Today Donald Trump gets sworn in as the 45th President of the United States. To say he’s a polarizing figure is an understatement. I’m sure you’ve seen the headlines that say he’ll enter office with the lowest approval rating of any President in four decades. Naturally, Trump said these polls are rigged, which is consistent with what political strategists are calling his style of “deliberate chaos.”
There’s a lot one could say about all this. One subscriber told me last week that she’s very worried about what Trump will mean for the economy and the stock market. Others have said they’re increasingly optimistic. Again, he’s a polarizing figure.
But there has been some consensus among economists that see Trump as positive for the economy. That should come as no surprise given the rally in stocks that followed his victory. Last week, the World Bank kept its outlook for U.S. growth steady at 2.2%, essentially saying that global uncertainties, including protectionist measures, were a concern. And that it didn’t have enough clarity on U.S. policies to change its outlook. It wasn’t ready to make a call, just yet.
But the International Monetary Fund was. This Monday, the IMF raised its economic growth forecasts for the U.S. by nearly half a percentage-point, putting U.S. real GDP growth at 2.3% in 2017 and 2.5% in 2018. Also, forward revenue and EPS growth rates for the S&P 500 and 600 are rising. So is the relatively conservative National Federation of Independent Business’ outlook, which hasn’t been this high since 2004. The net percentage of businesses expecting the economy to improve jumped from 12% in November to 50% in December. I don’t poll businesses, but the few business owners I’ve talked to feel pretty good about things, even though many of them are concerned about how Trump presents himself.
Much of the economic optimism stems from Trump’s pro-business policies. I think many of us forget how the dramatic amount of government intervention became the norm during and after the Great Recession. Yes, there was too little regulation prior. But since, has there been too much? Many think so. I recall many a conversation with previous finance and economics professors who were astounded and concerned by the unprecedented government intervention in private markets. It’s hard to remember the feeling now that came from hearing the government would be taking stakes in publicly traded companies. But at the time, it was extremely concerning (as was the reality that it had to).
The pendulum looks ready to swing back the other way. That’s not what everybody wants. But that’s part of the cycle. Hopefully it doesn’t swing too far. I recently read that Trump’s top eight officials have only 55 years of combined government experience, but 83 years in business. In comparison, Obama’s team had 117 years in government, but just five years in business! I think it’s safe to assume a more pro-business agenda.
We booked a few profits after the big post-election runup in stocks. And with most of our positions holding firm right now, were sitting pat.
Off we go!
Updates
Aspen Aerogels (ASPN) The stock recovered a little more this week and is now in the third month of a gradual uptrend. That has finally stopped the 50-day moving average line from falling, which could help the stock show up on more stock screens, and theoretically, draw incremental eyeballs for those seeking energy-related infrastructure plays. Yesterday, management put out a press release introducing the Pyrogel XTE “Pony Roll,” which is an 80-square-foot-sized roll of 10mm thick Pyrogel XTE aerogel blanket insulation. As you probably know, building insulation is often sold in roll form, and it’s a lot easier to carry then the rectangular bundles—you don’t need to try and bear hug it, then squat and lift to get it onto the home center’s cart. Insulation is pretty much a pain in the neck to deal with, so anything that makes it less so is a plus in my book. I wonder who came up with the name “Pony Roll.” I like it, and suspect more than one installer will have fun yelling out to his co-workers, “Hey, I need another Pony Roll over here!” Good stuff. The stock’s a Buy. BUY.
Everbridge (EVBG) The stock hasn’t moved much over the past week so keeping at Buy. The company should be getting some good exposure this week, and especially today, given that its Nixle Community Engagement notification system is being used to inform Washington, D.C. area residents and visitors up to and during Trump’s Inauguration. It was selected by the U.S. Police Park for the task, and will cover safety, weather, traffic, event and emergency alerts in near real-time. Hopefully, it’s not needed too badly. The company also announced a very small acquisition yesterday. It’s bought Sweden-based Svensk Krisledning AB, which developed Crisis Commander, a SaaS mobile crisis management solution. The solution helps executive teams, business continuity managers and security professionals provide mobile access to recovery, crisis and brand protection plans, as well as to manage a crisis or event through role-based assignments and status updates. Even though Crisis Commander’s customer list includes Volvo, Nestle, Nissan and Siemens, it sounds like a very small company – Everbridge management said the acquisition won’t be material to revenue or profitability. BUY.
LeMaitre Vascular (LMAT) Health care and biotech stocks have been under pressure since Trump spoke out against prescription drug costs and the cost of healthcare during last Wednesday’s press conference. It hasn’t helped that there’s been no news flow related to LeMaitre recently, and that earnings are over a month away. The stock just dipped below its 50-day moving average, but will remain in a long-term uptrend provided it doesn’t fall below 22 (roughly). That area served as support when the stock pulled back at the end of November 2016 and it hasn’t fallen much below 23 since. I’ll be moderately concerned if it breaks and closes below 22, so I’ll keep a close eye on it. Keep holding half. HOLD HALF.
LogMeIn (LOGM) The stock was one of the better performers in our portfolio this week after jumping off last week’s retreat to its 50-day moving average. It looks to be making another run to 110. No fundamental news to report. Just keep holding. HOLD HALF.
Marrone Bio (MBII) The stock is doing what it did between mid-August and early November 2016. Which is to say, not much. That’s a synonym for consolidation. Which is actually a significant technical term because it tends to mean investors like the stock enough to hold on to it (i.e., no significant pullback) and are just looking forward to the next meaningful announcement (which is hopefully positive). Upon positive news, the stock jumps up a level (in this case let’s say 1.0 to 3.8) on high volume, then pulls back 0.6 or so, and then “does nothing” for a few more months. At least that’s the general idea—we’ll see when we get that next significant announcement. I expect it will be before April, which is about when Marrone should report quarterly results. As a refresher, remember that revenue over the last four quarters (starting with the most recent quarter) has been 47%, 50%, 29% and 73%. Those are impressive figures from a recovery play. This speculative stock is still a Buy. BUY.
MindBody (MB) The only meaningful news this week is that earnings are due out on February 8. The market expects 35% revenue growth and 53% EPS growth (to -$0.08). I’ll preview what we should expect prior to the big event. Let’s continue to be a little cautious after a big move to a 52-week high of 26.6. HOLD.
NanoString (NSTG) We’ve been watching the stock closely after it’s disappointing pre-announcement a couple of weeks ago. It’s still trading in the expected range after that event, and is above its 200-day moving average, so I’m suggesting we sit pat for now. It’s certainly not a strong looking stock, so I’m not going to up to Buy based on speculation that something great is on the near-term horizon. We need more details from management related to the second miss on instrument sales over the last 12 months before changing our tune. Earnings aren’t due out until around the beginning of March, so we’ll just hold on for now. HOLD HALF.
Ooma (OOMA) Last week, we learned that an early investor, Worldview Technology Partners (who previously owned 6.7 million shares), would sell 2.85 million of its shares, with another 425,000 up for grabs within 30 days. As I stated last Friday, “These aren’t new shares, so there is no dilutive effect to existing shareholders. It’s simply a large shareholder who wants to unload a block. Worldview’s ownership is roughly 37% of shares outstanding, so the offering will increase the stock’s public float (which is currently just 9.8 million of the total 17.9 million outstanding). This should increase trading volume, and I think will be a net positive. That said, it’s hard to know exactly what will happen when a bunch of new shares hits the market at a 6% discount to [Thursday’s] close. Logic would say it will trade around 8.65 for a few days, but who knows? The stock closed yesterday at 8.95. So there’s a little weakness, but nothing to run from. I still believe in Ooma and like the expanded product offerings I’ve discussed over the last two months. A lot still hinges on the company penetrating the small business market to a meaningful degree, as well as continuing to grow in the home market. It would seem that a meaningful advertising campaign would help with this, but that comes at some cost. I also wonder if any of the larger players are considering a jump into the VoIP market. It seems there would be an opportunity for someone like Google or Amazon to expand their connected devices business by acquiring Ooma. Amazon has its Dash Button. If it owned a VoIP phone player, such as Ooma, users could program it to do the same thing. Imagine, just press *1 to re-order laundry detergent. And *2 for diapers! I haven’t fully thought this through–just speculating. But it doesn’t seem like a totally unlikely scenario for handheld phones, which a lot of homes still have, to be turned into a multi-function connected device. BUY.
Primo Water (PRMW) I had a lot to say last week, but little to add this week. Other than that B. Riley reiterated at Buy and has a 16.50 target on the stock (37% higher than yesterday’s close). I’d love to see shares get there in the first half of this year. That would give us a 90% return. I’d drink to that. It’s still a Buy. BUY.
Q2 Holdings (QTWO) I also have little to say about Q2 after discussing the introduction of its new solution, Q2 SMART, last week. Technically, shares look fine. They’re right on their 50-day moving average line and the long-term trend is up. It’s a Buy. BUY.
USA Technologies (USAT) The stock had a poor showing this week, falling in four of the last five sessions. It failed to make a higher high, but is still capable of making a higher low, provided it doesn’t fall much more. The market is going to be looking for progress on earnings growth given all the revenue growth the company has posted, and so will we. Hopefully, that message resonates with management, or perhaps SmartCEO Magazine was a little premature in naming CEO Stephen Herbert as a Future 50 award winner this past week. I’m a little down on the stock this week given the decline in shares. But I’m still keeping the stock at Buy given that it shouldn’t take much to ignite another rally. BUY.
U.S. Concrete (USCR) Shares are still trading within my buy range and there’s been no new news over the past week. I’ll be very surprised if Trump passes on the opportunity to get into meaningful discussions of infrastructure spending after this weekend. The stock is a Buy. BUY.
Please email me at tyler@cabotwealth.com with any questions or comments about any of our stocks, or anything else on your mind.
