The market continues to be a bit sketchy, and the S&P 600 Small Cap Index is still trading right around the 820 level, which has served as a rough support line thus far this year. Suffice to say, we don’t want to see the index dip much below that level. It’s already below its 200-day moving average line (see chart below), which has led us to become incrementally more defensive over the past couple of weeks.
There were some bright spots over the past week, however. Small caps are actually up slightly more than large caps, and most sectors traded higher. It’s a little too early to tell if this represents a firming up of our asset class, or just another stop on the way down.
Much of the market’s focus over the coming weeks will be on the potential for Trump to make progress on tax reform. It’s been three decades since a complete tax overhaul, and while that alone doesn’t mean changes would be good, the potential for sweeping tax reform is one reason stocks rallied after the election.
On average, our portfolio was unchanged over the past week. We had a few risers, but also a few underperformers. We currently have four positions rated Buy after moving Asure Software (ASUR) to Hold this week. In general, it’s still time to be cautious. We’ve cut the big underperformers, have taken partial profits in some outperforms that began to wobble, and are still holding our strongest stocks.
You can put a little money to work here, but it’s probably best to hold off any major buying until we have a clearer sense of the market’s next direction. Plus, we’ll have a new addition to the portfolio next Friday that you might want to have money ready for. Suffice to say, I’m not looking to take any chances with this next selection. I’m sticking with one of the strongest areas of the market. Stay tuned!
Updates
Airgain’s (AIRG) management team finally took some action to shore up the ailing stock by announcing a share buyback program on Wednesday after the market closed. The Board of Directors approved up to $7 million for the program, which equals roughly 8% of the company’s market cap. This action is overdue, in my opinion, and should have been initiated when the stock was at $14. Shares moved higher on the news yesterday, but I’m not yet confident enough that this changes the story enough to warrant stepping back in. Recall that we cut the stock loose last week. SOLD.
AppFolio (APPF) had another good week as shares moved 4% higher on no new news. The stock is now up around 35% since I first recommended it in June. It’s extended here so, while I’m keeping at buy, go slow with new purchases. BUY.
Asure Software (ASUR) has now moved back to our buy point after an 8% fall this week. Yesterday they cracked below their 200-day moving average line. That’s a technically bearish signal, and the next level to watch for is $10. That’s roughly 11% below where we are now. I’ve elected to hold onto Asure since I think the growth will be solid and the potential for shares to move significantly higher exists as well. But the stock is clearly not receiving the same love it did prior to June. I’m moving to Hold. While I want to give it room to recover, I’m also unwilling to let a stock we previously had a gain on turn into a significant loser. Management will present at the Liolios Gateway Conference on September 6. HOLD.
AxoGen (AXGN) was up 4% this week and jumped off its 50-day line yesterday, a technically bullish sign. Shares now need to break through $17 to have a chance to establish a new trading range (they closed near 16.35 yesterday). Small cap healthcare stocks have been relatively resilient, and clearly the rapid growth at AxoGen is helping the stock lead the pack. It also helps that the management team is pounding the pavement to spread the company’s story. It has just added its name to the list of presenters at the Annual Meeting of the American Society for Surgery of the Hand (ASSH), taking place September 7-9 in San Francisco. The management team moves on to Lake Street (September 13), Dougherty & Co. (September 19) and Cantor Fitzgerald (September 25). It will also host an Investor Day on November 20. BUY.
BioTelemetry (BEAT) hasn’t done much since a 6% pop lifted it above $36 last week. The stock has had a nice run since it pulled back to $28 in early May. It’s trading well above its 50-day line, and it appears investors are enthusiastic about progress integrating LifeWatch. Shares don’t look as extended as they were last week. BUY.
Everbridge (EVBG) is unchanged from last week and is sort of in no-man’s land at the moment given that it’s below its 50-day line, and above its 200-day line. It has now pulled back around 15% from its peak near 26.50, which was hit in early June. While the trend isn’t exactly helping us, it’s far from representing a significant breakdown. The company announced this week that its Critical Event Management platform was selected by UCLA. We took partial profits on half the position a number of weeks ago. Keep holding the other half. HOLD HALF.
Globalscape (GSB) was moved to sell last week. This week it announced it has joined the NetApp Alliance Partner Program, which should help it better assist customers that rely on both companies’ technologies. No fundamental updates, and the second quarter 10Q filing is still delayed. SOLD.
LogMeIn (LOGM) is one of our most resilient software stocks and is still holding just above its 50-day line. While there hasn’t been any new news since the quarterly report, I’m expecting we’ll receive a number of product updates this quarter as the team merges overlapping products from the respective LogMeIn and GoTo portfolios, as well as progress on new products (mainly LogMeIn’s new CRM product, Bold360, which aims to meet the needs of customers that aren’t quite covered by Salesforce.com’s and Zendesk’s offerings). I continue to like the stock. Keeping at hold. HOLD HALF.
MindBody (MB) was sold last week due to the consistently weak performance since reporting Q2 results. I’ll keep an eye on it and will consider adding back to the portfolio if things turn around. Shares were essentially flat this week. SOLD.
Primo Water (PRMW) is continuing to trade in a volatile up and down trading pattern. We’re in the middle of a dip now, which has brought the stock back near 11.50 (where it was in early August). Despite the weakness, I continue to think the stock is a good value and can be bought. BUY.
Q2 Holdings (QTWO) had a huge day on Monday when it traded up near $42. That momentum faded on Tuesday, but shares have since held above the previous 52-week high of $40.50 that was set in late-May. I haven’t seen any new analyst coverage to explain the surge. Keep holding your remaining shares. HOLD HALF.
U.S. Concrete (USCR) was ticking along just fine until yesterday when the stock dropped over 3%. One might draw a connection between the drop and President Trump’s threat to shut down the government if the bill doesn’t include funding to construct a wall on the U.S.-Mexico border. But we’re holding U.S. Concrete for all the projects it’s working on, not just the potential to be involved in one, especially one that’s guaranteed to be extremely controversial if ever built (and if U.S. Concrete were even involved). Bottom line: don’t read too much into a connection between Trump and U.S. Concrete. Keep holding. HOLD.
