With earnings season largely over most of our stocks are now moving based on news that affects the broad market, and less on company-specific trends, with a few exceptions.
Unfortunately, most of the news lately has raised more questions rather than provided answers. Weighty subjects like interest rate policy, global growth potential, trade war impacts and so on aren’t easy to answer.
More often than not they just lead to more speculation, which is why the market is getting yanked around. Things are further complicated because what happens on one front could easily affect what happens on another. Interest rates too high? Why not threaten to ramp up the trade war. It’s all very confusing.
The best thing to do in this environment is try not to react too sharply and get thrown off course. I’m not saying we should put our heads in the sand—that’s not the right thing to do either. But recognize that in this environment a tweet about what may or may not happen moves the market but doesn’t mean things are set in stone. Things are fluid and subject to change hour to hour (or not, as the case may be).
Stay grounded, stick with your strongest stocks, add a little selectively to strong stocks that have pulled back, and sit on, or ease out of, stocks that are down, and going down further.
Everbridge (EVBG) Moved from Hold to Buy
Updates
AppFolio (APPF) is 40 days into a consolidation phase that has seen the stock trade between 88.4 and 110. As I said a couple weeks ago I think we’ll be moving mostly sideways here for a little while so no rush to buy. AppFolio was formed in 2006 to provide cloud-based software solutions for small businesses in the property management and legal services industries. Revenue should be up around 32% this year and EPS should jump 60%, to $0.90. HOLD.
Arena Pharmaceuticals (ARNA) suffered a big pullback after reporting a few weeks ago that cut the stock down by 10 points, to 50. It has popped back up into the mid-50s since and is now 15% off its high. There’s nothing particularly wrong with the stock and as I reported after earnings Arena still has immensely valuable assets, provided they work, and investors need to be patient as it’s still a couple years until a potential treatment could hit the market. As the probability of success for individual treatments creeps higher the stock should follow. As we move into this time next year we should start to get some data, which could lead to steep changes in the stock price. BUY.
Avalara (AVLR) is a cloud-based provider of sales and indirect tax compliance software. This past weekend I met a woman who said her father was a good friend of the founder (she lives in L.A.) and described him as one of those people who can’t help but have good ideas and make money. That’s a good talent! I didn’t do a lot of digging to try and verify her claims but even if she was stretching the truth a little it’s always cool to be surprised by somebody that you wouldn’t expect to know anything about small-cap stocks. Avalara is still looking good. The stock is just 7% off its post-earnings spike to 94.31. BUY.
Bandwidth (BAND) is our newest addition, having just been added at the beginning of August. It’s doing exactly what we hired it to do. When I recommended BAND it was in the middle of a 50-day consolidation phase in the 68 to 82 range. Over the last two weeks shares have broken higher and are trying to push up through 90. We’re up around 13%.
If you missed the issue, Bandwidth is a $2 billion market cap company that has developed one of the leading cloud-based communications (CPaaS) platforms out there for large enterprises. This platform helps Bandwidth’s customers build, scale and operate software-based voice, messaging, and emergency service-related communications tools. Google (GOOG) uses Bandwidth Voice in its Google Home smart speaker to power outbound calls. Amazon’s (AMZN) Alexa does too. Microsoft (MSFT) also uses Bandwidth Voice and Messaging in some applications, including Skype. Revenue should be up 20% this year, but it will be 2021 or so until the company is profitable. Keeping at Buy. BUY.
CareDx (CDNA) has been a hard stock to like lately given that it’s fallen below its 200-day line and is back to where we got into it. Stepping back, it’s not all that surprising that shares have stagnated—they had a heck of a run from mid-2017 through late-2018. But we never like it when one of our stocks has made no net new progress over the last 12 months, which is the case with CareDx. The stock seems stable right now around the 23 level so no change to my hold rating today. But I am watching it closely and won’t hesitate to cut it loose if things deteriorate. The company specializes in noninvasive diagnostics solutions for heart and kidney transplants. HOLD.
Codexis (CDXS) was cut a few weeks ago after the stock broke down. No change. SOLD.
Domo (DOMO) is another stock that’s just barely clinging on. We’re trying to get to the September 6 earnings date to see how the market reacts to what should be a generally healthy business with good long-term growth prospects. I’ve been reading more about what 5G will mean when it gets here, and one of the interesting things is that it will allow much more powerful applications to run on mobile devices. Given that Domo is a business intelligence platform that integrates with all the applications out there that generate and store data, a more powerful network will be a plus. Recall that one of the major selling points to senior executives is that Domo can help them run their businesses from their mobile devices. That’s the future and it’s a big idea. But that doesn’t mean the stock will go straight up (as it did in the first three months of 2019). Same story as before; huge market potential but weak stock. Keep Holding but know I’m not afraid to cut the stock if it breaks lower. HOLD.
Estimated Earnings Date: 9/6/19
Everbridge (EVBG) corrected a few weeks ago but has firmed up lately and remains well above its 200-day line. The stock has scarcity value, which makes it expensive. Its powerful software, available globally, and the best in the biz. If you forget what the company does, Everbridge was founded in 2002, shortly after the 9/11 attacks, to provide fast, automated communications services during life threatening situations and mission-critical business events. The software platform powers apps that help organizations and government entities keep people safe, and business running. Get the app and see if it’s available in your neighborhood. With shares 18% off their high but looking stable I’m moving back to Buy. BUY.
EverQuote (EVER) is an easy stock to like. I just recommended it on June 7 and shares are already up around 90%. Much of that was due to the blastoff rally after Q2 earnings came out (shares jumped over 50% the next day). But the stock had appreciated going into the event and has done well afterwards too. In fact, EVER jumped out to a post-IPO high around 25 earlier this week.
If you forget what it does, EverQuote offers an online shopping place where consumers can compare and buy insurance policies. It was started in 2011 and went public in 2018. With over 11 million consumer visits per month, EverQuote operates the largest online marketplace for insurance shopping in the United States. While we’re still early in the shift to online insurance shopping, the trend is unmistakable, which is why insurance carriers continue to integrate their marketing efforts with EverQuote and pay the company for referrals. Revenue is projected to be up around 38% this year and 18% in 2020, but that forward estimate isn’t baking in much contribution from new verticals, including health insurance, which could be a major growth initiative. Despite all the bullish trends I moved the stock to Hold and am keeping it there for now since it’s gone vertical lately. Let’s let things settle down. HOLD.
Goosehead Insurance (GSHD) is shaking up the insurance brokerage market by building an independent personal lines insurance sales and support platform and deploying it at a national scale, through a hybrid corporate and franchise distribution model. It’s the only publicly traded insurance broker of its kind out there. Its focus on auto, homeowners’ and other personal lines (boat, umbrella, etc.) gives it access to a sticky market with high renewal rates. The company reported a good quarter earlier this month and shares are about flat since. We’re now 35 days into a consolidation phase in which GSHD has traded between 40 and 51.47. Keeping at Buy. BUY.
Q2 Holdings (QTWO) is one of our best-performing stocks right now, trading just 3% off its all-time high. After the Q2 2019 report shares jumped 15% higher and have walked up from there. Revenue was up 33% and the sales team landed three Tier 1 banks in the quarter, prompting an increase to full-year revenue, which goes to $315 million (at the midpoint), implying just over 30% growth. Don’t go buying any huge positions, but if you want to add a little around here that’s still fine. BUY.
Quanterix (QTRX) can be a volatile stock but we knew that going in. The company is commercializing a disruptive protein analysis technology that has the potential to detect disease in seemingly healthy, asymptomatic people, with simple blood draws taken as part of routine health screening. The industry term for this emerging field is proteomics. It encompasses both genomic and protein research. Just like the sequencing of the human genome advanced our understanding of the human body, proteomics has the potential to change the game with respect to diagnosing, treating and even preventing disease and injury. But it’s early days and far from being adopted wholesale by the market.
Quanterix just completed a secondary offering at 25.25 which brought in around $75 million and will help increase the float. Shares are above that level now. I’d like to see a little more trading action post-secondary so for now am keeping at Hold. HOLD.
Rapid7 (RPD) is in the midst of a normal-looking pullback that has the stock 17% off its high but well above its 200-day line and near the high end of its March through mid-June trading range of 47 to 57. The company, which offers cloud-based software solutions that help customers better understand, prioritize and address the threats facing their physical, virtual and cloud assets, is landing larger deals, more multi-product deals, and more customers. And that’s why the stock is still relatively strong. I think this is a buyable pullback. BUY.
Repligen (RGEN) sells bioprocessing supplies to life sciences and biopharmaceutical companies around the world. It plays in a highly specialized field, and with the trends pointing toward more personalized medicine and small batch drug production, the company’s equipment is more critical to its customers’ long-term success than ever. Shares are trading just 6% off their all-time high and above the secondary offering price of 87 from mid-June. Keeping at Buy. BUY.
Upland Software (UPLD) was cranking through most of June then lost momentum in July and has fallen asleep in August. Like many of our stocks that have stalled out, there’s nothing particularly wrong with it—shares are just digesting their gains as the market tries to figure out which way it wants to go. If you forgot what Upland does, the company provides cloud-based Enterprise Work Management (EWM) software to companies where collaboration and teamwork are critical to their operations. This software is designed primarily for people in mid to large organizations (Upland has small customers too) that work in dynamic, knowledge-based work environments all over the world. Management just announced another small acquisition this week. It will acquire Cimpl, which has developed a cloud-based telecom expense management platform. The product will be wrapped up in Upland’s Project & Financial Management Solution Suite. The price paid was $23 million, and should add around $8 million in revenue a year as well as $3.6 million in Adjusted EBITDA. Keeping at Buy. BUY.
Veracyte (VCYT) is 18% off its all-time high and roughly 13% off our entry point. That’s not great, but it’s mostly a function of timing (not all of our stocks can go up right up after I recommend them!), not anything wrong with the stock. The chart still looks great and shares are just a touch below their 50-day line.
If you forgot the big idea here, Veracyte specializes in genomic diagnostics solutions that can help detect disease early and inform treatment decisions. The company has four commercialized first-to-market genomic tests; Afirma for thyroid cancer, the companion Afirma Xpression Atlas (XA) test for genomic alteration content, Percepta for lung cancer, and Envisia for idiopathic pulmonary fibrosis (IPF). They’re all minimally invasive, requiring just a single fine needle aspiration (FNA biopsy), nasal swab, airway brushing, or sample taken during bronchoscopy. All tests are covered by Medicare. The company has an addressable market of around $2 billion now, but that could surge to $30 billion if some of its current projects come to fruition, including a nasal swab test that could detect more types of lung cancer. Revenue should be up 33% this year, but Veracyte will not be profitable for a few more years. Keeping at Buy. BUY.
