The biggest stories this week weren’t all that different from last week, namely supply chains, interest rates/inflation, and Covid. But this week has a decidedly different feel to it, possibly because we’ve added earnings season into the mix and, so far, that’s going pretty well.
From my perspective, it seems like the market is getting more comfortable with the eventuality that interest rates will go up and that this is, generally speaking, a good thing. Granted, that’s easy to say given that the yield on the 10-Yr U.S. Treasury has come in recently and the market has gone up. But still. So much of this is about not being surprised, and at the moment pretty much everyone is expecting tapering to begin by the end of the year, end in mid to late 2022, and be followed by a rate hike cadence thereafter. Let’s hope there’s no major surprises.
On supply chains, we learned yesterday that California ports will begin to operate 24/7 to try to ease some congestion. And we’ve also heard that bigger companies are taking matters into their own hands, working with partners who can move things in smaller loads and also taking steps to build inventory ahead of the holiday season, while promoting sales to all of us much earlier than normal.
I’m not sure anyone knows how this will all shake out. But when we factor in a decline in Covid cases and a decent start to earnings season, it’s easier to see the glass as half full rather than half empty with some of these other, big-picture concerns.
Adding it all up, there continues to be a lot for investors to digest and it’s easy to let your emotions swing with the uneven rhythm of the market.
For our part, I’ve been trying to focus not so much on what companies/stocks should do well in October and November (though obviously that’s important), but which ones should do well in 2022.
One of the themes that’s been on my mind is efficiency.
In a world where labor is in short supply and physical goods move erratically, but information can move almost instantaneously, it only makes sense that solutions that help companies operate more efficiently and with fewer resources will be in high demand. If there is no cap on the supply of those solutions, that’s even better.
This is where technology comes into the picture. Specifically, I’m thinking about software, but there’s other forms of automation/efficiency technology as well.
Without going deeper down the “software makes the world work” rabbit hole, I’ll simply flag portfolio holdings like Avalara (AVLR), Sprout Social (SPT) and CS DISCO (LAW) as three buy-rated companies with software solutions that play into this theme. Kornit Digital (KRNT) is another, and it offers both capital equipment (digital printing machines) and software that helps to streamline garment printing operations.
While these are clearly growthy companies and therefore could see their stocks come under pressure should interest rates surge, they provide good examples of thematic investing ideas that should work in the year ahead.
Recent Changes
None
Updates
Accolade (ACCD) was moved to hold last Friday after the company reported (Thursday after the bell) and the stock looked a little iffy. I reviewed the results in a Special Bulletin and said that the stock should be able to recover some of its lost ground, but that the combination of management putting forth a conservative view (even though they raised guidance) and general uncertainty regarding how the selling season will go with Covid still creating disruptions. So far this week ACCD is looking better, but it still has some work to do before I’ll feel comfortable putting it on the buy list. HOLD
Arena Pharmaceuticals (ARNA) has been looking better since management held calls to review the R&D and ulcerative colitis (UC) strategies. There’s no new news this week. Shares have moved up to multi-week highs above 62 and remain a buy. BUY
Avalara (AVLR) is trading at about the same level as it was last week and continues to be one of my favorite software stocks out there. It’s clearly not as “hot” a name as some of the more recent IPOs. And I wouldn’t be surprised if some investors have trimmed their holdings to chase the new crop of software stocks that have hit the public markets. But over time I think AVLR will win back the hearts and dollars of investors as its sales tax automation solutions should power consistent 20% revenue growth and help companies operate more efficiently, while reducing risk of messing up in a persistently complex global sales tax environment. BUY
Cerence (CRNC) flattened out in August, began to retreat in September then pulled back more sharply last week with other growth stocks. The good news is shares found support in the low-80s, modestly above a more formal zone of support near 80. This could set the stock up for something of a rally, possibly like what we saw in May and June. But with new automobile shipments still likely to be constrained due to chip shortages it’s hard to feel super bullish at the moment. Keeping at hold. HOLD
CS DISCO (LAW) has announced it will report earnings on November 9. The stock has strengthened over the last week and continues to look attractive. This is another efficiency play. CS DISCO’s solutions help law offices do what they need to do more quickly and with fewer logistical challenges when lawyers and associates are working all over the place. BUY
Announced Earnings Date: November 9
Everbridge (EVBG) is doing what most software stocks are doing, namely recovering some of last week’s lost ground. Nothing new to say. It remains a buy. BUY
Fiverr (FVRR) will report Q3 results on November 10. Our ongoing thesis here is that management was a little too conservative on the Q2 call. BUY
Announced Earnings Date: November 10
Inspire Medical Systems (INSP) has been holding up well as compared to many other MedTech stocks. Shares are 8% off their high. No new news, other than we have an earnings date of November 2. HOLD
Announced Earnings Date: November 2
JOANN (JOAN) is a small-cap value stock that we like because it’s cheap, but the company is arguably the best in its business (selling arts and crafts supplies) and has a loyal customer base. In the most recent quarter the company faced the double challenge of supply chain disruptions and lower social crafting activities due to the Delta surge. We also had lockup expiration. Add it all up and we have a stock that, if things go better than they have, could see 50% to 100% upside in the year ahead. I’m not predicting a snap-back rally in revenue growth in the next quarter as supply chains will probably still be a constraint. But with management laying the groundwork for sustained industry-leading growth (store refreshes, etc.) I think the potential for significant gains over the coming years will pull investors in. BUY
Kornit Digital (KRNT) sold off last Monday but buyers stepped in soon after and we now see shares recovering nicely. No new news. BUY
Rani Therapeutics (RANI) was last week’s new addition, and shares came out of the gate hot. I suspect that some of the stock’s move last week was due to our subscriber base beginning to establish positions. As mentioned in my report, we’ve started with half a position, and I suggest averaging in over the coming weeks. Rani is a speculative investment in a company that’s designed a medical device, a pill, that can deliver a tiny needle into the digestive tract where it exits the pill capsule and injects the contained drug into the patient’s bloodstream. The hope is that this technology can be used to deliver a wide variety of treatments that are currently only available via injection. Rani’s current programs are early-stage and are focused on acromegaly (excessive growth hormone), neuroendocrine tumors (NETs), osteoporosis, arthritis and diabetes. There is a ways to go before the company can generate revenue, starting with getting an initial drug-agnostic safety investigational device exemption (IDE) for the RaniPill. This would mean Rani would not need to get approval for the pill for every single drug it aims to deliver. I think it’s a very interesting opportunity, albeit clearly a speculative one. BUY
Revolve (RVLV) has been relatively steady lately and is heading into the holiday season with another product-related announcement. The company will partner with Recover, a producer of recycled cotton fiber, to supply denim for the Revolve-owned brand Lovers and Friends. This isn’t game-changing, but it’s another example of the company doing what it takes to keep its product lines fresh. HOLD
Repligen (RGEN) is trying to firm up after a tough stretch that has trimmed 20% off the share price. This hasn’t been unique to RGEN; other players in the bioprocessing and tools space have sold off as well. Still, it’s hard to complain after such a furious rally in this stock July, August and most of September. We’re keeping at hold for now. HOLD
Sprout Social (SPT) has crossed back above its 50-day line and remains a buy. Management has issued a Q3 earnings date of November 2. BUY
Announced Earnings Date: November 2
Thunderbird Entertainment (THBRF, TBRD.CA) has been quiet lately but the announcements in September regarding projects that the company is working on seem to have helped renew interest in the name. Shares are approaching their all-time high from late April. Nothing new here. 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 10/14/21 | Profit | Rating |
| Accolade (ACCD) | 8/6/20 | 40 | 40 | 0% | Hold |
| Arena Pharmaceuticals (ARNA) | 2/2/18 | 39 | 64 | 64% | Buy |
| Avalara (AVLR) | 2/1/19 | 40 | 172 | 330% | Buy |
| Cerence (CRNC) | 10/1/20 | 50 | 93 | 86% | Hold |
| CS Disco (LAW) | 9/2/21 | 57 | 49 | -13% | Buy |
| Everbridge (EVBG) | 12/2/16 | 16 | 149 | 862% | Buy |
| Fiverr Intl (FVRR) | 3/5/20 | 32 | 190 | 488% | Buy |
| Inspire Medical (INSP) | 10/4/19 | 59 | 242 | 313% | Hold |
| JOANN (JOAN) | 8/6/21 | 15 | 11 | -27% | Buy |
| Kornit Digital (KRNT) | 3/4/21 | 102 | 154 | 51% | Buy |
| Rani Therapeutics (RANI) | 10/7/21 | 17 | 20 | 15% | Buy |
| Repligen (RGEN) | 11/2/18 and 12/31/18 | 59 | 267 | 350% | Hold |
| Revolve Group, Inc. (RVLV) | 4/1/21 | 46 | 68 | 49% | Hold |
| Sprout Social (SPT) | 9/3/20 | 36 | 125 | 242% | Buy |
| Thunderbird Entertainment (THBRF, TBRD.V) | 5/6/21 | 3.8 | 4.1 | 7% | Buy |