF
Ingles Market (IMKTA) made a new intra-day high and a new closing high this week. But we don’t have a major breakout just yet. BUY
Inspire Medical Systems (INSP) dipped below its 200-day moving average line late last week but so far this looks like a normal pullback for the stock. Revenue in Q2 was up 73% and full-year growth should be in the +52% to +55% range. HOLD
Procept BioRobotics (PRCT) bumped up against overhead resistance near an all-time high last week and is now 9% off the high-water mark. Big picture, the stock still looks like a hold. Management will present at the Wells Fargo Healthcare Conference on September 7. HOLD
Rani Therapeutics (RANI) is back to doing its thing, which is moving between 10 and 13. No news. Continue to hold. HOLD
Repligen (RGEN) sold off late last week and seems to have found short-term support near 220. That’s higher than the stock was just prior to earnings. It may be that there was some speculative buying in the name following the rumors of a RGEN-CTLT tie-up. But I never thought that deal made much sense and I suspect larger investors felt the same so most of RGEN’s move since mid-July is probably based on fundamentals. HOLD
Sprout Social (SPT) pulled back to its sideways-moving 50-day line over the last week and a half. No news. HOLD HALF
TransMedics Group (TMDX) is our top dog this week as the stock has blasted higher to an all-time high and through overhead resistance at 50. I’m not saying anything more, other than that I like the move! BUY HALF
Xometry (XMTR) has given back its earnings-related pop. But I don’t think it will take too long for the stock to get back into the mid-50s, provided the broad market is reasonably cooperative. It’s hard not to notice 80%+ growth and XMTR has a compelling business and a good amount of momentum. HOLD
Please email me at tyler@cabotwealth.com with any questions or comments about any of our stocks, or anything else on your mind.
| Stock Name | Date Bought | Price Bought | Price on 8/24/22 | Profit | Rating |
| DigitalOcean Holdings (DOCN) | 6/2/22 | 49 | 46 | -6% | Buy Half |
| Flywire (FLYW) | 8/4/22 | 25 | 26 | 4% | Buy Half |
| Ingles Markets (IMKTA) | 5/5/22 | 95 | 98 | 3% | Buy |
| Inspire Medical (INSP) | 10/4/19 | 59 | 212 | 262% | Hold |
| Procept BioRobotics (PRCT) | 3/3/22 | 25 | 43 | 72% | Hold |
| Rani Therapeutics (RANI) | 10/7/21 | 17 | 10 | -40% | Hold |
| Repligen (RGEN) | 11/2/18 and 12/31/18 | 59 | 230 | 288% | Hold |
| Sprout Social (SPT) | 9/3/20 | 36 | 61 | 68% | Hold Half |
| TransMedics Group (TMDX) | 7/7/22 | 34 | 53 | 54% | Buy Half |
| Xometry (XMTR) | 1/6/22 | 53 | 46 | -12% | Hold |