Well, it couldn’t last forever, right? After months of hardly any pullbacks on the heels of the massive post-election rally, stocks—including small caps—finally had a down week. The damage was modest: the S&P 600 tumbled 2.9%, with the big down day coming on Tuesday. It’s no reason for panic—corrections can be healthy, and I wouldn’t be surprised to see more weakness between now and July.
Big picture, the small cap index has now broken below its 50-day moving average, but small caps still haven’t given up their post-election rally. That advance won’t start to really get cut into until the index breaks below 810, which it came close to earlier in the week before stabilizing.
Financials were the biggest culprit, as the PowerShares S&P SmallCap Financials ETF (PSCF) was down 4.6% entering Friday trading. Industrials were the next weakest, down 3.25%. Fortunately, we don’t have any pure exposure to financials in Cabot Small-Cap Confidential 2.0, though we do own Q2 Holdings (QTWO), which sells software to banks. Thankfully, QTWO is holding up just fine so far. U.S. Concrete (USCR) is our only exposure to industrials; it’s down 4.5% in the last week.
Despite the bad week for USCR, I have no ratings changes this week. As I said before, small caps were bound to hit a rough patch, but they still are clinging to three-month support. One bad week is no reason to panic and start selling out of mostly strong positions, which is why I’m not recommending that you do so with any of the 10 small caps in our portfolio.
Here’s what’s happening with each of them.
Updates
Airgain (AIRG) After a big jump from 12 to 14 last week, AIRG settled into more of a holding pattern this week, finding support at 14, which is a good sign. I’d like to see it get back above its 50-day moving average (14.9), but it’s finally trending in the right direction after a rough start to the month. We’re still down about 15% since we added the stock to the portfolio in early February, but I’m not worried. I still think AIRG has 50% upside potential. BUY.
Asure Software (ASUR) Tough week for Asure Software, which is down more than 11% this week after reporting fourth-quarter earnings on Monday. While the company set sales records for the quarter and year, with revenues improving 44% from the same quarter a year ago, it merely reaffirmed its 2017 full-year guidance, which was perhaps the source of disappointment for investors. The stock seemed to stabilize around 9.90, and has since poked its head back above 10. We’ll keep ASUR as a Buy for now, but may switch to Hold if closes below the 9.5–10 range. The good news is that Barrington upgraded its price target for ASUR to 13 following earnings, so clearly not everyone was discouraged by the unchanged 2017 guidance. BUY.
Everbridge (EVBG) Yesterday, Everbridge announced a public offering of approximately $50 million in common stock, held mostly by existing shareholders. That could spark some erratic trading in the weeks ahead. However, shares have rallied hard in the last couple weeks, from 17 to as high as 21 before pulling back to their more established range of 18–20. It was a good test of the stock’s breakout potential. For now, we’ll keep EVBG on Hold and wait until the dust settles after we’re a few weeks removed from the public offering. HOLD.
LogMeIn (LOGM) Two weeks ago, LOGM was flirting with 100 and on the cusp of breaking above its 50-day moving average. Then it fell hard on Tuesday during the market rout, and has since settled into the 93–95 range. The fact that it held up at the 93 level is good since that was its late-February, pre-earnings low. We’re still up 63% since our January 2016 recommendation, however, and I still recommend holding. HOLD HALF.
Marrone Bio (MBII) The stock is getting a bid even though earnings won’t be announced until next Wednesday, March 29, after the market closes. Shares are up 4% in the last week, regaining 2, which is a good sign. Though expected, the company released its new Haven Anti-transpirant product—applied to the leaves of plants to reduce excess water evaporation, which can damage crops. Haven gives Marrone Bio a foot in the biostimulant market, which could open up some new revenue streams. Ultimately, however, it’s the earnings report that will drive share price performance here. BUY.
Earnings release date: March 29
MindBody (MB) MindBody shares were down a tad this week, but support keeps moving higher, now just below 27. The chart still looks great and shares are more than a point above their 50-day moving average (roughly 25.7). Keep on holding. HOLD.
Ooma (OOMA) We learned this week that SoftBank invested $300 million in shared-office space company WeWork. This is a nice little cash infusion for the company that Ooma is looking to go global with in 2017. Rumor has it that WeWork will raise around $3 billion more, and has already raised about $2 billion from Fidelity, Benchmark (based in Silicon Valley) and China’s Jin Jiang International Hotels. It’s not a bad business for Ooma to hitch itself to. Shares of Ooma have rebounded nicely off 9, and while its current price around 9.65 is well short of the 11 level needed to mark a breakout, the long-term trend here is still up. Keeping at Buy. BUY.
Primo Water (PRMW) In the week after earnings, shares of Primo have given up some of their gains and are now trading below their 50-day moving average for the first time in two months. This stock is prone to rallies and fades so at the moment I’m not concerned. Keep holding. HOLD.
Q2 Holdings (QTWO) Despite the sharp downturn in small-cap financials, the stock is holding up great and remains above its 50-day moving average. Continue to Hold. HOLD.
U.S. Concrete (USCR) Shares lost around five points this week but remain above their 50-day moving average and are holding up better than most construction and basic materials stocks. No new fundamental news to report. Keeping at Buy. BUY.
Please email me at tyler@cabotwealth.com with any questions or comments about any of our stocks, or anything else on your mind.
