The past week was relatively subdued in small-cap land; the asset class, as measured by the S&P 600 Small Cap Index, dropped a modest 0.8%. The biggest declines were seen in the energy, consumer discretionary and healthcare sectors. The latter is likely due to disruption from Hurricane Maria and renewed chatter about reducing federal subsidies that were part of the Affordable Care Act (ACA).
It’s not time to turn our backs on small-cap health care stocks just yet though. They’ve been on a hell of a run, rising 26% year-to-date versus 20% for large cap health care stocks. That performance puts them ahead off all other sectors, large and small.
The bigger news is that Q3 earnings season is firing up. The big banks are already reporting, and our tech stocks will start divulging their results within a couple of weeks. Expectations are relatively high, as are stock prices and valuations. But forward-looking growth estimates for both the U.S. economy and the stocks we own are looking good. It’s entirely possible this bull market has more room to run.
Accordingly, we’ll keep doing what we’ve been doing. There’s only one change to the portfolio today, and that’s to move Primo Water (PRMW) to Hold. The chart looks terrible and the stock recently broke below 11. It’s now on the verge of breaking below support, and if shares can’t firm up, we’ll need to head for the exit to preserve our remaining gain. Ideally, management will put out an earnings release date soon to give the market something to look forward to.
Here’s what’s happened over the past week.
Updates
AppFolio (APPF) is still ticking right along. The property management software provider hasn’t released its Q3 earnings date yet, but should report in the month of November. Revenue is expected to be up around 28%, and EPS of $0.07 is double what was expected in Q3 just three months ago. Keeping at Buy. BUY.
Asure Software (ASUR) released another flurry of press releases after last week’s announcement that it acquired Associated Data Services (ADS), an Alabama-based regional HR and payroll services bureau that’s a current reseller of Asure’s HCM solution. The news this past week was on the partnership front. Asure has teamed up with Xyster Consulting, a workplace strategy and tech consulting firm, to try to expand both companies’ workplace design/utilization/technology businesses. Apparently, they’ve worked together in the past on significant projects (including a one million square foot State Street Corporation facility) and felt a more formal tie-up would be good. Asure also announced the release of Evolution Advanced HR 2.0, the latest iteration of its HR solution for service bureaus. Both announcements are incrementally positive, but not too significant. I moved the stock back to Buy a few weeks ago and am keeping it there. BUY.
AxoGen (AXGN) has been trading sideways this week after last week’s SEC filing showed an early investor, EW Healthcare Partners, has filed to sell out of its position. The position is sizeable, consisting of up to 4.86 million shares (roughly 14.5% of total shares outstanding). The offering became effective Wednesday, but shares haven’t moved much and volume hasn’t changed. Note that AxoGen typically trades 200,000 to 300,000 shares per day, so 4.86 million is a relatively large number of fresh stock to sell. Once completed, trading liquidity should improve, but it could be a little rocky until all the shares are sold. It will be interesting to see how strong demand is. Keeping at Buy and watching closely. BUY.
BioTelemetry (BEAT) has been selling off a little this week on what I interpret to be sector weakness. The small-cap health care ETF was down 2.7% this week, while shares of BioTelemetry fell 5%. The catalyst (for the sector, not specifically for BEAT), could well be disruption due to Hurricane Maria, and Trump’s proposal to roll back ACA subsidies. After the close last Friday, Medtronic (MDT), one of the bigger players in the medical device field, said that Maria could cause up to $250 million in Q3 revenue disruption. That company has significant Puerto Rico exposure, something that others in the industry don’t (I haven’t found any in BioTelemetry’s SEC filings). At any rate, healthcare stocks opened down significantly on Monday, and haven’t bounced back yet. I’m keeping BEAT at Buy, but watching closely. BUY.
Datawatch (DWCH) is our newest addition and smallest company by market cap (market cap is $144 million). The big data stock’s trend has been consistently up since mid-August and it just recently broke out to a 52-week high. Management put out two press releases this week. First, we have a fiscal Q4 earnings date of November 1. Second, Datawatch announced another strategic partnership, this time with Sage, a privately-held provider of cloud-based accounting software. The partnership just means Sage will add Datawatch’s platform as a solution for its accounting, HR, etc. software offerings. The stock is a Buy. BUY.
Announced earnings date: Wednesday, November 1
Everbridge (EVBG) was quiet this week as management takes a break from press releases and the stock takes a break from a furious September rally. The stock broke out to a 52-week high last week, and now shares are digesting the move. Look for EVBG to hold above 26.5, which is the critical level if this breakout is to stand up. We’re up around 73%, and we have an earnings date. HOLD HALF.
Announced earnings date: Monday, November 6
LogMeIn (LOGM) hasn’t changed over the course of the week. It was on the verge of breaking out on Tuesday but stopped short at 118 and retreated a few points over the latter half of the week. Perhaps earnings will provide the necessary catalyst? Management released a Q3 release date of October 26. That’s two weeks from yesterday. Stay tuned… HOLD HALF.
Announced earnings date: Thursday, October 26
Primo Water (PRMW) is still in the dumps and has now moved slightly below 11. At this point, I have to move the stock to Hold, and will consider moving to Sell if it moves a little lower. We’re holding onto a 21% gain, and I don’t want that to evaporate. HOLD.
Q2 Holdings (QTWO) just broke out on the back of strength in the financial sector. Shares added 4% over the past week and are now trading above 42. No new fundamental news. Keep holding. HOLD HALF.
Tactile Systems (TCMD) traded more-or-less in-line with the broader healthcare group this week, which meant a sizeable drop early in the week and not too much action since. Shares are just below their 50-day line. I’m keeping at Buy. BUY.
Announced earnings date: Tuesday, November 7
U.S. Concrete (USCR) was moved back to Buy last week after a number of acquisitions were announced, and the stock regained its 50-week line. Trading volume has cooled off a little, which I view as a positive after a couple of months of volatile trading action on heavier volume. I don’t know if funds were changing up their positions sizes or what, but as of now, the stock is back to where it was in mid-August; consolidating just above its 50-day line in the 76 to 78 range. I’d like to see it trade in a tight range, while moving slowly higher. That would indicate to me that confidence in the name is high. BUY.
