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Small-Cap Confidential
Undiscovered stocks that can make you rich

May 28, 2020

In the market, there seems to be some rotation going on. Or at least that was my sense of things over the first two and a half trading days of the week.


The big story this week is that the U.S. is opening up and thus far stories of pandemic-related disaster over the Memorial Day holiday have been mostly out of the headlines. There’s little doubt people are more than ready to get back to some semblance of normal life, even if that means their risk of exposure goes up somewhat.

In the market, there seems to be some rotation going on. Or at least that was my sense of things over the first two and a half trading days of the week. Many high-growth names fell sharply on Tuesday and Wednesday while a range of other stocks, which haven’t recovered as much or reached new highs, posted stronger performance. Notable sector advances have been seen in industrials, financials, materials, utilities, and consumer discretionary.

Two days doesn’t make a new trend, but it does suggest broader participation in a recovering market, which is a positive sign.

In the immediate future I’m spending a lot of time evaluating our stocks in the context of all the other stocks I monitor for future inclusion, as well as those I consider trusty bellwethers of strength/weakness in their respective markets. All of this will be factored into our new stock for next week.

Big picture, I don’t think enough has changed to alter our strategy so there are no ratings changes this week. I hope you’ve been able to get outside and safely enjoy some of what spring has to offer!

Changes This Week



AppFolio (APPF) has broken out to new all-time highs this week on no new news. Aggressive investors can buy this breakout, which could send APPF up toward 180 if the market for software stocks holds up. However, our official position is to keep at hold. HOLD

Arena Pharmaceuticals (ARNA) has looked strong lately but is taking a hit today on news of a secondary offering priced at 50. Considering the stock is trading near 55 at mid-day Thursday (roughly 10% above the offer price) I’d say demand is looking pretty strong. It should raise around $275 million. Management has pulled guidance on the timeline for some of the secondary programs but is on target with the primary programs and just announced ADVISE (etrasimod in atopic dermatitis) has completed enrollment, with topline data expected by the end of 2020. Top-line data for both ELEVATE 52 and 12 (both Phase 3 for ulcerative colitis) are still expected by the end of 2021. This represents a major milestone. You can buy this dip. BUY

Avalara (AVLR) dipped to its 25-day line yesterday, which was slightly below the February high of 97, but is back above that threshold today. The quick dip isn’t something to sweep under the rug just yet, but I’ll keep at buy until we see a more meaningful decline. While there has been a lot of movement over the last nine months shares still haven’t risen significantly above their August 2019 high of 94. BUY

Cardlytics (CDLX) has taken a breather this week but looks good enough to keep at buy. As mentioned last week the stock has been tracking in similar fashion to both Mastercard (MA) and Visa (V), though that relationship has been a little less clear this week. BUY

Domo (DOMO) was moved to sell yesterday as the stock has returned to its pre-market crash levels and around the point of our normal stop-loss level (from initial coverage). I had considered keeping the stock longer, or at least long enough to see what earnings are like next week, but with other opportunities out there and a rather long period of underperformance from this stock I felt it was time to cut it loose and move on. SELL REMAINING HALF
Earnings Date: Thursday, June 4

Everbridge (EVBG) has become something of a “COVID-19 stock” given the software platform’s role in helping organizations manage through the pandemic. However, while this is the current focus the bigger-picture story is more about helping organizations manage through any type of crisis or challenging situation, be it related to weather, sickness, natural disaster, or terrorist activities. There is a ton of upside in the stock if the chips fall where we think they will (i.e. lots of expansion in services, geographies, etc.) but given what we know right now there seems to be a lot of good news already price in. HOLD

EverQuote (EVER) has had a nice couple of sessions this week despite weakness in a lot of other high-growth names. There’s nothing to report on what is driving the move. As mentioned last week we saw the debut of SelectQuote (SLQT), another provider of online insurance comparisons for life, auto, home and Medicare insurance plans. That stock opened 35% above its IPO price and is holding firm, so far. Keep holding EVER. HOLD HALF

Fiverr (FVRR) hit an all-time high five sessions ago then broke lower yesterday, prompting me to advise taking partial profits on one quarter of your position. Stepping back, I still like the stock and the story and may easily move back to buy at some point. However, I would like to hear more about the trends within the business as shares trade well above prior valuation highs and we don’t yet know how much of the new business will stick. In short, there seems to be a lot of good news factored in already. Taking a partial profit after such a wild ride and at a very nice gain of roughly 80% in less than three months seems to balance out the risk/reward. SELL A QUARTER, HOLD THE REST

Goosehead Insurance (GSHD) is still trading near all-time highs and seems to be eyeing a breakout, which could send shares into the mid-70s. I may move to buy if we get that breakout. In the meantime, keeping at hold. HOLD THREE QUARTERS

Health Catalyst (HCAT) was moved to sell two weeks ago. No news. SOLD

Inspire (INSP) worked its way up to near the previous high last week and hit an air pocket this week. Nothing has changed on the fundamental front. The biggest thing we’d like insight into now is the volume of procedures in the back half of 2020 and how that will drive the financial model. Keep holding. HOLD

Karyopharm Therapeutics (KPTI) hasn’t revealed any new information lately but will host a call at 1 p.m. ET this Friday (tomorrow) to go over detailed results from the Phase 3 BOSTON study evaluating once-weekly XPOVIO® (selinexor) in combination with once-weekly Velcade® (bortezomib) and low-dose dexamethasone (SVd) compared to standard twice-weekly Velcade plus low-dose dexamethasone (Vd) in patients with multiple myeloma who have received one to three prior lines of therapy. This data is going to be presented (virtually) at ASCO. This event will be of interest to investors.

Also on tap in the coming months: FDA decision on XPOVIO as a second line treatment for multiple myeloma expected later in 2020. EMA decision on selinexor for multiple myeloma expected in 2020. FDA Priority Review decision on selinexor for DLBCL is expected on June 23, 2020. Phase 3 SEAL study results for liposarcoma are expected in 2020. XPORT-GBM-029 (GBM) expected to begin later this year. Initial results from COVID-19 clinical trial are also expected in 2020. BUY

Ping Identity (PING) was recently sold to book a quick 37% profit in one month. No news. Keeping an eye on it. SOLD

Q2 Holdings (QTWO) was moved to buy last week and has responded by inching higher. Shares look ready to break above the 86.5 to 90 zone, which would then point to a move into the 100 to 110 range. From a valuation perspective the stock is trading near the high end of its historical range but not at all-time highs. Management said it has dissolved its partnership with StoneCastle (they offered the Cambr product together), and now Q2 will offer its own version, re-branded as Q2 BaaS (Banking-as-a-Service). I like this move. BUY

Repligen (RGEN) had been running higher until this week. After two sharp drops Tuesday and Wednesday today has seemed relatively calm. No new news. Keep holding as the stock is good long-term, even if somewhat stretched. HOLD

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