“Now we are all being forced to participate (in one way or the other, though mostly as observers) in the greatest circus of all times. I guess that is only fitting now that Ringling Brothers is going out of business. Instead it will be Cirque du Trump 24x7 for the next four years.”—Dr. Ed Yardeni, January 25, 2017
The market had a relatively good week. Small caps were in a dip at the end of last week, but jumped back into action this week as the S&P 600 Small Cap Index lead the market with a 1.7% rise.
The S&P 500 was up 1.2%. Interestingly, small-cap growth (up 2%) outperformed small-cap value (up 1.4%), but in the large-cap index, it was 1.2% across the board. Sector-wise, the rise in small caps was diverse, with tech, financials, energy, industrials and materials all up over 2%.
Year-to-date, this is what things look like broken down by sector and market cap.
Our portfolio outperformed over the past week with our average position rising by 2.6%. We had a few that really lead the charge, most notably Primo Water (PRMW), up 10%, US Concrete (USCR), up 9%, and Ooma (OOMA), up 7%. And we had a few stinkers as well, with uncharacteristically poor performance coming from LogMeIn (LOGM), down 5%.
It feels like we’re in for a period of volatility, so strap yourself in. Lower than expected Q4 GDP growth (1.9% versus 2.2% expected) is likely to cast a shadow over the market today. And, of course, trying to distinguish fact from fiction when analyzing statements coming from the White House is causing some market indigestion (though not as much as I expected, so far).
Despite the noise, earnings season is off to a decent start and analyst have been raising their forward growth estimates (revenue and earnings) for both 2017 and 2018. Still, the forward P/E of the S&P 600 is hovering around 20. I think that caps upside for the index until there is a lot more clarity on what all the chatter will mean for the economy.
Where the small-cap index goes certainly matters. But more important to us is where our individual stocks go. Our stocks will start to report the week after next. And with nothing looking totally overstretched or completely beat up (though a few positions bruised), we’re holding the line today. One change: Q2 Holdings (QTWO) moves to Hold.
Updates
Aspen Aerogels (ASPN) Shares have continued to climb and added 6% this week. That comes after a 4% rise last week. They also just broke above the 4.5 threshold as talk of infrastructure spending and pipeline approvals in the U.S. continue to support improving sentiment toward energy infrastructure and services stocks. With the trend continuing to work in our favor, I’ll keep the stock at Buy. BUY.
Announced earnings release date: February 23
Everbridge (EVBG) The stock has traded in a wide range over the past two sessions. But it added 5% since last Thursday’s close. No fundamental updates. Keeping at Buy, but recommend trying to buy on a dip below 19. BUY.
Announced earnings release date: February 27
LeMaitre Vascular (LMAT) Health care and biotech stocks are still underperforming, but LeMaitre managed to trade sideways (down 1%) over the past week. As I stated last week, the stock will remain in a long-term uptrend if 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. Given the close at 23.14 yesterday, I continue to recommend holding half. HOLD HALF.
Estimated earnings release date: February 24
LogMeIn (LOGM) The stock was exceptionally volatile yesterday after topping out at a 52-week high of 110 on Tuesday. Yesterday’s 6.4% decline came two days after it was announced that the company would join the S&P Mid Cap 400 index on February 1, one day after it announced that shareholders had approved the issuance of shares to equity holders of Citrix Systems, and also the first trading day after Citrix reported (shares of Citrix were down 5%, even though it beat expectations). There’s a lot going on with LogMeIn, and the closing of the merger on January 31 is likely going to make for some funky trading action for at least another week or so. This was expected. Shares have pulled back near their 50-day moving average (a 5% decline over the past week) and are still rated Hold. They should firm-up as we get closer to the February 28 Q4 earnings release. Just keep holding. HOLD HALF.
Announced earnings release date: February 28
Marrone Bio (MBII) The stock continues to consolidate in the 2.0 to 2.6 range (potentially tightening to the 2.15 to 2.5 range) and is trading on very light volume. As I said last week, we’re in a holding pattern here until the next meaningful announcement (which is hopefully positive). The company should announce quarterly results before April, so we may be waiting a while. The speculative stock is still a Buy. BUY.
Estimated earnings release date: April 1
MindBody (MB) Shares broke a five-day winning streak yesterday when they dropped 2.5% to close at 25.15. The most recent dip took us down to 24.35, so we’d like to see the stock hold above that level. Earnings are due out the week after next, so we’re marching closer to a major update. In focus will be MindBody’s profit trend. Revenue growth for the year is expected to come in around 37%, while EPS is expected to improve by 50% to -$0.39. Around 30% revenue growth in 2017 should drive economies of scale and push EPS up by around 65%, to -$0.13. HOLD.
Announced earnings release date: February 8
NanoString (NSTG) There’s nothing new to report with NanoString, which has more or less been moving sideways since its disappointing pre-announcement a couple of weeks ago. Technically, it added 2% this past week. But that’s not notable. It’s still trading in the expected range after that event, and is above its 200-day moving average, so continue to sit pat for now. HOLD HALF.
Estimated earnings release date: March 1
Ooma (OOMA) I theorized that Worldview Technology Partners’ sale of 2.85 million of its shares (with another 425,000 up for grabs within 30 days) would be a net positive after some initial weakness given the offer price of 8.65. The stock dipped last Thursday to 8.95, but since then, it’s been all upside. Five good days have shares making another run above 9.50. At 9.65, this is the fourth spike to this level since the beginning of September 2016. Is it the beginning of a move above this rather boring consolidation phase that’s held the stock between 8 and 10 for six months? That would be nice. BUY.
Estimated earnings release date: March 8
Primo Water (PRMW) The stock leapt back into action this week, rising 10% over five straight days and ascending to a two-month high of 13.49. There’s been no new news, but I suspect investors have had time to review the details of the Glacier acquisition, and it appears more are willing to step up. I’ve had the stock at Buy, and will keep that rating for now. BUY.
Estimated earnings release date: March 8
Q2 Holdings (QTWO) Four up days out of the last five pushed shares ever so briefly to a 52-week high. There’s no new fundamental news—we’ll have to wait until earnings are out on February 15 for that. Consensus is calling for 30% revenue growth and 55% EPS growth. I see very little press or blogger coverage of this stock, which I find surprising. I’ve stated before that the pattern here has been better for those who bought on the dips, and not the rips. Accordingly, I’m moving back to Hold. HOLD.
Announced earnings release date: February 15
USA Technologies (USAT) The stock was making a move higher early in the week then got knocked down a notch yesterday. Shares closed at 4.2. Earnings are due out on February 8 so we’ll know soon enough if it’s worth sticking with USAT. It’s tempting to take our current 20% gain and walk away. But on the other hand, the company should be able to deliver 25% revenue growth and one would think some of the recent pressure to focus on EPS growth would have resonated (especially given the stock’s lackluster performance since October 2016). The company has had some expenses to cover as it transitions to an accelerated filer, and did say last quarter that it expects SG&A spending to flatten, then decrease after the current quarter. I think expectations are relatively low, which means there is potential for a nice pop if management delivers the goods. Otherwise, Crane Co (CR), are you interested? BUY.
Announced earnings release date: February 8
U.S. Concrete (USCR) The Wall. Need I say more? U.S. Concrete is in the discussion whenever there’s talk of infrastructure and construction spending. Whether that’s for Trump’s wall, Musk’s tunnel, or any other number of projects making headlines (and many that don’t). It’s all speculation for now. Expect this stock to rise and fall based on the news cycle around Trump’s proposed projects. Shares were up 9% over the past week. CEO Bill Sandbrook has no problem talking to the media. MarketWatch published a short interview in which Mr. Sandbrook shared a balanced view of U.S. Concrete’s potential involvement in any wall building. You can find that interview here. BUY.
Estimated earnings release date: March 8
