The market continues to grind higher and the small cap index, which we haven’t talked about in forever, is finally opening up some white space above its pre-pandemic high. In fact, the S&P 600 Small Cap Index is, at this very moment, trading at an all-time high.
It has taken two years!! If that’s not a good reason to celebrate, I don’t know what is.
We don’t talk much about the small cap index anymore because it’s chock-a-block full of slower growth and value stocks, so it’s not very representative of the types that we invest in. Plus, as you’ve likely noticed, since we hold a lot of stocks for years, our best performers aren’t really small caps anymore. Many are in mid-cap territory. Side note: at some point the goalposts for what’s considered a small cap will be increased. It’s just a matter of time.
Back on point… I’m not saying the small cap index is completely irrelevant. It’s just not been a major focus lately. But this recent move is good. It signals what we’ve been feeling, which is a broader-based uptrend in stocks, including many more cyclical names. That’s healthy for the market.
It’s also healthy that we’ve heard more people speaking out about how many stocks are getting too overheated. There are good points on both sides of this argument. For the most part, my view is that defensible business models, ability to rapidly scale up with increasing profit margins, broad-based adoption of many technologies, etc. are going to drive many cloud/digital/ecommerce/internet-related stocks significantly higher over the coming years.
As one of my favorite podcast personalities recently stated, one of the big differences between now and 2000 was that, back then, there was no previous dotcom bubble to compare the time period with. Now, we know what can happen when things go too insane, and those concerns may keep things in check just enough to avoid calamity.
We’ll have some painful and gut-wrenching corrections for sure. But by maintaining some diversification, growth-oriented investors should be able to ride out those bouts of volatility. As we move into 2021, I’ll do my best to mix things up so we’re not too deep in any single area of the market.
In terms of what to do now, stay on course. I’m maintaining several positions at buy.
In the coming two weeks we’re likely to see some erratic trading action as people’s attention turns away from the market and toward other things. Try not to get too concerned if stocks are bouncing around with no company-specific news.
Like a lot of people, I’ll be taking some time off to spend with my family, so our next two Weekly Updates may be somewhat brief. But I’ll be keeping an eye on all our positions, as well as working on our first Issue of 2021, which is slated for release the first Thursday after New Year’s Day.
Have a good weekend and if you’re in the northeast, enjoy the snow! My kids were so excited about it they got up at 4 am. I was… less excited at that time. But happy to see them outside having fun and just being kids.
Recent Changes
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Updates
Accolade (ACCD) hit an intra-day all-time high of 60.7 mid-week last week but has since fallen 15% from when I last wrote (thought it’s up nicely today). There’s no public news driving the recent retreat. My view is that ACCD ran too high too fast and was due to give some back. Recall that last week I moved the stock to hold because the risks seemed elevated in the short-term. I think this short-term trading action is a healthy response for a stock that surged 50% in a matter of weeks and shouldn’t cloud the otherwise enticing longer-term opportunity. HOLD
Arena Pharmaceuticals (ARNA) took a big hit in early-November (shares fell 30% from the peak) after the ADVISE Phase 2b trial snafu. But I’ve recommended buying on the weakness as the details of that trial missing its endpoint aren’t holding management back from moving into Phase 3, and there’s no read through into the main value driver here, which is etrasimod in ulcerative colitis (UC). Recall last week that management announced it has reached its target enrollment goal of 372 participants in the ELEVATE UC 12/52 trials and topline data is expected in Q1 2022. Shares of ARNA found firm footing in the mid-60s and have been advancing steadily back into the low-70s. I think this is a stock that risk-tolerant investors should continue to buy. BUY
Avalara (AVLR) was moved to hold last week and responded by immediately rising 5% to an all-time high. There’s no change to the story. It’s still one of my favorites, were just going to be a little conservative for the time being. We’re up around 335%. HOLD
BioLife Solutions (BLFS) continues to chug steadily higher and is now up 30% since we entered the position on November 5. We haven’t heard anything from management regarding customer-specific announcements, but I still expect we will at some point before long, specifically for the evo cloud-connected shipping containers. BUY
Cardlytics (CDLX) is flat over the last week. We heard yesterday that the company has renewed its contract with Lloyds Bank through the end of 2023. No other news. Keeping at hold. HOLD
Cerence (CRNC) is trading at all-time highs and is up 90% since we added the stock in October. Other names with exposure to the auto-sector have been strong as well, including Altair (ALTR) and Autodesk (ADSK). We heard this week that Cerence will power the next generation Mercedes-Benz User Experience (MBUX) (it powered the first gen too) and will also provide conversational and interactive AI in the new electric Fiat 500. Let’s stay aggressive here. BUY
Everbridge (EVBG) has been boring to follow for a number of months, but the stock is starting to come back to life and has moved 40% higher since trading down to 100 on November 2. It’s now 15% off an all-time high, which was hit back in May. There’s been no news on the name. I just think investors are looking around at high growth stocks that haven’t received a lot of love lately. It’s a buy in my book. BUY
Fiverr (FVRR) continues to bounce around between 187 and 211 on no news. There’s nothing new. Just keep holding on. HOLD HALF
Goosehead Insurance (GSHD) pushed up to its all-time high during yesterday’s session before settling down around 6% below that threshold. Even so, the stock is up roughly 10% from last Thursday. There’s no news to pin the strength on. GSHD remains in a trading range that’s held since the beginning of November. We may be getting closer to moving back to buy, but I’m not quite there yet. Keep holding. HOLD
Inspire Medical Systems (INSP) hit 200 last week and has taken a well-deserved break lately. Shares slid 5% this week. I’m expecting subdued action and possibly some more weakness given the pandemic’s current trajectory and how well this stock has done over the last couple of months. Keep holding. HOLD
Karyopharm Therapeutics (KPTI) continues to do very little while investors wait for the March 19, 2021 PDUFA date for Xpovio + Velcade to treat 2L+ multiple myeloma. It could be a big winner if we get an approval. BUY
Personalis (PSNL) is a cancer genomics company offering next-generation sequencing (NGS) solutions and data analysis services to support personalized cancer vaccine and cancer immunotherapy development. Test prices range from $2,840 to $4,000 a pop, and it is also the sole whole-genome sequencing provider to the Department of Veterans Affairs Million Veterans Program (VA MVP). The company is introducing new solutions, including liquid biopsies, which should drive growth for the foreseeable future. On that note management just announced the launch of its proprietary Neoantigen Presentation Score (NEOPS) which, when combined with Personalis’ NeXT Platform, can help predict immunotherapy response to certain cancer therapies. Shares have been strong and, even with a solid pullback on Tuesday, are still up almost 30% from our entry point on December 3. BUY
Q2 Holdings (QTWO) is a stock I’ve had at buy for a while and continue to believe will do well as the pandemic eases. It broke out to new highs in mid-November, and after a couple weeks hanging out near 115 just popped up to another new high this week. I think it’ll walk higher still. Like a lot of stocks that we’ve had for a while, I think too many subscribers are turned away from QTWO when they see we’re up 400%. You may have missed that run, but it doesn’t mean you need to miss the next one. BUY
Repay Holdings (RPAY) was let go last week. As I said then, there’s nothing particularly wrong with the stock so I won’t argue with those that want to stick with it. But, there’s nothing particular right with it either, so my feeling is the capital could be better allocated elsewhere. SOLD
Repligen (RGEN) is up a couple percentage points over the last week. That’s not too meaningful, but I like how the stock has held near its 50-day line during this pullback. And with almost $300MM in the bank from a recent equity offering the acquisition account is flush once again. BUY
Sprout Social (SPT) is up more than 10% over the past week and trading at all-time highs. There’s no new company-specific news, rather, SPT is likely benefitting from the broader strength in technology stocks lately. It’s still a buy, preferably on pullbacks. BUY
Please email me at tyler@cabotwealth.com with any questions or comments about any of our stocks, or anything else on your mind.
