Neither the broad market nor the S&P 600 Small Cap index have done much over the last week. But both received a small boost yesterday after the Fed upgraded its 2021 growth outlook and said it didn’t expect to raise rates until 2024.
There are a lot of ways to interpret the Fed’s stance, and there are certainly a wide range of opinions out there. But sometimes it’s best not to overthink things. Taken at face value the message is the Fed will continue to sit pat and see how things go. That makes sense given we’re still so early in a potential recovery, with only around 20% of the U.S. population having received one shot so far.
The uptick in the market yesterday was short-lived however, as yields rose overnight and splashed cold water on what could have been a nice rally day today. Oh well. It probably hasn’t helped that employment numbers were weaker than expected too.
Stepping back, it’s not hard to see a phase of a month or two where many of our stocks just bounce around and don’t do a heck of a lot. Sure, there will be some that slip and others that rally. But big picture this rotation period makes sense.
One question I’ll throw out there is this: at what point does momentum in value stocks carry those names too high and imply growth/rebound expectations have become too rosy? I don’t know the answer, but I’m sure you’ve seen value-oriented names/funds in your portfolio that have far exceeded expectations lately! When that time comes, does money rotate back into growth/tech/MedTech, come out of the market, or all go into GME and bitcoin (joking, I think)?
It’s going to be a very interesting summer and fall as the widespread consensus is the U.S. economy is in for a period of HUGE growth. With so much support the expectation is that the stock market should do well. And I’m in that camp. It’s hard to see a scenario in which we have a raging economy and a faltering stock market.
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Accolade (ACCD) has moved higher and has a brighter outlook given a more favorable employment picture for airlines after the stimulus package passed. There was an interesting note from Bank of America recently describing the merger of two private companies, Grand Rounds and Doctor on Demand. This merger looks somewhat similar to an Accolade and Teledoc (TDOC) tie-up, especially when considering the rationale for the deal was to ensure “maximum coverage of all factors tied to virtual health.” BofA went on to describe evolution of the care model shift to a better “high-touch way to manage the full care cycle of the individual.” There are a lot of ways this is being done and models will continue to change in the coming years. BUY
Arena Pharmaceuticals (ARNA) has been relatively stable on no recent news. BUY
Avalara (AVLR) dipped back below its 200-day line yesterday and remains weak today. There is nothing wrong with the business – this looks mostly like softness in growth due to the jump in Treasury yields this week. Will keep at buy for now. BUY
BioLife Solutions (BLFS) will release Q4 earnings on Monday. The results will likely determine the stock’s next move, although the broader action in MedTech stocks will continue to be a significant driver as well (the iShares Medical Device ETF (IHI) has pulled back and is 8% below its previous high). Back to BioLife, analysts are looking for Q4 revenue to jump 71% to $11.3 million and adjusted EPS of -$0.02. Looking into 2021 we’re hoping for clues that revenue growth can top 40% ($70 million) and adjusted EPS of around $0.13. There is sure to be a lot of discussion around vaccination rollout and what role BioLife is playing in that. BUY
Earnings: Monday, March 22
Cardlytics (CDLX) was moved to buy last week after an encouraging quarterly report on Monday. The stock has been relatively solid in the 118 to 135 zone for the past week and represents a reopening play given exposure to travel, dining and other categories impacted by the pandemic. The Dosh acquisition is very interesting. I don’t expect a surge higher until there’s more data to support a move, but I do think it’s mostly a matter of time before CDLX can go on another run. BUY
Cerence (CRNC) has been seeking direction (as have most growth stocks) lately and, for now, appears to be able to hold above 100. We’re still being conservative and sticking with a hold rating as this stock is up over 100% from where it was in September. I like it. Just want more stability in the growth arena before moving to buy. HOLD
Everbridge (EVBG) is bouncing around without any clear sense of direction. Management announced its Vaccine Distribution software has been selected by an intergovernmental organization to deploy vaccine across dozens of countries (scheduling, tracking, communications, etc.). Keeping at buy. BUY
Fiverr (FVRR) remains at hold given the general malaise with growth/software stocks. There’s no new company-specific news. HOLD HALF
Goosehead Insurance (GSHD) was moved to hold a few weeks ago after taking another quarter of the position off the table. Looking for GSHD to firm up in the 115 to 140 zone. HOLD HALF
Inspire Medical Systems (INSP) announced approval for a two-incision procedure (versus the three-incision procedure) which should make Inspire Therapy quicker, less expensive and less invasive to implant in patients. This is a clear incremental positive. I like how INSP is hugging its 50-day line and am considering boosting to buy. HOLD
Kornit Digital (KRNT) continues to act well and, like INSP, seems inclined to bounce off its 50-day line. I’m intrigued by this company’s technology and think it will play a larger role in fashion and clothing/furniture/home goods manufacturing and supply chains than people give it credit for. It’s hard not to love the chart. BUY
Profound Medical (PROF) has moved modestly higher after reporting last week. The story here is the same as with most of our other MedTech stocks – action has cooled down and these stocks are just grinding away 15% to 30% off their highs. It’s a process that will likely take some time to work through. I think PROF can be a leader coming out of it. BUY
Q2 Holdings (QTWO) is trading 28% off its high, which is about right for a major sector pullback. Oddly enough, Q2 should see business pick up as financial institutions do well and the rise in rates has pushed bank stocks up quickly. But QTWO has moved in the opposite direction, as have many software stocks. I think this is a temporary situation. As I stated last week a break below 100 would be concerning but, provided growth stocks stabilize, it’s not hard to see QTWO back near 150 (roughly 35% higher) this summer. BUY
Porch Group (PRCH) is well off its highs but has been holding up OK lately. This stock is exposed to housing and homebuyer/homeowner spending and the outlook for these areas of the economy is quite encouraging. Earnings are due out at the end of the month and will be a major factor in determining where PRCH goes next. BUY
Earnings: Tuesday, March 30
Repligen (RGEN) is a high-conviction buy and has bounced nicely off 173. It’s still a buy. BUY
Sprout Social (SPT) is another stock that I’m considering moving back to buy as it looks like it wants to go higher. This company is earlier than most in its growth curve and I don’t think the story is that well known. I wouldn’t argue if you wanted to pick up a few shares here, but officially I’ll keep at hold a little longer. HOLD
Please email me at tyler@cabotwealth.com with any questions or comments about any of our stocks, or anything else on your mind.
