After an insane couple of weeks this one has felt relatively calm. There is still plenty of market-moving news around the election, vaccines, the pandemic’s frightening trajectory, etc. but I think we’ve all become somewhat accustomed enough to alarming headlines – within a certain range – that it’s harder to get shaken now than in the past.
As far as our current portfolio goes things have settled down too.
After a flurry of earnings reports and a few adjustments to our positions over the past weeks, we only had one company, Cerence (CRNC), report this week. The report and subsequent market reaction were good. We’re now up over 40% on the position, which was just added on October 1.
Looking at our entire portfolio, over the last one- and two-week periods our stocks are, on average, unchanged. On the weak end of the spectrum are Sprout Social (SPT), Palomar (PLMR) and Repligen (RGEN), which are down double digits over the past week. But those retreats have been offset by strong gains in Cerence, Accolade (ACCD), and Fiverr (FVRR), which have risen by double digits. Those returns are as of yesterday’s close.
Most of our other stocks are up modestly over the past week.
The biggest thing on my mind continues to be the potential impact on many of our stocks from the various timing elements of the pandemic’s trajectory and vaccine distribution. I continue to think that, for the most part, the trends and the stocks that we’re invested in are durable enough to power through.
The world is not going to back away from the cloud, ecommerce, digital transformation, and medical advances once this pandemic winds down. In fact, the innovation that will come out of this period may well fuel more rapid growth than otherwise would have occurred.
That’s not to say there will be no shocks to the types of stocks we invest in over the coming months. There always are. But I’m not planning any major changes in our strategy. The best we can do is watch, listen, and learn as we move into the next phase of this pandemic and try to translate our observations into more great investments.
Recent Changes
Palomar (PLMR) Moves to HOLD
Updates
Accolade (ACCD) surged on the news of Pfizer and BioNTech’s vaccine progress last week, and over the last three days the stock as moved to within striking distance of its previous high. Ultimately, a stronger economy with stronger employment is better for Accolade than the wonky economy we have now, and that’s what investors are increasingly looking forward to. BUY A HALF
AppFolio (APPF) was sold last week for a 377% gain. No new news. SOLD
Arena Pharmaceuticals (ARNA) is still reeling from the news that the ADVISE Phase 2b trial evaluating etrasimod in atopic dermatitis (AD) missed its primary endpoint. As discussed last week there is a wrinkle to the story in that patients at one site went off dosing (breaking trial protocol). Excluding that group, the 71% of the remaining trial population did meet the trial’s primary endpoint. Arena is moving on to a Phase 3 as management thinks the drug candidate is still likely to gain eventual approval and thinks it can work with physicians so the same protocol deviations don’t occur in the future. In the meantime, clearly some of the wind has come out of the stock’s sails based on this supposed “failure.” Also, there are some disease characteristic overlaps with AD and other indications that etrasimod is being evaluated for that suggest physician education will be required during those trials. Still, the big kahuna here is ulcerative colitis (UC), and my understanding is what happens with etrasimod in AD is totally separate from what happens with UC. Never a dull moment in biotech. I maintain that risk-tolerant and patient investors can buy on this correction. BUY
Avalara (AVLR) is holding relatively steady and is roughly 10% off its all-time high, which was just hit last week. There’s no news here. It remains one of my favorite stocks in our portfolio since I think the business is well suited to grow both during and after the pandemic. BUY
BioLife Solutions (BLFS) is an unknown stock and despite a ton of recent media coverage over the need to transport and store Covid-19 vaccines at cold (Moderna’s) and extremely cold (Pfizer and BioNTech’s) temperatures, BioLife has largely been left out of the discussion. This is one of those stocks where we could wake up any day to an announcement that its solutions have been selected by xyz company to distribute a vaccine. That said, it is small and doesn’t have nearly the same scale as the bigger players. Plus, as management indicated, installing freezer equipment has been challenging during the pandemic, even though demand has been through the roof. However, BioLife has its evo shipping containers and we have yet to hear who the large company with a new contract is for that tech. Taking it all in I think BioLife will enjoy some success from Covid-19 related factors, but really this is just part of the longer-term demand for storage and biopreservation media for the cell and gene therapy markets. BUY
Cardlytics (CDLX) continues to act well as vaccine distribution could mark the beginning of the end of the pandemic and a huge rebound in consumer spending in areas where Cardlytics has historically had large exposure, including dining, travel, and retail. I think the stock might be getting a little ahead of the trend since we can’t quite pin a date on when vaccinations will materially curb the spread of Covid-19. But sentiment is a strong force and CDLX’s chart is telling us what we expected – that this is a stock investors want to own when we get through this. Keeping at hold. HOLD
Cerence (CRNC) reported this week and I detailed the results in yesterday’s Special Bulletin. The growth story remains intact and I suggest buying on any weakness. BUY
Everbridge (EVBG) has run out of steam over recent months as the tailwinds and headwinds from the pandemic have created a somewhat murky picture. As evidence we can look at Q3 organic billings growth which seem to have been in the single digits, pulling trailing twelve-month billings growth down to around 20%, versus the 25% to 30% range of pre-pandemic quarters. But then we have lots of demand for Covid solutions. Ultimately, this business should come back strong so keeping at buy. BUY
EverQuote (EVER) was fully exited last week for a 204% gain on our remaining position. No update. SOLD
Fiverr (FVRR) has bounced right back over the last week and is near its previous all-time high. We took partial profits but are still holding half our position and I’m comfortable with that exposure for now. Management just announced it is releasing local language and payment sites for both Brazil and Mexico. Freelancers in both countries have already been jumping on Fiverr’s platform. Brazil freelancers have increased by 137% over the last year and Mexico increased by 109% in Q3. That’s without localized websites and payment options. The trends should improve with user experiences tailored to these specific markets. HOLD HALF
Goosehead Insurance (GSHD) has bounced back from a small dip and is trading within 5% of its all-time high. No new news over the last week. Keep holding on. HOLD
Inspire (INSP) has pulled back a little from last week’s high, which is not remotely surprising given the stock rallied nearly 50% from where it was prior to the Q3 report and hospitals are reaching capacity in many areas of the country. I like the stock and the story but am not confident enough in the current state of affairs to return to buy. Keep holding. HOLD
Karyopharm Therapeutics (KPTI) is still kicking around in the 13 to 17 range. We’re expecting news out of Europe regarding Xpovio in late-line multiple myeloma by the end of the year. Then on March 19, 2021 there is a PDUFA date for Xpovio + Velcade to treat 2L+ multiple myeloma. BUY
Palomar (PLMR) has been a disaster this week. The stock slipped below support at 81 on Friday. Given its prior resilience and snap back potential I’ve given it a little more rope but I don’t like this pattern of lower lows and lower highs one bit. We’re now right where PLMR was when it broke out in late-May, which was one of the signs of strength that led me to recommend the stock in early-June. This is our make or break level. If PLMR breaks lower we’re gone. If it can get its act together we may give it a chance to show us what it’s made of. PLMR was up modestly Wednesday and so far today it’s advancing a little, but by no means are the signals bullish. Place your last buy orders now if you want to play a rebound because I’m moving to hold until we get more clarity on the trend. HOLD
Q2 Holdings (QTWO) has worked its way to a new high and looks ready to move meaningfully higher. A strong environment for banks and credit unions would be good for the company. It’s a little early to make that call with conviction, but the light at the end of the tunnel is getting brighter and that’s likely driving renewed interest in this stock. BUY
Repay Holdings (RPAY) continues to trade near the low end of its recent trading range. Support around 22 has been rock solid lately so until that breaks, we’ll stick with our buy rating. No new fundamental news. BUY
Repligen (RGEN) has pulled back along with larger peers TMO and DHR. I don’t think there’s any material change to the story, though there is likely some speculation going on regarding exactly how the business will be affected given various vaccine manufacturing and distribution scenarios. Let’s not overthink it – Repligen’s business should continue to do well under all probable scenarios in the coming year. That doesn’t mean there won’t be pullbacks, but historically those have been good times to add shares, not reduce positions. BUY
Sprout Social (SPT) reported last Monday, then last Thursday I moved the stock back to buy given the solid report and relative strength. The company reacted this week by swiftly moving back to its November 2 low near 42. Thank you very little. We’ll stick with the buy rating now, but I’ll be keeping a close eye on Sprout over the coming days. BUY
Please email me at tyler@cabotwealth.com with any questions or comments about any of our stocks, or anything else on your mind.
