It continues to be a very tough market, and with our exposure to small- and mid-cap growth stocks our portfolio continues to feel pressure. After some signs of stabilization last week the sellers are back in control this week and many names look destined to retest their March lows, or possibly dip a little lower.
In short, it’s a one-step-forward, two-steps-back market. Not a lot of fun.
Overall, the market seems a little tired. Some of the patterns that had been relatively consistent, like tech stocks moving inversely to yields, are no longer so clear. Some of the reopening names are also softening.
There are pockets of strength here and there, but many are not in the types of stocks we look at. For example, IBM (IBM) is looking solid! But that’s for another advisory (in fact, our Carl Delfeld has been recommending IBM for months in his Cabot Global Stocks Explorer portfolio).
Given the trends, we’re moving incrementally more defensive today. While we could certainly see a bounce and rally, and there may be more optimism as the quarter ends next Wednesday and investors begin to look forward to earnings season in May, there’s not a heck of a lot of incentive to do much buying right now. The market is just too messy. It’s a good time to resist the urge to try and be a hero, have some cash available and wait for more durable trends to emerge.
Recent Changes
Arena Pharmaceuticals (ARNA) moves to HOLD
Avalara (AVLR) moves to HOLD
Profound Medical (PROF) moves to SELL
Updates
Accolade (ACCD) reported preliminary Q4 results after the closing bell on Tuesday and I detailed the results in a Special Bulletin yesterday. I had expected a favorable market response but ACCD was pulled down by the weak market. We’ll keep at buy for now but may switch gears if the stock doesn’t firm up soon. Shares are flattish today as pricing for the convertible notes was announced with an implied conversion price of $50.48 (33% above yesterday’s close). BUY
Arena Pharmaceuticals (ARNA) has pulled back with the broader biotech group this week and is testing its lows from earlier in the month. Nothing new to report, but with this action and given we’ve had at buy for a while we’ll move to hold today. HOLD
Avalara (AVLR) remains below its 200-day line and slipped below last week’s low yesterday. The news of rising Covid cases in Europe isn’t helping here as Avalara has made some recent acquisitions to boost its overseas exposure. While this situation should be transitory – though it may be wise not to jump to too many conclusions right now – the weakness in the stock means we have to move to hold today. HOLD
BioLife Solutions (BLFS) reported Q4 results and a major acquisition (Stirling) on Monday. I detailed the results in a Special Bulletin on Tuesday. As I said then, “… the company continues to make major acquisitions and build a bigger portfolio of solutions to address demand in the cell and gene therapy market. I think big investors would like to see an acquisition that is accretive to profit margins, but at the same time finding one at a reasonable price may be harder than a tie up where management teams come together and drive efficiencies.” BLFS was all over the place on Tuesday but closed up nicely, then gave it back yesterday. Maintaining at buy for now. B Riles raised its price target from 35.5 to 61, while others (Maxim, Stephens, KeyBanc) landed in the 50 to 60 range. BUY
Cardlytics (CDLX) has been caught between acting like a software stock and a “reopening” stock, which makes some sense given that the purchase intelligence platform has a lot of exposure to dining, travel and other activities that have been pressured by the pandemic. We’ve seen some encouraging signs in the stock over the last two weeks – enough to move to buy – but yesterday’s action (and weakness this morning) has us looking at 112 again as a level at which, if breached, will necessitate a move back to hold. BUY
Cerence (CRNC) continues to bounce around with other growth stocks and after trading up to its 50-day line near 113 last week has since fallen below 100. We rode the stock back up from 83, where it seemed to have bottomed on March 3, so that area becomes a natural target to watch out for. Maintaining at hold. HOLD
Everbridge (EVBG) has become increasingly sloppy lately and yesterday’s selloff took shares slightly below last week’s low. There’s just not much appetite out there to buy high-growth software, even though in this case EVBG’s EV/Forward Revenue multiple of just under 14 is near the low end of the range that the stock has traded in over the last 12 months. Will keep at buy a little longer, but admittedly this stock is in no-man’s land right now and the trend doesn’t look great. BUY
Fiverr (FVRR) sold off yesterday as well and is back at its low from earlier this month (195). Management recently announced the launch of a new vertical focused on data-related services. HOLD HALF
Goosehead Insurance (GSHD) did what other growth stocks did this week and is testing support around the 110 level, which also happens to be where the 200-day line is. We’ll continue to watch this closely. HOLD HALF
Inspire Medical Systems (INSP) has been one of our more resilient stocks but didn’t evade the selling this week. Shares slipped below 200 yesterday and if the weakness continues we’ll look to 180 to 187 as an area where things should firm up. Last week I suggested we could move back to buy if INSP could continue to hug its 50-day line. That plan is off the table, for now. HOLD
Kornit Digital (KRNT) was, until Tuesday, holding tight against its 50-day line (near 100) but the last two days have pulled shares down. We’re now looking at the 90 level as an area of support. Late last week we heard that Printful will add an additional 50 Kornit Atlas systems to help the company scale up its direct-to-garment (DTG) production. Printful is an on-demand printing and warehousing company that handles printing, order fulfillment and shipping for clothing, accessories, and home décor brands. We’ll keep at buy for now but I’m watching the 90 level closely. BUY
Profound Medical (PROF) slipped below its previous low of 20.75 yesterday, to close at 20.43. With the stock now down over 20% from our entry point we’re switching gears from looking for upside to limiting losses. Moving to sell today. PROF goes back on the watch list. SELL
Q2 Holdings (QTWO), like many of our other long-term holdings, slipped yesterday and fell below its 200-day line (near 106). While QTWO flirted with its 200-day line last May and June the last decisive break was last February. With the stock 30% off its high and now trading with an EV/Forward Revenue multiple of 12, well below December’s peak of 17, it looks like a heck of a buy. That’s not to say it can’t go lower – of course it can, especially if tech stocks keep sliding. But given the likelihood of a much improved operating environment for the company in 2021 and 2022 it’s hard not to think QTWO is a compelling buy here for those that can afford to be patient. BUY
Porch Group (PRCH) reports on Tuesday and it is sure to be an exciting event. The company has made a number of acquisitions and participates in the red-hot housing/real estate market. It hasn’t reported quarterly results since coming public. Management’s latest guidance (from January) for 2021 revenue marked an increase from $120 million to $170 million. Management expects around 25% of revenue to be from B2B SaaS fees, 65% from B2B2C move-related services, and the remaining 10% from post-move services. Also, Porch said it expected adjusted EBITDA loss to range between -$17M to -$27M. Given how the broad market is acting PRCH could easily move significantly, in either direction, following earnings. Keeping at buy but obviously there are considerable risks to buying right ahead of earnings. BUY
Earnings: Tuesday, March 30
Repligen (RGEN) was recovering nicely until yesterday. This week management has presented virtually at the KeyBanc Life Science conference. There is no new fundamental news. For now keeping at buy as the stock seems to be retesting its early-March low. BUY
Sprout Social (SPT) is another stock that was looking great heading into yesterday, then suffered a major selloff. I had been considering moving back to buy but we’ll sit pat and see how the stock behaves over the next week. Like others, SPT is retesting its early-March low. HOLD
Please email me at tyler@cabotwealth.com with any questions or comments about any of our stocks, or anything else on your mind.
