The standout action this week has been in tech stocks, and it hasn’t been good. With the Nasdaq starting off the week with a big drop and large-/mega-cap leaders like Amazon (AMZN), Microsoft (MSFT) and Netflix (NFLX) moving materially lower as the week progressed it has felt somewhat disheartening to those with heavy tech exposure.
Of course, this is the most moderate of hangovers that one should expect from week after week of hard partying. These stocks have been mostly on a one-way trip higher. And to give back 10% to 20% isn’t, in the grand scheme of things, a big deal.
Then again, what happens next matters.
In my view, the ideal scenario would be a 10% to 20% pullback and a multi-week period of consolidation. That would give everyone some time to digest what’s happened and, hopefully, allow money to flow into other areas of the market to improve overall breadth.
However, we have earnings season fast approaching (Netflix reports today, Microsoft next Wednesday and Amazon soon thereafter) and that’s going to spice things up again. Earnings in our stocks will start to pour in the week after next and continue into mid-August. Suffice to say there’s a good deal of uncertainty and we’ll need encouraging forward guidance from management teams in order for our stocks to remain strong.
As far as the past week goes, it’s been a mixed bag, but not awful. Our stocks declined by an average of 3%, and we had our fair share of positions that were down 8% to 11%. But we also had a few stocks that were up. And with a mix of technology stocks from across different markets and some MedTech mixed in we’re set up to handle bouts of volatility relatively well.
Looking forward, the game plan is to maintain our current positioning (roughly) through earnings and make any ratings changes based on what happens with individual companies.
Something else to consider, which I haven’t quite wrapped my mind around yet, is that the market could be impacted by what schools decide to do in late August and September. That’s certainly starting to drive a lot of headlines, and it could contribute to the overall tone of investor sentiment as we move toward fall.
Changes This Week
None
Updates
AppFolio (APPF) experienced a meaningful decline on Monday that took the stock back to around the 149 level, which is also where it closed yesterday. This is also the same level where APPF peaked back in February just prior to the market crash, and where shares pulled back to, then found support, in mid-June. We are also now right on the stock’s 50-day moving average line. For all these reasons shares should be able to stabilize here. We should get a report the week after next. Analysts see revenue up 22% in the quarter and tracking toward 25% growth in 2020. Adjusted EPS is seen around $0.12 in Q2 and $0.44 in 2020. HOLD
Arena Pharmaceuticals (ARNA) is trading just 3% off all-time highs and remains on the buy list given the shortening timeline to major data releases. This stock still requires patience but as I’ve been saying since we jumped in back in February 2018 (we’re up 73% since) the long-term potential is significant enough to accumulate a position and hold on. Our next update from management should come in the first 10 days of August. BUY
Avalara (AVLR) was one of the crop of software stocks that took a hit Monday. Compared to a week ago, shares are down 10%. There’s no new news here and in the grand scheme of things, with AVLR trading 13% off its high and more than 25% above where it was pre-pandemic, things are pretty darn good. I’m expecting an earnings report in the first 10 days of August, and for management to say revenue is up around 20%, tracking toward a similar growth rate for the full year, and that adjusted EPS will be roughly -$0.19 in 2020 but break even in 2021. International expansion and opportunities to break into new categories of e-commerce will probably be discussed. HOLD
Cardlytics (CDLX) has traded between 65 and 80 for most of the last six weeks. At roughly 30% off its prior high and so much uncertainty in consumer spending it’s difficult to envision a sizeable move in the stock until we have more news from management. That should come in the form of Q2 earnings, due out around August 8. I’ve had at buy up until recently and with a gain of roughly 100% I’m sticking with a hold rating for now. HOLD
Everbridge (EVBG) was moved back to buy recently and shares had just moved above 150 before the Monday tech selloff. EVBG is now 12% below where it was a week ago. We may easily see shares trade in the 120 to 150 range for a while (and frankly that would be good, in my view, as we need some cooling off in tech stocks). The fundamentals here remain solid enough to keep at buy. Revenue is seen up around 30% this year, then 27% in 2021, when adjusted EPS is expected to turn positive for the first time (EPS of -$0.18 expected this year and $0.08 in 2021). BUY
EverQuote (EVER) should have an earnings report out around August 5. As in the past these reports can move the stock significantly since the company is relatively small and is ramping up new products that are in hypergrowth mode. Stepping back, analysts think the personal lines insurance market is solid and that the move to online brokers is a durable trend. After a modest pullback EVER is trading 8% off its all-time high. HOLD
Fiverr (FVRR) management confirmed an earnings date of August 5. At 10% off its high but up over 100% from pre-pandemic highs the expectations are clearly quite high. That makes sense; Covid-19 has likely been a transformational event for this company, which already had solid growth trends. Analysts see revenue up 40% in Q2, as well as in 2020. Expected EPS this year is -$0.78. It’s fair to expect management is investing in the platform to go after the sizeable opportunity in front of it. HOLD
Earnings: Wednesday, August 5
Goosehead Insurance (GSHD) continues to grind higher and is now up 10% over the past two weeks and up 164% since we jumped on board in September 2018. It’s probably stretched here, but then again the company has a powerful platform and a somewhat unique business model that generates a ton of revenue and profits on renewals. Continuing to hold and looking forward to an update in a few weeks. HOLD
Inspire (INSP) is starting to establish a pattern of making higher lows and higher highs, even though the pullbacks are a little deeper than many investors are likely comfortable with (each one feels like the beginning of something bigger). That’s not entirely unusual for a MedTech stock, and in this case we have the push-pull of supernormal growth and uncertainty of delayed procedures due to Covid-19. That’s why we’ve been keeping at hold, and will continue to do so through the just-announced earnings date on August 4. Revenue in the pandemic-impacted second quarter is seen falling 56% from a year ago. But Q2 should encompass the worst of it. Overall, 2020 revenue is seen down 2%, then rebounding 75% in 2021. HOLD
Earnings: Tuesday, August 4
Karyopharm Therapeutics (KPTI) pre-released Q2 Xpovio sales that were $1.4 million better than consensus (coming in at $18.5 million) and could help increase confidence that the company can continue to pursue its growth agenda despite the pandemic. Recall that Xpovio was also recently approved for late line diffuse large B-cell lymphoma (DLBCL), which will start to help as we move forward. We also have an upcoming decision from the FDA (later this year or early in 2021) on the significant opportunity in earlier line multiple myeloma (Xpovio combined with Velcade). As with Arena this stock is a longer-term play based on a pipeline that will take time to develop but which should yield a high-growth biotech stock if/as approvals pile up. BUY
Palomar (PLMR) has pulled back 16% from its previous high, which puts shares of the specialty insurance products company right back near our entry point. It’s bending, but far from broken. Keeping at buy. Earnings should be out around August 12. BUY
Q2 Holdings (QTWO) is still toying with the idea of breaking out to new highs. We had a little dip on Monday but as the stock has not yet run as far as many other software stocks the move down was less alarming. I still like it long-term and am keeping at buy. BUY
Repay Holdings (REPAY) was just added a couple weeks ago and is trading around our entry point. Recall that the company develops digital payment processing solutions. Organic growth is around 20%, but acquisitions, which are part of the growth strategy, add to that. Revenue is seen up 44% this year and 20% in 2021. Look for earnings to come out in a couple weeks. BUY
Repligen (RGEN) just announced an earnings date of July 30, at which time we’ll hear more about the acquired Engineered Molding Technology (EMT) business and long-term impact on margins. I expect we’ll also hear how demand trends are shifting in the Covid-19 world and what management sees in terms of lasting impact. It’s no secret I like this company and suggest using pullbacks to add. Keeping at buy and looking for RGEN to move back to its previous high near 144 before long, pending solid quarterly results and forward guidance, of course. BUY
Earnings: Thursday, July 30
