The big news affecting the market this week is the upward trend in coronavirus cases in some states and the resulting concern that an economic rebound will be curbed sooner than hoped.
Still, many states are moving forward with reopening plans as trends across many counties are just fine.
Given the nature of this virus, this isn’t a surprising development. But it certainly does give one reason to pause and think about what will happen when everyone heads back indoors in the fall, schools try to open, and so on.
I’m not going to go down that rabbit hole today, but suffice to say I’m not adding any restaurant stocks to the portfolio in the near term.
I like what we’re doing with our software and MedTech stocks and the exposure they give us to what should be relatively resilient areas of the economy and potentially even outsized growth should the pandemic worsen, or extend longer than hoped.
On the flip side, like most of you I’m also concerned about these stocks getting stretched and the general “this is awesome!” feeling among many investors and casual acquaintances with whom I interact that are enjoying the big gains of the recent past.
It reminds me of an article I wrote a while back about “hero snow.” It’s the type of snow (or powder) that’s so deep and of such a perfect consistency that you feel you can do no wrong when skiing in it.
Usually that works out fine if you don’t do anything too stupid. But there’s usually at least one scare that keeps you on your toes. And occasionally things go really poorly.
Point is, when everything seems to be going well it’s a good idea to remain alert and aware of the circumstances enabling the euphoria. Let’s not try any back flips in the near future.
Moving on to our portfolio the last week has been unremarkable, which is fine by me. Our stocks were flat, on average, with returns spread from -8% to +6%. Our average gain is hovering around +200%, and our two most recent additions are still trading around our entry point.
News flow in the coming weeks will probably continue to be more health, macro-economic and politically driven. Then as we move into mid-July earnings season will start up again, which should satisfy pent-up demand for explosions/fireworks that we all will miss due to cancelled 4th of July celebrations.
Changes This Week
Cardlytics (CDLX) Moves to HOLD
Inspire (INSP) Moves to HOLD
Updates
AppFolio’s (APPF) management team doesn’t typically give us much to talk about. This week was no different. No news. Shares of the software company, which specializes in solutions for property management companies, are roughly flat over the last week and trading smack on their 25-day moving average line. HOLD
Arena Pharmaceuticals (ARNA) looks solid in the mid-60s, an encouraging sign after a huge pop in early June that sent the stock through the 60 level, up as high as 70, and then briefly back down to 60. Notably, ARNA is trading near the multi-year high of 64.48 from last August. But of course, we are a year closer to major data releases on company-making treatments (if approved). BUY
Avalara (AVLR) continues to post impressive performance and has a chart worthy of occupying premium real estate on your fridge. I’ve kept at buy because I love the big-picture trend of software as an automation/efficiency solution and how that dovetails with e-commerce trends for AVLR. I also like that AVLR is the leader and has a plan to grow globally in a complex market rife with little challenges that help keep newcomers out and/or from gaining scale quickly. This helps keep AVLR in a position to be an acquirer. The company held an analyst day this week, which prompted a flurry of price target increases into the 140 area. Some catch-up on the part of analysts, to be sure. Keeping at buy for a little longer but keep new positions smaller right now. BUY
Cardlytics (CDLX) has pulled back from its recent highs near 85 on concerns over COVID-19 case surges in parts of the U.S. It’s a valid response. As stated numerous times I 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. But if there is a real and sustained surge in COVID-19 cases and a resulting impact on consumer activity the growth trajectory will likely be impacted. Moving back to hold until sentiment improves. HOLD
Everbridge (EVBG) was moved to buy last week and responded by jumping higher soon after, but has since fallen back to where it was a week ago. No change to the story. BUY
EverQuote (EVER) continues to look stable near all-time highs and is handling down days in style (so far). Keeping at hold. The company remains a compelling way to play the shift from offline insurance purchasing to online, for the personal lines market (home, auto, etc.). We’re up roughly 400%. HOLD
Fiverr (FVRR) has received some good press lately as a potential beneficiary of work-from-home trends as freelancing services move to a marketplace offering. Hard not to like the chart and the modest gain over the last week. Keep holding. HOLD
Goosehead Insurance (GSHD) is one of those stocks that I received a lot of questions about when I first recommended it. It’s been a reasonably steady performer since, with the pattern marked by short surges and longer consolidation phases. We seem to be in the midst of one of those surges now as GSHD broke out to fresh highs early in the month and has kept running since. It’s starting to get into a zone where I’d expect some consolidation to occur. That said, when management gets around to reporting in six weeks or so the market will be keenly interested in policy renewals and the outsized positive impact they’ll start to have on revenue and EPS growth. HOLD
Inspire (INSP) is going to remain under pressure as long as COVID-19 trends are worrisome as procedure volumes could be at risk. There is likely a huge gap between investor perceptions of potential impacts and actual impacts, however, as an uptick in virus cases doesn’t necessarily mean a big uptick in hospitalizations. In any event, uncertainty on those trends is an issue here so moving to hold for now. HOLD
Karyopharm Therapeutics (KPTI) came to life this week as trading volume ticked up and shares flirted with their 50-day line. The reason for the modest jump was that the FDA approved XPOVIO (selinexor) for treatment of patients with relapsed or refractory diffuse Large B-cell lymphoma (DLBCL). This is a label expansion as the treatment is already approved for other indications, with more (hopefully) on the way. Keeping at buy. BUY
Palomar (PLMR) is our latest addition to the portfolio and is a play on growth in specialty insurance products (hurricane, flood, etc.) for individuals and businesses. The hook is the pursuit of this market with a modern and technology-enabled platform that’s better than the competitions.
We learned this week that management has just formed an excess and surplus (E&S) insurance division to go after that market using the same data-driven and underwriting skills Palomar has applied to its specialty insurance business. E&S insurance is a another specialized market for insuring things standard carriers won’t cover due to high risk. Think of insuring things like a mobile home, auto garage, commercial transportation company or day care center. Palomar has excelled at handling complex products and managing risk and this seems like a logical extension.
Concurrent with this announcement was news that the company would complete a secondary offering, priced at 82, to help fund growth and the new E&S business. Given that announcement and pricing, along with the stock’s stability since we jumped in, I’m removing my “buy a half” guidance and moving to “buy a full position.” I won’t mark this designation in our portfolio given the stock is near where we first bought. BUY FULL POSITION
Q2 Holdings (QTWO) took a hit a couple weeks ago but has responded with strength and is right back near multi-week highs. There is no new news, but it’s notable to me that many financial stocks have not performed as well as QTWO over the last 10 sessions. BUY
Repligen (RGEN) continues to remain under pressure with the stock now 23% off the May high of 144. I’ll be surprised if we don’t see some stability return in the 110 to 120 range. Keeping at buy. BUY
