This was another one of those weeks where you look at what the S&P 500 did—up 1.5% to a 52-week high—and you look at what the S&P 600 Small Cap Index did—up 1% to 945 and back above its 50-day line, but well off its 2019 high of 994 (let alone its 52-week high of 1,100) and you think the big picture is pretty good, but this still isn’t a broad-based market rally.
Then you look at our portfolio, which was up an average of 7% and now has an average gain of 105%, and you feel pretty darn lucky.
The thing about a hot streak is it always ends. That’s not exactly what you want to hear. But I do want to temper expectations a little. We’re doing great—but it won’t last forever!
That said, I’m not about to change what we’re doing. We’ve been invested in the right places, and it’s rewarding to see the recent strength in MedTech stocks, some of which have gone vertical. Just look at Quanterix (QTRX)!
Keep doing what you’re doing. Average up in the stocks that are strong, but not too strong. Establish full positions in buy rated stocks that you like but don’t yet own. Hold the rest. And let’s keep a watchful eye on any shift in market perception of what the Fed is doing, and this escalation with Iran, which is evolving into the biggest single near-term issue in my mind.
Changes this week
Codexis (CDXS) moved from Hold to Buy.
Updates
AppFolio (APPF) charged 10% higher this week as it stepped out to a new all-time high above 105. There’s no public news driving the strength. I’ve had at Hold and will keep there, despite the strength. HOLD.
Arena Pharmaceuticals (ARNA) was flat this week and is trading roughly 5% off its 52-week high. The stock looks good; the trend is up and shares jumped above resistance around 50 a few weeks ago. This week management announced it had dosed the first patient in the first of two Phase 3 trials (ELEVATE UC 52) evaluating etrasimod in patients with severely active ulcerative colitis (UC). This trial runs for a year with around 370 patients. A separate 12-week study, ELEVATE UC 12, should be starting soon too and include around 330 patients. Patience is required; management doesn’t plan to release data until 2021 when both trials have been completed and 12-week clinical remission can be assessed. BUY.
Avalara (AVLR) jumped 10% this week, putting the stock just a hair beneath its all-time high from early May. Shares look strong and it seems the market opportunity is huge for Avalara, especially with demand for sales tax automation solutions rising in the wake of the Wayfair Supreme Court decision. BUY.
CareDx (CDNA) has been a hot performer lately. The stock briefly touched an all-time high above 39.38 but pulled back yesterday. We don’t have a confirmed breakout here, so we’ll stick with a Hold rating for now. HOLD.
Codexis (CDXS) was moved to hold a couple weeks ago due to a deteriorating chart but looks better now. Shares were up 9% this week, bringing us back to breakeven. Management announced a $50 million investment (through a private placement) of Casdin Capital, which is a current investor. That’s a decent show of confidence. Other than a general statement about using the capital to fund growth initiatives, we don’t know details. But this will certainly be discussed at some point. Shares have popped back above their 50- and 200-day moving average lines and are nearing the middle of a trading range from 15.4 to 23 (a roughly 35% range). There’s a decent chance of a run higher from here so aggressive investors can buy. Moving back to Buy. BUY.
Domo (DOMO) was moved to hold last week given its rocky trading action. It was up 3% this week, but the stock’s far from having a real trend going. There’s a chance (hopefully) that shares will trade sideways here and start to build a base they can then move higher off of. But until the evidence improves, we’ll play it cautious and just sit pat. HOLD.
Everbridge (EVBG) stepped out and rallied 14% to a fresh all-time high this week on renewed enthusiasm about international growth potential following the news it will power Australia’s Nationwide Alerting system and the hiring of former COO of Rackspace, David Meredith, as the new CEO. As previously announced, current CEO and Chairman of the board, Jamie Ellertson, moves to the role of Executive Chairman where he will focus on big picture, strategic initiatives. Everbridge is another stock, like Repligen, that has immense scarcity value. It’s just not that easy for a competitor to build a platform/solution set that can reach citizens in over 200 countries on various devices, in their native language, to deliver notifications of utmost importance. The market opportunity surpasses $40 billion. And Everbridge is going after it. In addition to Australia, the Netherlands, Greece and Sweden are rolling out Everbridge’s solution. There are four more RFPs out in the EU, with up to six more coming this year. The incentive for countries to go with Everbridge, when their neighbors already have, is big. We’re up over 500%. HOLD.
EverQuote (EVER) gave back 4% on no news this week. In the near future we’ll be looking for management’s updates on expanding into new verticals, including renters’, health and commercial insurance. EverQuote is a play on the shift to online insurance shopping. BUY.
Goosehead Insurance (GSHD) was welcomed to the portfolio last September when it was trading around 31, down from a high of 38. The stock then spent roughly 150 days trading in the 20.5 to 38 range, although around 75% of the time it was trading between 24 and 30. Still, there wasn’t a lot of direction. Shares gathered momentum in April, tested their highs near 38 in May, then after a little pullback have jumped higher with conviction. The stock was up 13% this week. There’s no new fundamental news or big change to the story. It seems the market is just coming around to the stock, which needed time to digest a big post-IPO rally. We’re looking for 50% revenue growth this year and EPS of around $0.43, then 33% revenue growth in 2020. I’m keeping at Buy since this could easily be the beginning of a sustained run. But keep new positions small. BUY.
Q2 Holdings (QTWO) is up 7% this week and trading at all-time highs. This strength after raising capital through convertible debt and an equity offering is a good sign. There’s no news to report. Keeping a Buy. BUY.
Quanterix (QTRX) is simultaneously one of my best and worst recent calls. I recommended the stock at 25 (and change) in early April. And it’s since run to 36, handing us a 40% paper gain in two and a half months. But I moved the stock to hold two weeks ago, when it was 20% lower! The stock has surpassed all expectations in the short term and could have more upside still. It’s early stage enough where any number of great things can happen in a short time frame. Still, bad things can happen too and with the stock having gone vertical there’s no way I’m moving back to buy now. Now is a good time to enjoy the ride, but not double down on a stock that’s red hot. HOLD.
Rapid7 (RPD) is our only security software stock and after consolidating in an 18% range for 33 days shares jumped and closed at fresh highs. Amidst a strong backdrop for security software spending Rapid7 stands out for its successful pivot to a subscription software model, success launching new solutions, and far-better-than-expected top- and bottom-line growth. Revenue should be up 33% this year and 22% in 2020, while EPS should improve from a loss of -$0.41 in 2018 to $0.05 this year and $0.39 in 2020. With shares up 10% this week and 119% since I first recommended them last March, I’ll stick with a Hold rating for now. HOLD.
Repligen (RGEN) is our bioprocessing stock and in this environment, when MedTech stocks are rallying, it’s easy to see why Repligen is leading the charge. Aside from its technical edge in specialized markets, there’s the big picture trend toward more personalized medicine and small batch drug production. Repligen is a great way to play this. The stock is undoubtedly a potential acquisition target, although it’s doing just fine on its own! I see potential for this run to extend into the high 80s. But it is extended here. You can buy a few more shares but take it easy and be prepared for Repligen to move to hold soon. BUY.
Upland Software (UPLD) announced an integration this week with Microsoft Teams, which is used by over 500,000 organizations. The integration is for Upland PowerSteering, and will allow users of that solution to collaborate, communicate, share documents and schedule meetings directly from within the Upland solution. The stock looks healthy, rose 6% this week, and appears on trend to keep the pattern of higher highs and higher lows going. BUY.
Please email me at tyler@cabotwealth.com with any questions or comments about any of our stocks, or anything else on your mind.
