The big news this week was, of course, the swearing in of President Biden and all the associated stories about the transition. Fun fact – portfolio holding Everbridge (EVBG) supplied its Mass Notification system to help keep Washington, D.C. area residents and visitors safe and tuned in during, and leading up to, the Presidential Inauguration.
I don’t know if you’ve ever seen the movie “The Cable Guy” with Jim Carrey. But there’s a scene at the end where a guy is glued to his TV, until Chip (Jim Carrey) is flung into a huge satellite dish, which knocks out cable to all the houses in the area. The unknown viewer (who was glued to his TV) quietly turns it off, sees a book sitting next to him, and peacefully picks it up and starts reading.
I feel sort of like that guy. I’m looking forward to what’s hopefully a more subdued news cycle in the years ahead.
Back to stocks, the biggest thing coming up is earnings season and I think it’s going to be intense. There are so many issues and potential opportunities out there that it will be refreshing to hear what management teams have to say regarding their perspectives in 2021.
Clearly, stocks are hot. And that poses some challenges for new buying. But there are opportunities and I’m loving all the new IPOs and SPAC IPOs. Even if we don’t want to buy them all, the market needed some fresh names, and we’re finally getting them.
Also, as we’ve discussed, these economic recoveries tend to go on for some time and getting out too early can lead to missing out on some serious profits. The upcoming earnings season will help us better understand if the risks we’re taking make sense, or not.
To help put things in perspective I want to share this chart of software multiples, courtesy of Morgan Stanley Research. As you can see, multiples across the group are at record highs. I won’t go into all the reasons they are (and should be) trading at a premium. This is just for perspective – take it for what it’s worth.
Regarding our portfolio, we’re not making any major changes this week. We have one stock moving to hold, but for the most part we’re plowing ahead and trying to keep adding to positions that I think have the most near-term upside.
Recent Changes
Sprout Social (SPT) moves to HOLD
Updates
Accolade (ACCD) is trading higher than it was a week ago and is up nicely since management announced the acquisition of 2nd.MD, A.K.A. Innovation Specialists. As I stated in last Friday’s Special Bulletin, “Bottom line here is I think this acquisition makes a lot of sense and it adds another attractive element to the Accolade story. The market likes it too – ACCD is up around 10% while the market is modestly down. Keep holding and look to buy on any weakness.” It’s worth mentioning that this acquisition almost quadruples Accolade’s customer base, which should drive some interesting cross-selling opportunities. For analysts, those words are the equivalent of gummy bears for kids, and price targets for ACCD have risen modestly to reflect the bigger market opportunity Accolade now faces. The stock can be volatile so continue to look to buy on weakness. HOLD
Arena Pharmaceuticals (ARNA) continues to trade around the 80 mark (thought it’s down today). I had a lengthy review last week after management presented at the J.P. Morgan Healthcare Conference, and there is nothing to add today. BUY
Avalara (AVLR) has been kicking around in the 150 to 185 range for a few months and before that knocked about in the 115 to 145 range for most of the summer. My theory is that the stock is well-liked but that higher profile new names (IPOs, SPAC IPOs, etc.) have attracted capital lately and AVLR has been kicked into the shadows. However, I don’t think that will last, and I noticed one small cap fund I respect has begun buying. Keep holding. HOLD
BioLife Solutions (BLFS) continues to hold in the low 40s as investors await updates on if and how the company is benefiting from the urgent need to transport and store coronavirus vaccines. Given the company’s focus on biopreservation products used in cell and gene therapy, as well as thawing products, cold-chain transport systems and high-capacity freezers, it would seem the phone at HQ would be ringing off the hook. I’m looking forward to the next update. BUY
Cardlytics (CDLX) sold off last week and broke below its 50-day line the day after management presented at the Needham conference. There’s no major news. Keep holding. HOLD
Cerence (CRNC) continues to march higher and there’s been no shortage of news flow to keep investors engaged in the story. This week the company talked about its platform innovations for the automotive and 2-wheeler (motorcycles, scooters, e-bikes) markets, as well as products for buildings, including an elevator system that allows passengers to control the elevator with voice commands. Cerence also unveiled innovations through its Cerence Cloud Services, which will help drivers access smart home devices from their car (Hey Google, turn up the heat to 70), bring internet search engines directly into the car, and access both Android and iOS smartphone apps directly through their car’s infotainment system. Finally, today we learned that Toyota has signed on with the company’s new cloud service center in Japan. Things are happening. BUY
Everbridge (EVBG) keeps toying with the idea of a breakout but thus far hasn’t gotten the job done. I think it is just a matter of time. The company just released a new front end alerting interface for its global public warning platform, which works across text, video, social media, TV, radio, sirens, websites, emails and digital signage. BUY
Fiverr (FVRR) took a hit this week as UBS downgraded to sell, but that’s far from the consensus opinion. I’ve also seen firms like Bank of America up their price target to 300 (stock at 240 now). The reality is we can guess and speculate all day long about how long the growth trend will persist here but until we get some actual news from management that calls the growth story into question we’ll likely stick with our remaining position. HOLD HALF
Confirmed Earnings Date: February 18
Goosehead Insurance (GSHD) walked up to a new high this week. Take that Paul Davis (recently fired after live streaming from outside the Capital building with the mob). We’re now up over 360%. Keep holding. HOLD
Inspire Medical Systems (INSP) also hit a new high this week and has been strong since management spoke at the J.P. Morgan Healthcare Conference last week (detailed in last week’s update). We have an earnings date of February 23. Keep holding. HOLD
Confirmed Earnings Date: February 13
Karyopharm Therapeutics (KPTI) was moved to sell early last week and has done nothing remarkable since. SOLD
Personalis (PSNL) pre-announced Q4 results last week, which I detailed in a Special Report and have kept at buy. In general, sequencing stocks (ADPT, TXG, etc.) have been strong and PSNL’s new all-time high yesterday means it’s more than keeping pace w/the pack. It might be a little extended here so try to add to positions on weakness. BUY
Q2 Holdings (QTWO) is one of those stocks that I’ve kept at buy and wonder if anybody has been listening. I hope so! The stock broke out this week and is advancing nicely on no major company-specific developments. We have an earnings date of February 17. BUY
Confirmed Earnings Date: February 17
Porch Group (PRCH) announced a flurry of planned acquisitions last Friday that sent the stock soaring and inspired a lengthy Special Bulletin detailing the moves. We just found out today that the acquisition of one of those, V12, just closed. The stock is trading at all-time highs after a quick run from 13 to 18. The market still isn’t sure how to value this one so be ready to roll with it and buy on weakness. BUY
Repligen (RGEN) poked its head up to new highs this week. Last week, at the JP Morgan Healthcare conference management reiterated previous guidance, which included a $50 million to $70 million boost from vaccine work, and stated that its new COVID-19 vaccine purification resin will be more useful for ongoing booster shots and next-generation vaccines than the first wave. Bigger picture, management struck a bullish tone on the long-term growth prospects in the bioprocessing industry due to strength in cell and gene therapy markets and sees growing at an average annual rate of 23% to hit $1 billion in revenue by 2025. Sounds good to me. BUY
Sprout Social (SPT) broke out above resistance at 57 this week and rallied well above 60 before paring gains today. There’s no company specific news, though I have seen reports outlining how the pace of hiring has increased dramatically at the company, which lends support to the growth story. Still, taking it all in we’ll become little more cautious today and move Sprout to hold, most likely until we get the next business update. Unless management preannounces, that will likely be on February 23 when Q4 2020 earnings are scheduled to be released. HOLD
Confirmed Earnings Date: February 23
Please email me at tyler@cabotwealth.com with any questions or comments about any of our stocks, or anything else on your mind.
