As we near the end of the second week of 2021 and approach inauguration day, the market is barreling full steam ahead, seemingly unaware of the dung piles that are consistently thrown in its path.
The lure of better times ahead (the market’s trend suggests it is embracing the recent Democratic party wins) and a government that is expected to be focused on stimulus and spending on clean energy and industrial revival is just too great a magnet to throw it off course (so far).
Still, we know in our guts euphoria is high. And it’s crystal clear in our portfolios. I think I’m a pretty good stock picker, but this market makes almost everybody look better than they really are.
At the same time, despite our ever-present concern of a major correction, many of us remember the trends coming out of the Great Financial Crisis (GFC). Those that played the long game won big, while those that cashed out thinking the recovery had run its course within just a couple of years missed out on a lot of potential gains or bought back in at higher prices.
We also have a lot of fresh meat being tossed into the market in the form of IPOs and SPAC IPOs. To me this is a welcome meal. In many ways I think investors have been starved of fresh ideas due to a lack of IPOs in recent years. Now, many of the companies that have products we all know, and importantly which are used by younger generations, are available for retail investors to buy into.
I’m not saying we should all rush out to buy POSH and AFRM at 125% to 150% above their IPO price today! But you get the point – there are more investable options out there every week and many are good companies with good products, not to mention enviable revenue growth. Some even have profits.
Valuation? Yes, an issue. But not today. Worry about that later (says the market).
To bring it home … continue to lean bullish. Just keep both eyes open. Many of our stocks are doing very well, though we have a group that aren’t doing much at all. Generally speaking, I think some of those stocks have fallen out of focus while investors chase hotter names.
If this market remains strong, they’ll come back. And we’ll still be in them when they do.
Factoring in the one stock sale this week we now have 15 positions showing an average gain of roughly 250%.
Recent Changes
There are no ratings changes today. Karyopharm (KPTI) was sold this week via Special Bulletin
Updates
Accolade (ACCD) is up roughly 20% since I added the stock in August. It recently passed the lockup expiration date without a material increase in trading volume, though the release of Q3 fiscal 2021 results on January 7 did drive trading volume up for a few days. I detailed the results soon afterward, which I thought were quite good, and stated that I thought the stock would hang out near 50, plus or minus 15%, for several weeks so we’d keep at hold, but that it was fine for those looking to add shares to buy closer to 45. The stock has mostly traded between 45 and 50 since I wrote that so no change in the game plan. ACCD should be a long-term winner but could use a time out as the market digests the results. The company’s fiscal year ends at the end of February and Q4 is usually a big one as it includes performance-based revenue. HOLD
Arena Pharmaceuticals (ARNA) has been recovering nicely from the stock’s 30% drop in November (the reasons for which I’ve discussed and are in previous updates) and is now roughly 10% off its all-time high. Management presented at the J.P. Morgan Healthcare Conference yesterday and went over its growth plan, which largely revolves around etrasimod. The compound is being evaluated in five gastrointestinal and dermatological indications and there will be seven date readouts in 2021 and 2022 covering both phase 2 and phase 3 trials. Suffice to say there is a large opportunity out there. The next biggest event should be the pivotal readouts for ulcerative colitis (UC), which is about a year away. In the meantime, we should get data from the Phase 2 CAPTIVATE study for olorinab in irritable bowel syndrome (IBS) by the end of March, followed by Phase 2 data from CULTIVATE (etrasimod in Crohn’s) by the end of June. Arena also announced a new compound, temanogrel, is being studied for coronary microvascular obstruction. Finally, management returned to the ADVISE trial data readout which was the reason for the November selloff, and confirmed that there were inconsistencies in trial protocol so they are pushing ahead. BUY
Avalara (AVLR) hit an all-time high just before Christmas then pulled back and is now 14% off that high water mark. Beyond the announced acquisition of INPOSIA (German provider of e-invoicing, digital tax reporting, etc.) there’s been no major news lately. It’s still a keeper. HOLD
BioLife Solutions (BLFS) had a modest correction recently but has bounced back and still looks good. The company makes freeze media and storage/transportation solutions for cell and gene therapy markets. It should be playing a role in Covid-19 vaccine distribution, though we don’t yet know details (and it’s a tiny company still). In particular, I’m interested to hear what’s up with the Evo shipping container sales trends, and what progress is being made at the recently acquired SciSafe business (included technology, customers and team members), which is a small but growing player in biological and pharmaceutical storage and cold chain logistics. It seems like the right time for this company, and the chart is encouraging. BUY
Cardlytics (CDLX) was consolidating in the 130 to 150 range until today, when it took a step down and then broke below its 50-day line. It’s not a broken stock just yet but the move down stands in sharp contrast to a lot of strength in growth stocks elsewhere. That said, I’ve stated that CDLX can trade directionally along with MA and V at times, and both of those stocks are trading down today as well. In short, it’s still a hold. HOLD
Cerence (CRNC) has been an incredible performer and is up over 100% since we jumped in roughly three months ago. There’s also been a good amount of news flow lately given presentations at investment conferences, the release of the new version of Mercedes-Benz’s new MBUX (powered by Cerence), a virtual presentation, Cerence In Motion, to introduce new products/initiatives and, just today, the announcement that Cerence is teaming up with Lear Corporation’s (LEA) Xevo business to offer Cerence Pay voice activated contactless payment capabilities. The stock is hovering near all-time highs. BUY
Everbridge (EVBG) has been consolidating mostly in the 115 to 155 range since the beginning of summer. However, the 800% plus gain we have in the stock has eased that pain associated with boredom, and the potential for the company to take things to the next level and roll out its platform across the globe, while maintaining 25% plus growth and turning to profitability, is a sizeable incentive to stick with it. It’s still a buy. BUY
Fiverr (FVRR) has been a huge success for us. We entered the position in March 2020, held through the market crash, and are now up over 680% in under 12 months. There’s been no huge news lately and the stock keeps trending up, albeit with some decent pullbacks here and there. It’s been one of the biggest beneficiaries of the WFH trend. The company bought an advertising slot during the Super Bowl and will report Q4 2020 results on February 18. HOLD HALF
Confirmed Earnings Date: February 18
Goosehead Insurance (GSHD) hasn’t had any major news to reveal lately. However, an astute subscriber recently shared this tidbit from last week, from the Washington Post: Paul Davis, a Dallas-area lawyer, was fired on Thursday from his position as associate general counsel and director of human resources at Goosehead Insurance after a Twitter user posted his Instagram story, showing Davis live-streaming outside the Capitol and talking about wanting to get inside. Davis said in the video that he had been tear-gassed. Goosehead confirmed Davis’s firing on Twitter. Davis could not be reached for comment. Not much to add to that as the stock’s performance speaks for itself. GSHD hit an all-time high today pushing our paper gain to nearly 330%. HOLD
Inspire Medical Systems (INSP) broke out above overhead resistance today, after presenting at the J.P. Morgan Healthcare Conference yesterday. Overall, management remains bullish on their growth trajectory with 34% to 37% growth expected in 2020 (55% in Q4), limited cancellations across the country and direct-to-patient and capacity expansion initiatives helping to build the pipeline. Oh, positive reimbursement trends are icing on the cake. Management is also talking about 2021 plans to include international expansion (Germany and Japan, in particular) and technology improvements centered on better Bluetooth connectivity and progressing Inspire V, which ditches the pressure sensor altogether, as well as further development on Inspire Cloud and app. Altogether it looks pretty good for the company. Keep holding. HOLD
Karyopharm Therapeutics (KPTI) was moved to sell on Tuesday after the company pre-anounced Q4 2020 results that showed XPOVIO sales were materially lower than expected do to Covid-19 distruptions (both for patients and sales team) and rising competition. There’s still potential here since Xpovio + Velcade has been approved to treat 2L+ multiple myeloma, which increases the market size, and international distribution is ramping up (driving $15 million in milestone payments in Q4). Still, in this market it’s hard to stick with a stock that’s done nothing for months on end, despite the potential. At this point it appears clear that investor appetite for KPTI is much lower than I thought it would be at this stage of the game, so we moved on. SOLD
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. I added the company to our portfolio in December and we’re up over 40% since thanks to a strong market and ample investor demand for sequencing stocks. Management pre-announced Q4 results on Tuesday morning and I sent out a Special Bulletin later in the day, explaining why I still like the stock and think it is still a buy. Management presented at the Needham Virtual Growth Conference yesterday. BUY
Porch Group (PRCH) is our most recent addition and is up nicely since being added a week ago. That said, I see PRCH as being in the family of many traditional IPOs and SPAC IPOs that trade in a wide range as the market tries to figure out what the story is and investors scramble to get their desired position sizes. I think this will be the trend with PRCH for a while so average in. As a short refresher (sort of a complicated story) Porch Group sells software to home services companies and its platform also functions as a lead generation/marketing tool aimed at connecting consumers (homeowners, homebuyers) with home services companies. The big brands within the firm are Inspection Support Network and Hire A Helper. There are a lot of angles to the story so it may be a good idea to reread the Issue periodically, but in a nutshell Porch should do well in a strong housing market as home services are in demand. Plus, it has a technology web that is able to monetize relationships and reach consumers when they are most open to the types of home services companies that use Porch’s software. If that doesn’t make any sense, re-read the Issue!! Still a buy. BUY
Q2 Holdings (QTWO) looks healthy and as a company that does well when banks do well (in theory), it’s somewhat of a cyclical technology growth stock. I like it here and think buying at all-time highs will work out well in 2021. BUY
Repligen (RGEN) is also back to all-time highs after coming out of a 17% dip in December. Nothing new to add here, I’ve kept at buy and am sticking by that rating now. BUY
Sprout Social (SPT) hasn’t seen shares affected by the crackdown in many social media companies that have shut out Trump and seen their stocks suffer (mainly I’m referring to TWTR and FB here). The stock hit an all-time high today. Management presented at the Needham Growth Conference on Tuesday. I missed the presentation but based on the stock’s reaction the market didn’t find anything to dislike. BUY
Please email me at tyler@cabotwealth.com with any questions or comments about any of our stocks, or anything else on your mind.
