The market got off to a horrible week as stocks sold off Monday, but things have been a lot better since and the S&P 600 Small Cap Index is now back above where it closed last Wednesday (6% below all-time highs).
Stepping back, we see that the broad small-cap index has been bouncing around since March without making any net new progress. But drilling down deeper we see many stocks (including several in our portfolio) acting well.
The average gain in our portfolio is 4% since last Wednesday’s close, with only four positions not having gained altitude.
Naturally, the performance of the small-cap index reflects the mix of stocks within it (lots of value stocks, industrials, financials, etc.), which is somewhat different from that of better-performing indices, including the S&P 500 and Nasdaq. Even after a dip last week (and Monday) those indices are closer to all-time highs (both off just -1% from their high-water marks) and maintaining uptrends.
In terms of what’s moving markets these days it’s a grab bag of things, each of which is significant and, when taken together, can lead to analysis paralysis for some investors.
Inflation, interest rates, stock valuations, earnings season, the housing market, the Delta variant, some vaccinated people putting masks back on and more are all heady subjects. Right or wrong, my approach lately has been not to dig in too deep since venturing too far down any one of those rabbit holes seems likely to lead to a labyrinth of confusion from which one may never emerge!
For now, broad and surface level big-picture analysis seems to be working well enough, and preserves focus for individual stocks that offer some exposure and/or protection from the trends we like and/or don’t like.
In terms of earnings season within our portfolio things start to warm up next week when we’ll hear from Repligen (RGEN), but it’s the first two weeks of August when things go crazy. Enjoy the relative calm of the next week!
Recent Changes
Inspire (INSP) Moves to BUY
Updates
Accolade (ACCD) sold off toward the end of last week and a mixed shelf filing probably didn’t help. But it’s been a different story lately as shares have bounced back up to their 50-day line and are dead even with last Wednesday’s close. Given that earnings just came out there’s little new to report. Keeping at buy. BUY
Earnings: Done
Arena Pharmaceuticals (ARNA) hasn’t announced an earnings date yet but I expect the event will be held in the first week of August. No news to report. Shares are off by 2% compared to last Wednesday’s close. BUY
Avalara (AVLR) will report Q2 results two weeks from today. Current consensus calls for revenue of $154.3 million (up 32%) and adjusted EPS of -$0.10. A result close to those numbers should set Avalara up for full-year revenue of $650 million (up 30%) and adjusted EPS of -$0.25. I expect it will do better. The company has been breaking into the enterprise market as its portfolio of tax compliance solutions can better handle the complex needs of this customer base. At the same time smaller customers also face growing needs for Avalara’s solutions. Add it all up and we see a company that generated $500 million in revenue in 2019 and should bring in around $1 billion in 2023. The stock is up 5% over the last week. BUY
Earnings: Thursday, August 5
Cerence (CRNC) continues to push out the press releases. This week we learned the company will supply AI-powered voice recognition to HARMAN’s Ignite Store. The stock is flat over the last week and we don’t yet have an earnings date (expected first week of August). BUY
Everbridge (EVBG) recently announced it was selected by the country of Estonia to power its countrywide Public Warning System and cover 4.5 million residents and annual tourists. This is good – we want to see the company gain momentum in Europe and create a network effect where other cities and countries in the region will jump on board. Everbridge was also selected by the enterprise cybersecurity company Fortinet to supply its Critical Event Management (CEM) solution. The stock is up 5% in the last week. In Q2 revenue is seen growing by 28% to $83.9 million while adjusted EPS is seen at around -$0.23. For full-year 2021 revenue is seen up 33% to $360 million while adjusted EPS is expected to fall around -$0.17 (down from -$0.01 in 2020). BUY
Earnings: Monday, August 9
Funko (FNKO) was sold a week ago and is down a few percentage points since. No new fundamental news, though earnings will be reported on Thursday, August 5. SOLD
Fiverr (FVRR) bounced nicely off its 50-day line and is up 8% over the past week. Earnings come out two weeks from today. Revenue is seen up 59% to $74.8 million while adjusted EPS is seen up 40% to $0.14. For 2021 revenue is expected to grow 64% to $310 million while EPS should be up 18% to $0.39. HOLD
Earnings: Thursday, August 5
Inspire Medical Systems (INSP) remains in the spotlight as this week CMS released its 2022 proposed hospital outpatient and ambulatory surgery center (ASC) reimbursement rates. For some reason the Medicare ASC rate is lower than what it was prior (from $24,200 to $17,540) and below the cost of the device, meaning there’s no reason doctors would do procedures in the ASC setting. Notably, only 3.8% of all Inspire procedures fall into this category and the bulk remain in the commercial ($33K reimbursed) and hospital outpatient ($30,209 reimbursed, up 3%) settings, so even if this wasn’t a fat finger mistake on the part of the CMS it’s not a deal-breaker for the stock. Inspire management is going to be on the horn with CMS to sort this out, and based on INSP’s bounce back from Tuesday’s high-volume selloff I think investors are using weakness to add to positions. Admittedly, I don’t like having to slash through the noise to speculate as to what’s going on within the CMS and the heads of big investors, but given my current understanding of this situation it seems this cloud will clear up. Earnings are due out on August 3 and you can bet management will be talking about this. I think you can buy ahead of the event so I’m upgrading the stock accordingly. BUY
Earnings: Tuesday, August 3
Kornit Digital (KRNT) will report Q3 results on August 10. The stock has bounced back nicely from a recent dip and is on the verge of breaking out to new highs. BUY
Earnings: Tuesday, August 10
On24 (ONTF) was added to the portfolio three weeks ago and after being a little soft at first the stock roared back to life yesterday, rallying 9%. There was no news specific to On24 behind the move, however we did get an earnings date of Tuesday, August 10. The second quarter will see the largest ever cohort of new customers renewing as businesses flocked to the platform a year ago when the pandemic struck. It’s hard to know how many of these customers will renew and how many will bounce. Management appears to be thinking conservatively and assuming higher-than-normal levels of customer churn. While there are sure to be customers that choose not to renew as the pandemic fades I suspect those will be the ones that never really got up to speed on the platform in the first place. The reality is flu (and COVID-19) season isn’t that far away and businesses now know that digital strategies, including marketing and sales, are a must have. Analysts are modeling Q2 growth of 29% to $51 million and bottom-line break even. Expected 2021 revenue growth is 34% ($210 million). R&D and sales and marketing investments will curb profitability. Adjusted EPS is seen around -$0.03 in 2021, then turning positive in 2022. BUY
Earnings: Tuesday, August 10
Porch Group (PRCH) is up 3% over the past week, mostly because of a 6% rally yesterday that brought the stock back to its 50-day line. Prior to that move PRCH had been sliding for a number of sessions but, so far, has been able to find support around 17.3. We’re just in a consolidation zone in the 17 – 20 range. We’ll keep the stock at buy for now. BUY
Q2 Holdings (QTWO) bounced back 5% this week and will report on August 4. No new company-specific news. BUY
Earnings: Wednesday, August 4
Revolve (RVLV) is up modestly over the last week and trades 7% off its all-time high. Earnings will be out on August 4. We are looking for revenue of $198 million (up 39%) and adjusted EPS of $0.21 (up 5%). I have debated moving RVLV back to buy during the recent dip and wouldn’t argue with anybody who wants to buy shares here. However, for now we’re going to stick with a hold rating. HOLD
Earnings: Wednesday, August 4
Repligen (RGEN) will report Q2 earnings next Tuesday, with results coming out before the market opens and the conference call being held at 8:30 am ET. With all the attention on the Delta variant and the transition for companies with bioprocessing exposure (like RGEN) from what may currently be peak COVID-related revenue big investors are speculating as to how the chips will fall. The challenge is that we don’t yet know what the landscape around booster shots will be and there remain large numbers of people around the world that are not yet vaccinated, so COVID-related revenue could sustain for a while. Also, the pandemic has shed light on the potential of mRNA vaccines and Repligen is seeing higher demand from new products. Add it all up and you get a stock that’s somewhat in limbo. Next week’s earnings report will offer a little more clarity on current trends. BUY
Earnings: Tuesday, July 27
Sprout Social (SPT) fell almost to the 50-day line last week but has rallied 7% since last Wednesday’s close and now trades just 6% off its all-time high. Earnings come out on August 3. We’re looking for revenue growth of 37% to $43.1 million and adjusted EPS of -$0.10, an improvement of a penny. HOLD
Earnings: Tuesday, August 3
Thunderbird Entertainment (THBRF, TBRD.CA) is a media production and distribution company that creates content for major streamers, including Netflix, Disney+, Apple TV+ and Discovery. Shares haven’t done much since we added the position but in the last earnings report management discussed a number of growth initiatives that should attract larger investors, including video game launches, potential M&A and feature animated productions that are coming to market soon. Thunderbird is known for producing content for kids, which is of strategic importance for streamers given that families tend to stick with platforms that keep kids happy. One small example is an upcoming new Curious George movie that Thunderbird is creating for HBO. 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.
