Small caps have been the place to be since the election. Our asset class is up almost 10%, which is nearly twice the return as the next-best asset class (mid-caps) over the same time frame.
Impressively, the move has been broad-based, with every sector of small caps moving higher. Materials (up 14.5%), industrials (up 12.5%) and financials (up 12%) have done the best. But as the chart below shows, you couldn’t have gone wrong if you owned any part of small caps over the past two weeks.
We took advantage of the strength by locking in three 45%-plus gains last week, just in case the rally doesn’t have legs. So far, it looks like it does. That said, I advise being a little cautious. It’s still far too early to see any material changes in business metrics because of the election. Management teams will likely begin to make references to the election in their Q4 earnings reports and 2017 guidance remarks. But those press releases and conference calls are still three months away. In other words, we’ll be speculating for a while here. In the meantime, I’ll continue to follow policy and new administration updates to try and glean insights into what will and won’t work in the months ahead.
We’ll get a well-deserved break next week because of the Thanksgiving holiday. On that note, expect to receive next week’s Weekly Update on Wednesday, November 23, as our offices will be close on both Thursday and Friday for the holiday.
Today I move two stocks back to Buy. The first looks like a relatively low-risk buy given a very big recent pullback. The second has begun to act like it should after announcing a big acquisition. Other than that, all guidance remains the same. That means we have four of our 10 stocks rated Hold. Details below.
Updates
Aspen Aerogels (ASPN) Shares continue to stay in the 3.70 to 4.20 range and are beginning to correlate with the price of oil again. I’ve had a few subscribers ask if this is a buying opportunity. I think so. And I’m moving back to Buy today. Unlike many other energy and industrial stocks, Aspen didn’t get any bump from the election. This suggests to me that investors will be a little slower to come back to the name, but once they’ve combed through everything that has already moved higher, they’ll see that shares of Aspen remain extremely undervalued. For those of you wishing to be a little cautious, you could hold off until shares have cleared the 4 hurdle. For the more aggressive, you can buy now. Shares bottomed at 3.50 in February and March of this year (roughly 10% below where they are now), so that’s the level they need to break below for me to get very concerned. BUY.
eMagin (EMAN) I recommended selling the stock in a Special Bulletin last Friday. No update. SOLD.
LeMaitre Vascular (LMAT) Shares are still trending higher after announcing the $14 million acquisition of Restore Flow Allografts, which processes and cryopreserves peripheral vascular veins and arteries. This is another portfolio expansion of biologic products, and should increase this year’s revenue by $550K (to $89.6 million) while reducing operating income by $200K (to $16.9 million). The market likes the stock and appears to like the acquisition as well. Continue to hold your remaining stake. HOLD HALF.
LogMeIn (LOGM) The stock has been looking as solid as can be and continues to trade in a relatively tight range. The company unveiled a new enterprise version of its LastPass password management product this week. The solution allows teams to share passwords, and works with a wide variety of today’s most popular browsers and platforms. HOLD HALF.
Marrone Bio (MBII) I sent a Special Bulletin out last Friday detailing Marrone’s Q3 results, which I found to be in line with my expectations. The stock has been moving lower after earnings but I don’t think that’s cause for concern. In fact, I advocated using limit orders below 2.20 to try and help pull shares back into a better buy range, so I suspect that our group has helped influence the stock’s direction this week. It’s now trading below 2.20 and I am moving back to Buy. But I still recommend using limit orders and averaging into half a position. The company announced that Majestene has been approved in California for use on nematodes (roundworms) in a number of agricultural crops. The company says Majestene can be used as an alternative to toxic fumigants currently used in California, including 1,3-Dichloropropene (brand name Telone), which will face further use restrictions starting January 1, 2017. BUY.
MindBody (MB) The stock is up more than 10% over the past week and has broken well above previous resistance around 21. Management presented at the UBS Global Tech Conference this past Tuesday, and will speak again at the Credit Suisse Tech, Media & Telecom Conference on November 29. The company was named to Deloitte’s 2016 Technology Fast 500 list, and the MINDBODY app won the Best In Show 2016 W3 Award in its category. Both are good publicity awards. The stock has shrugged off the bearish report published a number of weeks ago. I’m keeping it rated Buy for now, but suggest trying to buy on pullbacks. BUY.
Mitek (MITK) I recommended selling your remaining stake in Mitek last Friday. No update. SOLD.
NanoString (NSTG) The stock is relatively unchanged over the past week. The company has entered another research partnership, this time with Lisa Coussens of the OHSU Knight Cancer Institute in Portland, Oregon. The team will work to develop two new myeloid-focused research panels for the study of the innate immune response to cancer. I recommended taking partial profits on the stock last week and I maintain my recommendation to hold your remaining shares. HOLD HALF.
Ooma (OOMA) There’s still nothing going on with Ooma as shares continue to trade right around 9 on relatively low volume. Earnings are out the week after next. That event will be closely watched given management’s initiative to increase focus on the small business segment. BUY.
Confirmed Earnings Release: November 29
Primo Water (PRMW) The stock finally came back to life this week as investors gobbled up shares on Tuesday, driving the price up 1.00 to 13.25. I’m encouraged by the action and am moving back to Buy for small positions since I think the Glacier acquisition represents a massive growth catalyst. And the market appears to have worked through whatever concerns were responsible for the late October pullback. BUY.
Q2 Holdings (QTWO) The stock continues to do well and is fighting to break out above 32. I think the combination of analysts getting more bullish after last quarter’s conference call and speculation of a better environment for banks and credit unions under Trump is showing up in the stock. It’s still a Buy, preferably on pullbacks. BUY.
USA Technologies (USAT) The stock is looking sick and hasn’t been able to mount a convincing recovery. I’m keeping a close eye on it, and won’t change my rating from Hold until we see some evidence of its ability to move higher. Should the stock break below 3.50, then 3.00 becomes the next stopping point. On the other hand, the stock could easily rally back to 4.50 in a couple of days. It’s just kicking around in no man’s land here, hence my cautious guidance. The company revealed a connector cable designed for the arcade and amusement industry this week. The idea is that the connector will help operators easily upgrade their old machines to allow them to take cashless payments. Naturally, it connects to USA Technologies’ ePort Connect device. The connector retails for $99 or can be rented for $9.99/month. HOLD.
Please email me at tyler@cabotwealth.com with any questions or comments about any of our stocks, or anything else on your mind.
