The market rallied last week despite the happenings with Evergrande and the Fed’s indication that tapering should begin in a few months, then a rate hike cycle could begin later next year or early 2023.
But things have been very different this week.
After a delayed rection to last week’s Fed commentary Treasury yields have shot up (though they are still very low). To put it in mortgage rate terms a 30-yr. refi has gone from around 2.875% to 3.0% over the last week. That’s not going to crush the hopes and dreams of the average American right now but the pace of the increase and the mid-term trajectory of interest rates has investors speculating (again) about what the impact on the stock market will be as tapering begins and rate hikes draw closer.
The knee-jerk reaction to all this was that stocks got hammered earlier this week. The selling was pretty much across the board. We could split hairs and highlight a few names that were stronger or weaker than others but let’s not. Bottom line, stocks took a hit.
As we’ve moved through the week the media’s attention has shifted to supply chain challenges. I recall studying the “Bullwhip Effect” in business school but a refresher was timely. In a nutshell the term refers to the reality that different players in supply chains act differently, and often irrationally, depending on what’s going on. Those actions resonate out through the chain, amplifying over- and under-supply issues that would normally be absorbed without any issues.
What will this all mean to you and me?
It sounds like we should settle in and get even more used to not having exactly what we want when we want it. On the one hand that’s not necessarily a bad thing as maybe a little patience and selectivity is good for people, in general. But clearly there are many situations where the adverse impacts of supply chain disruptions are more than mere inconvenience.
Moving on to our portfolio and what to do as we work our way through this bout of volatility/uncertainty … at a high level it’s not overly concerning that the market has pulled back. We’ve been riding it higher for a while and have acknowledged that some areas of the market seem a tad frothy.
At the same time, an about face is never fun or easy to digest and it’s rational to now be concerned about a larger decline. As always we’ll take it one step at a time as, historically, it has been a losing bet to call a market decline at the first signs of weakness.
As I look around now I’m excited by many of the small-cap companies that have come public in 2020 and 2021 and which we can now invest in. Clearly, price always matters. But high level, there’s a lot to like out there. And I think these recent pullbacks have more than a few investors thinking about potential new buys.
On that note, we have a new portfolio addition coming next week! I’m hoping we can take advantage of a bit of a selloff in one of the top candidates.
Recent Changes
Cerence (CRNC) moves to HOLD
Updates
Accolade (ACCD) will report Q2 fiscal 2022 results next Thursday, October 7. I expect management will discuss acquisition integration and new products. Current consensus is that Q2 revenue will have grown 91% to $70.4 million and that the company will be on pace to grow full-year revenue by 76%. BUY
Arena Pharmaceuticals (ARNA) recently held an R&D investor call focused on ulcerative colitis (UC) (covered last week) and followed that up with another call focused on atopic dermatitis (AD). The high-level overview is that a Phase 3 trial is about to begin enrollment studying etrasimod in AD. The once-daily oral option should be attractive as compared to injectable therapies and/or JK inhibitors. This program is important, but the bigger fish is the UC opportunity (data on two Phase 3 studies expected in Q1 2022) and will likely make or break the stock. BUY
Avalara (AVLR) is off around 8% over the last week on no news. With shares trading near their 50-day line we could easily see a quick rally, or, should shares break lower, a quick decline as the break drives automated selling. Either way, I like the stock long-term and think that with shares having failed to bust above the highs of last winter and a solid growth trajectory that AVLR can be bought here. BUY
Cerence (CRNC) has languished for a while and shares are off 7% this week on no news. Today’s break below 100 (a rough zone of support) isn’t great to see and if we’re speculating could easily be tied to renewed supply chain concerns that could adversely impact auto deliveries for longer than previously expected. We will respect this dip and move to hold. HOLD
CS DISCO (LAW) has held up more or less just fine during the market’s recent retreat, though in fairness the selloff here came earlier in the month. Regardless of the ups and downs I remain very intrigued by this company and think there’s an enormous market opportunity. BUY
Everbridge (EVBG), the business, made good progress in Q2 and has followed up the higher bookings trend with another country-wide win in Europe (country not yet named). The company will also see products used for the 125th running of the Boston Marathon, which takes place a week from Monday. That’s more a symbolic win than a financial one given the last year’s event (like so many) was not held. The stock is off 5% since last week and approaching its 50-day line. I’m not breaking stride here. Keeping at buy. BUY
Fiverr (FVRR) took a hit this week and is off around 12% from last Thursday’s close. No news. BUY
Inspire Medical Systems (INSP) lost almost 10% over the past week. Granted, it fell from an all-time high so the damage here is only skin deep. No news. HOLD
JOANN (JOAN) had a nice rally going into the week and was holding up just fine … until today. Like a lot of companies where there are concerns around supply chain issues (a challenge in JOANN’s most recent quarter) JOAN is weak today. It is simply impossible to know how the company will be affected. In the real world, we’re seeing companies that sell physical goods make up for products they can’t get by selling tons of what they can get. I think the deal here is that this week’s focus on supply chain challenges doesn’t change the value stock story and we see management following through on the plan it has laid out. Let’s give them more time. BUY
Kornit Digital (KRNT) was a tall tree going into this week as the stock had recently rallied further above its trend line than we typically see. The selloff on Monday (down 9%) was significant, however, in reality all it did was trim off the little rally that began on September 20. We’ll keep at buy for now. BUY
On24 (ONTF) is back near its all-time lows. If we want to look at this as a glass half full situation … ONTF didn’t fall much this week, while other stocks did. What more can we say? HOLD
Q2 Holdings (QTWO) remains in the doldrums and the stock is out of favor right now given a lull in go lives coming out of the pandemic. HOLD
Revolve (RVLV) pulled back with other stocks early in the week but today is getting hit harder than many others (down 5%), likely because it falls into the bucket of companies that are sensitive to supply chain disruptions. We’re at hold and keeping it there. HOLD
Repligen (RGEN) gave up its September gains this week and shares are now 12% off the all-time high. Hard to complain too much given where this stock has gone (still up 45% since late July). HOLD
Sprout Social (SPT) responded to last week’s upgrade to buy by promptly selling off in a two-day retreat that has trimmed 16% off the company’s value. Given the dip and that we’re just near the 50-day line with a recent bullish meeting with management (i.e. the Analyst Day) we’ll stick with the buy rating. BUY
Thunderbird Entertainment (THBRF, TBRD.CA) was busy in September announcing titles that it is working on and that are coming to home screens around the world. Shares responded to the news by rallying for the first time since we’ve owned the stock. A little retreat this week has shares trimming their recent gains, but nothing really has changed. BUY
Please email me at tyler@cabotwealth.com with any questions or comments about any of our stocks, or anything else on your mind.
| Stock Name | Date Bought | Price Bought | Price on 9/30/21 | Profit | Rating |
| Accolade (ACCD) | 8/6/20 | 40 | 42 | 6% | Buy |
| Arena Pharmaceuticals (ARNA) | 2/2/18 | 39 | 60 | 55% | Buy |
| Avalara (AVLR) | 2/1/19 | 40 | 176 | 339% | Buy |
| Cerence (CRNC) | 10/1/20 | 50 | 97 | 95% | Hold |
| CS Disco (LAW) | 9/2/21 | 57 | 48 | -15% | Buy |
| Everbridge (EVBG) | 12/2/16 | 16 | 152 | 880% | Buy |
| Fiverr Intl (FVRR) | 3/5/20 | 32 | 185 | 472% | Buy |
| Inspire Medical (INSP) | 10/4/19 | 59 | 235 | 302% | Hold |
| JOANN (JOAN) | 8/6/21 | 15 | 11 | -27% | Buy |
| Kornit Digital (KRNT) | 3/4/21 | 102 | 144 | 41% | Buy |
| On24 (ONTF) | 7/1/21 | 38 | 20 | -48% | Hold |
| Q2 Holdings (QTWO) | 4/1/16 | 24 | 81 | 238% | Hold |
| Repligen (RGEN) | 11/2/18 and 12/31/18 | 59 | 292 | 393% | Hold |
| Revolve Group, Inc. (RVLV) | 4/1/21 | 46 | 62 | 37% | Hold |
| Sprout Social (SPT) | 9/3/20 | 36 | 123 | 238% | Buy |
| Thunderbird Entertainment (THBRF, TBRD.V) | 5/6/21 | 3.8 | 3.8 | 0% | Buy |