There’s no doubt things are looking a little better out there as many software, MedTech and other growth stocks retested their March lows late last week then turned north. The timing of that short-term reversal, coinciding with the end of the first quarter, most definitely has me feeling better about the state of things right now.
What we’d like to see now are analysts turning more bullish on growth stocks. In fact, we’re seeing some of that now with several new initiations and price target increases over the last week (I discuss some of these in the individual stock writeups).
Another positive is the recent strength in some of the mega-cap technology stocks. Take a look at Microsoft (MSFT), Amazon (AMZN), Apple (AAPL), Alphabet (GOOG), etc. I’ll add Snapchat (SNAP), Hubspot (HUBS) and Pinterest (PINS) to the group of strengthening players as well (there are many more).
While these stocks clearly don’t have any place in our portfolio their relative strength lately establishes something of a pattern that other technology stocks can follow (i.e. consolidate, firm up, head higher) and lends support to the thesis that relatively high valuations STILL make sense in the current (and near-term future) environment.
All in all, I’d say it’s been a productive couple of weeks, even though things are still relatively messy when we look through the charts of our portfolio stocks. On average, over the last week we’re flat, and over the last two weeks we’re up 4% (on average).
With the addition of Revolve (RVLV) last week, which has responded nicely to my recommendation (up 10% as of this morning), and the upgrade of both Avalara (AVLR) and Sprout Social (SPT) from last week we’ve clearly moved incrementally more bullish lately.
Today we move one stock to hold, but other than that we’re content to stick with our current stance and see what develops in the coming days.
Recent Changes
Cardlytics (CDLX) moves to HOLD
Updates
Accolade (ACCD) has rallied nicely off the 36 level the stock hit a couple weeks ago. While the stock wasn’t able to break above 50 this week and has a rather messy chart, the acquisition of the 2nd.MD business and improved outlook from airline customers, as well as a $250 million convertible note offering (likely for M&A) suggests management feels it’s time to step on the gas. BUY
Arena Pharmaceuticals (ARNA) is doing about the same thing as the broader biotech group. While the stock’s not particularly strong the key level to watch is 60 (more than 10% below current levels). We’ll continue to hold. HOLD
Avalara (AVLR) sank to 120 last week, which took the stock almost back to where it was in September (115 was the low then) and about 30% off the February high of 185. I moved to buy last week because it just seems too beat up to pass on here. I wasn’t the only one. Yesterday morning Morgan Stanley picked up coverage with a 170 price target (JP Morgan thinks AVLR is worth 195). One of the lines from the Morgan Stanley report that frames the big picture idea here is as follows, “More broadly, we think the legacy status quo systems that have held up until now will become all the more antiquated as commerce becomes more global and complex, and as governments increasingly view indirect taxes as a source of revenue through greater audits and forced compliance.” As one of the leaders in tax compliance, and with the stock trading at a discount to SaaS peers (it has historically traded at a premium), AVLR is looking good now. BUY
BioLife Solutions (BLFS) has been moving sideways for the last week as investors digest the Q4 report and Stirling acquisition. There’s no new news to report. With the stock above 33 we’ll keep at buy. If it goes below that we will likely move to hold. BUY
Cardlytics (CDLX) is still kicking around in the 105 to 130 area (at the lower end, currently). I mentioned a couple weeks ago that should CDLX fall below 112 we’d move back to hold. That has happened and despite a good effort earlier this week CDLX hasn’t been able to cross back above. We’ll move to hold today and give this one a little more time. HOLD.
Cerence (CRNC) bounced off the 83 area last week for the second time this month. We did let go of a quarter of our position to make sure we booked a partial gain should the stock really break down. At the moment, things are looking better, but clearly at 30% off its high CRNC is “damaged goods” at the moment (along with dozens of other stocks). No major news this week. We’ll hold our remaining stake and look to the 100 level as one we’d like to cross and re-establish as support. HOLD
Everbridge (EVBG) traded down to 114 late last week and has recovered to near 130 since. This week we learned the company has acquired xMatters, a privately held software company that’s most similar to PagerDuty (PD), which leads the market in IT alert management. With this acquisition Everbridge moves further into PagerDuty’s turf with a small asset that has clients but hasn’t gained a lot of scale. With Everbridge’s sales teams/strategy this could change. The acquisition helps diversify Everbridge further into IT alerting (i.e. communicating with internal IT workers) and beyond mass notification and critical event management (i.e. communicating with the masses). Seems like a good marriage. Revenue contribution this year should be around $10 million assuming deal closes by end of June. Price to be paid is $240 million, with $160 million of that in cash. We should learn more on the Q2 earnings call in May. BUY
Fiverr (FVRR) is among the group of internet stocks that “should” enjoy sustained growth due to the increase in business resulting from the pandemic. The unknown is exactly how much of that business sticks. That’s why the stock is a hold now. We need more data points before having the conviction to move back to buy (or conversely to warrant a sell). FVRR bounced off 185 last week, a hair lower than 195 earlier in March, and is back near 220 now. Still holding. HOLD HALF
Goosehead Insurance (GSHD) has an increasingly ugly chart as the stock fell below 104 on a big volume day on Monday. Recall we sold another quarter position on February 24 at around 150. We’re trying to hold on to our remaining half as I think the market is overreacting to conservative 2021 guidance that seems inconsistent with the big beat in 2020, part of which was thanks to Q4 contingent commissions being well above expectations. This company is still somewhat unique in its approach to selling personal lines insurance. HOLD HALF
Inspire Medical Systems (INSP) is roughly flat over the last week and looks to be consolidating in the 180 to 230 area. Management just announced FDA approval of the company’s Physician Programmer Platform, which allows for Bluetooth connectivity to the programmer tablet. It’s an incremental positive. HOLD
Second Quarter Earnings Date: Tuesday, May 4
Kornit Digital (KRNT) has been recovering from a quick trip to 88. There has been no major recent company-specific news. The stock is flat over the last week. BUY
Porch Group (PRCH) reported last week and I covered the news in a Special Bulletin, keeping the stock at buy. Since reporting Porch has closed on the acquisition of Homeowners of America, which makes it one of the larger insurance-technology companies in the U.S. What we really need here, beyond continued execution at the company, is for more analyst coverage to help get PRCH in front of more investors. That should come with time. The stock is somewhat volatile and has no real pattern at the moment. BUY
Q2 Holdings (QTWO) remains near its 200-day line and 30% off its high. That’s about right for a significant correction and should set the stock up for better performance throughout the rest of the year. Management recently announced the acquisition of ClickSWITCH, a SaaS solution that helps financial institutions switch direct deposits and automatic payments to new bank accounts. Some of the debate around this stock relates to what valuation should be. Currently, QTWO trades roughly in line with other software peers, but below that of high-growth peers (where some think it should trade). The underlying reason may be that, while it’s a software company, there is significant services revenue due to customization, and this pressures margins. If Q2’s gross margins could expand the argument against higher valuations would evaporate. This should happen over time, so for those willing to stick with it QTWO looks quite attractive right now. BUY
Repligen (RGEN) traded down a few weeks ago, hit 178 the week before last (previous low in early-March was 173) and promptly turned back up. Back above 200 now the stock is roughly in the middle of its trading range going back to October. No major company-specific news. It’s still a buy. BUY
Revolve (RVLV) was last week’s new addition and the stock is up roughly 10% since I added it. We can thank KeyBanc for some of the strength as a price target raise from 47 to 58 this week gave RVLV a boost. If you missed my report, Revolve is an ecommerce fashion retailer that focuses on Millennial and Gen Z consumers (ages 18 to 40). The company is particularly strong marketing and selling premium on-trend women’s designer apparel, footwear, accessories and beauty styles. Younger women (and men) curbed spending on clothing during the pandemic but the trends are picking up now. The business is poised to do very well as younger people upgrade their wardrobes to get back out in the world. BUY
Sprout Social (SPT) has bounced nicely off support near 50.5. I upgraded the stock to buy last Thursday and will stick with that rating today. Barclays recently adjusted their price target to 84 from 68. BUY
Second Quarter Earnings Date: Tuesday, May 4
Please email me at tyler@cabotwealth.com with any questions or comments about any of our stocks, or anything else on your mind.
