We have a lot to get to today so my intro will be quite short. We all know there is an election coming up and that the polls are all currently pointing toward Biden. But we also know that polls are an imperfect science and things change, so keep your eyes open.
As far as the market is concerned, the prospects of a Biden Presidency don’t seem to be hurting it (overall). What happens if Trump pulls out another surprise victory? Man, who knows. The market doesn’t always like surprises but last time around it flipped to the positive pretty darn quickly.
More important in my mind is that we don’t have an extended period in limbo between election day and inauguration in January. That scenario would weigh on the market, in my view. Rising case counts of COVID-19 around the country now, and presumably into winter, combined with a contested election would be a double whammy.
But let’s not bother with presidential what-ifs right now. More immediately we have earnings season to digest. The action will be coming fast and furious and management teams will be (hopefully) giving us some clues as to what they see coming in 2021. Already we have one report to digest today.
I don’t anticipate any major changes in our portfolio leading into earnings as I’d prefer to hear what’s new and then go from there. That said, we have a couple of minor adjustments based on stock price action.
In terms of performance, our portfolio positions are up an average of 4% over the last week, driven by strong gains in FVRR, AVLR, GSHD, SPT and CDLX. Detractors from performance were INSP, EVER and RPAY, though the biggest dip has thus far been 5%.
Overall, it’s wise to expect turbulence in the market in the coming weeks. Given earnings season, the election, stimulus, a pandemic and where the market is and has been, that should be stating the obvious! But sometimes stating the obvious is necessary.
Changes This Week
Inspire (INSP) Moves to HOLD
Karyopharm Therapeutics (KPTI) Moves to BUY
Palomar (PLMR) Moves to BUY
Updates
Accolade (ACCD) ran to fresh highs this week prior to reporting last night. The stock fell roughly 10% this morning but has bounced back and is off around 5% as of this writing. To cut right to the chase, I’m keeping the stock at BUY A HALF and continuing to wait for more time to pass before we fill the other half of our position. Big picture, things sound good (absent turmoil in airline customers) and we’re expecting revenue growth to accelerate from around 21% this year to 25%-plus in the coming years.
On to the report … Accolade grew Q2 fiscal 2020 revenue by 24% to $36.8 million, beating by $1.8 million. Adjusted EPS of -$0.32 beat as well. With a strong quarter in the books, management raised full-year revenue guidance by $1 million, to a range of $159 million to $162 million (up 21%). The company has no debt, and $222 million in cash. It did extend payment deadlines for airline customers, which are paid current under the revised payment schedules, and in one case Accolade has expanded its contract with one of these customers. Forward guidance reflects the airline industry’s planned workforce reductions. Should the airlines get federal assistance, that would likely be a positive for Accolade.
Driving growth in the quarter were new customer additions and members in both the enterprise and midmarket segments. New customers include the University System of Georgia (26 colleges and universities), the City of Forth Worth, and Humana, which is also a strategic partner. Accolade is also rolling out integrations to offer behavioral health (with Ginger) as well as at-home test collection (with LabCorp) for COVID-19. Both can help members get better care while reducing costs for their employers. Again, the big picture looks good and we’re keeping at buy a half to balance out the reality that this is a recent IPO and they can be a tad temperamental. BUY A HALF
Earnings: DONE
AppFolio (APPF) worked its way higher with other software stocks last week but remains in its previous trading range. No news. HOLD
Arena Pharmaceuticals (ARNA) peaked last week near 86 after a nice breakout above prior resistance near 70. It has pulled back around 5% since, but I’m keeping at buy since blockbuster drugs should power ARNA meaningfully higher, if approved. We recently heard positive results from Bristol, which has a potential UC treatment in the same class as Arena’s etrasimod, and this helps the bull case for etrasimod. BUY
Avalara (AVLR) was moved to buy last week on the back of the Transaction Tax Resources (TTR) acquisition. Shares have moved higher since. There’s no new news. BUY
Earnings: Thursday, November 5
Cardlytics (CDLX) worked its way to the top of the established 63 to 88 range this week and has, predictably, hit resistance. No news. BUY
Cerence (CRNC) management just announced that Donfeng Motor (one of the larger auto manufacturers in China) has selected connected car and automotive assistant products from Cerence and PATEO CONNECT+, a leading connected car company in Asia, for its next-generation Aeolus AX7. This isn’t a major announcement, rather another example of management just trying to stay in front of investors by announcing any new deals. BUY
Everbridge (EVBG) is still in its five-month trading range. Earnings are expected in about a month. Keep holding. HOLD
EverQuote (EVER) has been locked in a tight trading zone, mostly between 35 and 42, since the beginning of August. There’s no news, other than a hit piece that came out this morning by a short seller named Edwin Dorsey, going by the name of “The Bear Cave.” It’s a pay-to-view piece and I have no idea of the quality of the analysis or of the outfit that’s published it. In the disclaimers section of the website it says, “Edwin Dorsey, The Bear Cave’s sole author, does not take positions against companies profiled in The Bear Cave.” The post is circulating on social media but so far doesn’t seem to have had a huge impact. We’re roughly two weeks from earnings. BUY
Earnings: Monday, November 2
Fiverr’s (FVRR) has been a rocket ship and we’re up over 420% since March 2020. There’s no new news, but we will get an earnings report in two weeks. Keep holding. HOLD
Earning: Wednesday, October 28
Goosehead Insurance (GSHD) has been moving higher for the last two weeks after it suffered a 33% correction. I’d like a business update before moving back to buy, however. We should get that in early November. HOLD
Inspire (INSP) peaked at 135 last week and has since pulled back around 8%. The only news is a modest negative. Anthem recently classified the Inspire System as investigational, and not medically necessary. This coverage decision flies in the face of what all the other major payers have concluded and means that the roughly 40 million lives covered under the Anthem policy have to run through the prior authorization process. Approval rates there have been increasing but it’s still a hassle and a potential barrier. You can bet your bottom dollar that Inspire’s management team will be working with Anthem to perform an interim assessment based on a more comprehensive review of the device’s data. Still, with the stock having run nicely for the last five months I think the near-term upside may be limited. Moving to hold through earnings. HOLD
Earning Date: Monday, November 2
Karyopharm Therapeutics (KPTI) continues to show a willingness to move higher though it hasn’t made meaningful progress just yet. On the flipside, it looks like 14 has become an area of extremely solid support which, pending any negative developments, suggests we can buy around here. On the calendar of potential stock-moving events this year are Phase 3 data for Xpovio in liposarcoma and potential approval of Xpovio in Europe for late line multiple myeloma. The biggest event isn’t until March 19, 2021, however, when we’re hoping to hear that Xpovio, in combination with Velcade, is approved for 2L+ multiple myeloma. A negative read on that would be hurtful. Taking it all in, I’m moving back to buy. BUY
Palomar (PLMR) took a big hit after announcing estimated pretax catastrophe losses but has firmed up and begun to bounce back. I don’t think this changes the story and would like to hear more about the specifics, but in the meantime the stock looks like it wants to head higher so I’m moving back to buy for risk-tolerant investors. BUY
Palomar (PLMR) took a big hit after announcing estimated pretax catastrophe losses but has firmed up and begun to bounce back. I don’t think this changes the story and would like to hear more about the specifics, but in the meantime the stock looks like it wants to head higher so I’m moving back to buy for risk-tolerant investors. BUY
Q2 Holdings (QTWO) provides cloud-based virtual banking software to the industry. Shares moved up near 100 last week and within 10% of a previous high but have faltered this week. Still awaiting a breakout which, in my view, is just a matter of time. BUY
Repay Holdings (RPAY) provides electronic transaction processing services for merchants and is a play on card payment adoption in areas like mortgage payments, business-to-business transactions, and loan payments. A recent integration with Ellie Mae, the leading cloud-based loan origination platform for the mortgage industry, is right in line with what we want to see happen. It’s not a well-known story now but the stock has been a strong performer over the last year-plus and has been relatively resilient lately. BUY
Repligen’s (RGEN) bioprocessing technologies, which help bring both drug treatments and vaccines to market more quickly, should drive meaningful revenue from the pandemic. That’s one of the reasons the stock, along with bigger players like Danaher (DHR) and Thermo Fisher (TMO), is doing well. Don’t overthink it. BUY
Sprout Social (SPT) offers cloud-based social media management solutions for monitoring activity across multiple platforms. Shares hit an all-time high last week and have pulled back around 4% since. No news, other than an earnings date of November 9. BUY
Earnings: Monday, November 9
Please email me at tyler@cabotwealth.com with any questions or comments about any of our stocks, or anything else on your mind.
