Happy Tax-day!
As most of the country scrambles to get ready for the biggest holiday season of the year, accountants are firing off emails left and right to help us all prepare for a new tax framework that just needs President Trump’s signature.
As far as the stock market is concerned, this has been pretty much expected, so the reaction has been relatively muted. Whether or not you like the tax deal, it should be net positive for equities, adding roughly 8.5% to 2018 expected S&P 500 EPS. Add that to the roughly 8.5% EPS growth that was already expected, and you get to almost 17 EPS growth in 2018. Merry Christmas stock market!
Another potential benefit is that 2018 GDP forecasts are now likely to creep up. Economists were forecasting 2.3% GDP growth in mid-October. That went up to 2.5% in mid-November, and then to 2.6% last week.
We’ve seen the S&P 500 move roughly 20% higher over the course of 2017, which might just go down in history as the year of the surprise bull market. Interestingly, historical data shows that in the year following extremely strong returns (north of 18%), stocks tend to deliver yet another year of above-average returns.
In the roughly 20 times the market has been up 18% or more, in the following year stocks have been negative five times, up 0% to 10% five times, and up over 10% ten times, according to data from Credit Suisse.
In other words, there is reason to believe this bull market still has legs, despite feeling a bit long in the tooth.
A quick side note on taxes; the medical device tax, which is relevant to our medical device stocks, is a separate issue. The device tax is a 2.3% excise tax on eligible devices that was part of the ACA and which has been delayed from being implemented. It’s set to go into effect on January 1, 2018, if the implementation delay is not extended, or the tax outright repealed. From what I understand, Congress wants to extend the repeal for another five years, and most analysts are expecting this to happen in early 2018. It’s unlikely something will happen before the end of the year. Stay tuned …
Small caps bounced off their 50-day line last week and are nearing all-time highs. It’s anybody’s guess what will happen in the days ahead as many people will have stepped away from the market, so don’t be surprised if there is some odd trading in some of our stocks. There’s usually some inefficient trading, especially with the microcap stocks, during these periods.
That said, at the moment, most of our positions are doing just fine. Our average gain over the past week was 3.3%, led by BioTelemetry (BEAT) and Evebridge (EVBG).
And on average, our existing positions are beating their benchmark by 19.4% over the same holding period.
Stock specific news-flow was pretty light this week, and after last week’s more in-depth update I’ve kept my comments short, unless there’s something notable to discuss.
Have a great Holiday!
Updates
AppFolio (APPF) has been quiet lately as shares try to form a base off which to rise. The stock is little changed from last week. Keeping at buy. BUY.
Apptio (APTI) has moved 4% higher over the past week on no company-specific news. The stock has held on to its post-earnings rally, and looks to be forming a nice, steady, gradual uptrend. Keeping at buy. BUY.
Asure Software (ASUR) has benefited from increased coverage (Craig Hallum) and a price target increase (Cowen) over the last couple of weeks, and the buying support is helping the stock challenge resistance in the 14 to 17 range (from early summer). This will be a tough price range to break through, but provided it does we should see higher prices ahead. BUY.
AxoGen (AXGN) has also seen new analyst coverage (Jefferies initiated with a $35 target in late-November), but I’m not sure the stock needed it. Shares are in a beautiful uptrend, and we’re sticking with it until the trend breaks. BUY.
BioTelemetry (BEAT) has come roaring back from an extended pullback, and news of new collaborations (with Onduo and Apple) have helped reignite bullish sentiment. With the stock just breaking back above its 200-day line this week (it broke above its 50-day line last week), shares are much improved from a technical perspective. There could be some resistance at the $35 level (13% above where it is now), but as I’ve been saying for some time, there is considerable upside potential here, and am keeping at buy. It’s reasonable to expect around 50% upside (if not more) in the stock over the next year if things go well. BUY.
Datawatch (DWCH) looked poised to recover its 200-day line early in the week but was knocked down a notch on Tuesday. It remains a volatile stock, which I’m keeping at hold until we see a more constructive trend. I’m likely to move back to buy if the stock gets back above the $9.75 to $10 zone and holds its gains. HOLD.
Everbridge (EVBG) jumped higher this week after another state-wide deal was announced. Vermont has selected the company to power its emergency notification program. Having a house in VT, I was on the previous system, and got the email notifying me to make the switch early this week. I set up the app on my iPhone and have played around with it a little. I’ll be interested to see how it works over the coming months. The old system mostly sent me weather-related alerts, but already I can see that Everbridge covers a much broader variety of alerts, and has a handy map feature allowing me to view all alerts in an area of interest. I suspect we’re still in the early days of Everbridge’s growth with state-wide deployments. Keeping at buy. BUY.
LogMeIn (LOGM) held an investor day this week and gave forward guidance that was just a hair shy of analyst expectations. Shares fell modestly on the news, but you shouldn’t be too concerned. The company has been beating expectations for years and has likely offered very attainable numbers. Management went through an extensive presentation that delved into most areas of the business. The main takeaway isn’t earth-shattering; the company is working on platform consolidation, packaging and sales strategies. This is a modest growth business now, with management calling for 5% to 7% annual organic revenue growth from 2018 through 2020. Profit and free cash flow growth should be more significant (think 10% to 20% annually), which means LogMeIn will be throwing off a bunch of cash for investors to soak up (around $900 million over the next three years). Within these initiatives LogMeIn is constantly evolving its AI, machine learning and platform technology capabilities. We’ll keep an eye on LogMeIn. I think the stock will continue to do well, but we’ll have to see what the market thinks and how many investors are attracted to what should be a steady and dependable mid-cap software growth story. HOLD HALF.
Materialise (MTLS) dipped to its 200-day line last week, mounted a recovery on Friday and was moving modestly higher before dropping back to its 200-day line yesterday. It doesn’t trade with a ton of volume so don’t expect a tight trading range – these types of swings are somewhat normal. The company announced this week that it has arranged financing with European Investment Bank for up to €35,000, for a duration of six to eight years, at a fixed rate of Euribor plus 1.9% (initially). No specific uses for the capital were given, other than to say it will support ongoing research and development programs for growth through 2020. BUY.
Primo Water (PRMW) was up 2% this week on no news. The stock is holding above its 200-day line, and we’re very close to seeing the 50-day line cross back above the 200-day line. That would be a bullish sign. BUY.
Q2 Holdings (QTWO) has dipped below its 200-day line in a rare breach of that technical level. I’ve kept at buy because of the strength following Q3 results, but if the stock dips below 36 I might move to hold. BUY.
U.S. Concrete (USCR) made another small acquisition this week, picking up West Texas-based ready-mixed concrete producer Cherokee Bridge and Road Inc. Terms weren’t disclosed, but Cherokee is said to have three ready-mixed concrete plants. BUY.
