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Small-Cap Confidential
Undiscovered stocks that can make you rich

June 18, 2020

The market continues to recover from last week’s short but intense decline. In our portfolio there’s been a dearth of news flow. That’s fine with me. I think we could all use a little less stimulation and step back from our computers and mobile devices a bit more. This has been a crazy spring.


The market continues to recover from last week’s short but intense decline. In our portfolio there’s been a dearth of news flow. That’s fine with me. I think we could all use a little less stimulation and step back from our computers and mobile devices a bit more. This has been a crazy spring.

In terms of our portfolio, we saw our stocks fall by an average of almost 6% in the five sessions that ended with the Thursday, June 11 rout. Every one of them, with just one exception, Q2 Holdings (QTWO), which is only off by a few pennies since, is higher now.

Since last Thursday’s close our average gain is 8%, with several stocks up double digits. Avalara (AVLR) is up 23%, while Inspire (INSP) has rallied 16% and Karyopharm (KPTI) has surged 12%.

Overall, it’s still time to lean cautiously bullish. There’s no doubt this is a frothy market. But it’s being supported by powerful forces (Fed, Treasury) and the secular growth trends (cloud, internet, digital, e-commerce, fintech, MedTech, etc.) that we’ve been investing in for years are only gaining momentum.

Our average gain is 200%. We have eight stocks up over 100% (five of which are up over 200%), three up between 60% and 96%, and two (our latest two additions) trading around our entry point.

Let’s keep doing what we’ve been doing.

Changes This Week

Inspire Medical (INSP)

Moves to BUY
Everbridge (EVBG) Moves to BUY


AppFolio (APPF)

surged to new highs near 180 a few weeks ago, pulled back and now look to be consolidating. The stock should be after such a big run. No news.


Arena Pharmaceuticals (ARNA)

remains a buy as the biotech stock broke out in early June and then experienced a normal-looking pullback. It’s starting to move higher again now. This year and next should be transformational years for the company as data from major trials becomes available.


Avalara (AVLR)

has gone into beast mode and blasted through its previous high. The company now has a market cap of nearly $10 billion and continues to roll out new products. The latest, to be released later this year, is targeted at helping small businesses automate sales tax return preparation. Anybody that’s ever had to do this stuff manually will gladly outsource it! Automation of repetitive tasks is a huge trend and AVLR is the way to play it for sales tax compliance. I’ll keep at buy a little longer since this market is propelling strong stocks higher, but take note that shares will start to get stretched soon.


Cardlytics (CDLX)

continues to trade well off all-time highs, and for good reason. It’s a play on consumer spending and with a lot of restaurants and retailers still closed, or at least operating with limited capacity, there’s a smaller addressable market in the near term. But I still like the business and management has a lot of value to offer brands in terms of purchasing data and helping them generate returns on marketing dollars. Plus, they can pivot marketing offers toward areas of spending that are stronger. It’ll be a transition for sure, but one I think we should hold the stock through.


Everbridge (EVBG)

is consolidating after a big run in May. The big-picture story still rings true and with shares roughly 20% off their high and out of the limelight I’m moving back to buy.


EverQuote (EVER)

is ticking higher and remains a compelling way to play the shift from offline insurance purchasing to online, for the personal lines market (home, auto, etc.). This is still a small company, with a market cap of just $1.6 billion.


Fiverr (FVRR)

is still looking good as the stock regroups after a huge rally that carried the stock from a low of 20 in March to 70 by the end of May. It’s a potentially huge idea as professional freelancing services move online to a marketplace offering, much as they did for physical goods. Keep holding.


Goosehead Insurance (GSHD)

blasted off three weeks ago and just hit another new high this week. No new news. Keep holding.


Inspire (INSP)

keeps walking higher on the back of news that it just received Cigna coverage for Inspire Therapy, which brings coverage up to 54 policies covering 180 million members, up from just 83 members a year ago. With the stock looking ready to break out to new highs above 95 I’m moving to buy today.


Karyopharm Therapeutics (KPTI)

hasn’t done a heck of a lot since we added the stock in early May but the big-picture story remains the same now as then. Karyopharm is developing novel drugs to treat cancer, with a focus on small molecule oral Selective Inhibitor of Nuclear Export (SINE) compounds. Management believes these SINE compounds can fight almost any time of cancer cell. Keeping at buy.


Palomar (PLMR)

provides specialty insurance products (hurricane, flood, etc.) for individuals and businesses and is still looking good even after a big jump in late May and early June. We started with a half-sized position and the stock remains at buy.


Q2 Holdings (QTWO)

has been held back because financial stocks aren’t doing so hot and as a provider of software to financial institutions the company is somewhat lumped in with the group. The business will face disruption from COVID-19, but long term I think investments in digital banking are going to continue to flow toward Q2.


Repligen (RGEN)

looks to be consolidating after a huge rally that carried the stock to 140, and a 20% pullback that isn’t out of the norm for a growth stock such as this. Keeping at buy. Repligen is a scarce asset and the only pure-play small- to mid-cap stock out there for exposure to the bioprocessing market. BUY
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