While the Russia-Ukraine conflict continues to add a huge amount of uncertainty in global markets we now have a little more clarity on the interest rate environment here in the U.S. after the Fed hiked rates by a quarter point yesterday.
This could set up a “sell the rumor” (stocks declining since beginning of years on rate hike concerns) “buy the fact” (beginning of rate hike cycle) situation. In fact, one of the more vocal tech stock analysts, Dan Ives (Wedbush) basically said as much after the Fed move. He pointed out how tech stocks are as oversold as he’s seen them in years.
From here we’re looking for more quarter point hikes this year as the Fed tries to curb inflation without tilting the U.S. economy into recession. Talk about threading the needle.
If we know one thing for sure it’s that we don’t know how this will work out. So rather than make any predictions we’ll take it as it comes.
On the one hand, many stocks – and especially the high-growth names – appear to have been unduly punished in recent months. On the other, the economy (and world) is in a major transition period where expectations and actual outcomes often diverge.
While we know the market pendulum swings too far in both directions (upside and downside) we don’t know how much is too much in the heat of the moment.
So it’s all about baby steps right now.
Today could be a wild session as investors digest the first rate hike since 2018 and markets work through March options expiration.
We have a couple of late earnings reports as well with both Joann (JOAN) and Xometry (XMTR) on deck to report after the closing bell. I’ll have updates on both tomorrow.
Recent Changes
None
Updates
Arena Pharmaceuticals (ARNA) was sold (second half position) on Tuesday March 8 prior to the acquisition by Pfizer. Shares will be delisted soon. I should mention that in yesterday’s Issue of Cabot Early Opportunities I added Pfizer’s (PFE) because of the transformational M&A potential Pfizer’s Comirnaty (COVID vaccine) and Paxlovid (COVID oral antiviral) should allow. The short version is that Pfizer stands to generate free cash flow of around $40 billion in 2022 (peak year), $33 billion in 2023 and $27 billion in 2024. For reference, free cash flow in 2021 was $30 billion and 2020 (pre-COVID) was $12 billion. In other words, COVID-related products mean Pfizer should have a venerable war chest of cash to pursue M&A. The recent acquisition of Arena, which has a potential blockbuster compound for atopic dermatitis and ulcerative colitis, is just one of more deals I expect in the coming quarters. SOLD
Avalara (AVLR) has been probing for support lately as shares continue to look weak. Investors have yet to embrace the potential for Avalara to get back to 30% billings growth as it works with the biggest of the big accounting firms, who file gazillions of tax documents every year. We need signs of stabilization soon. HOLD
CS DISCO (LAW) dipped below 27 support Monday but bounced back up to close at 29.4 yesterday. I’m watching this one closely. The upside potential is significant but, clearly, we don’t want to see shares break below support and keep slipping. For now, sticking with LAW. BUY
Inspire Medical Systems (INSP) slipped toward the low end of its 2022 trading range (190 – 250) as the market dipped last week, but shares have recently bounced back into the middle (closed at 224 yesterday). Nothing new to report. Management navigated the pandemic extremely well and we should expect roughly 40% revenue growth this year. HOLD
Procept BioRobotics (PRCT) reported last Tuesday. Revenue of $10.1 million (up 216%) was at the high end of the preliminary range, as was full-year revenue (up 347% to $34.5 million). Management also issued 2022 revenue guidance of $54 - $58 million (up 57% - 68%). This was well ahead of consensus estimates for $50 million. Shares were stable in the days after the report and heading into Monday’s lockup expiration. Over the last two sessions, PRCT has surged from 24.7 to 32.2 (up roughly 30% since I recommended the stock two weeks ago). What is there to look forward to after such a quick run? Procept is taking its Aquablation technology to market very quickly with utilization two years ahead of schedule (over five in Q4 versus 3.8 in Q3) and Aquablation currently making up less than 3% of BPH procedures (but some hospitals fully converting). Lockup expiration should remove a potential overhang in the stock and there is potential for more private payer wins as well as visibility from a May urology conference. With so much that could go right we’ll leave PRCT at buy. That all said, if you have a low tolerance for volatility and a preference to take gains while you have them it’s perfectly fine to sell a partial position (maybe one-quarter or so). BUY
JOANN (JOAN) reports Q4 results after the market close today. Analysts are looking for revenue to decline 11% to $752 million (coming down from the COVID-related mask making boom of 2021) while adjusted EPS rises 8% to $0.98. Total 2022 revenue is seen down 12% from 2021 (again, mask boom) then staying flat for 2023. This is a value stock (yield is around 3.6%). Bank of America did a good job earlier in the year outlining the reasons to buy JOAN, saying (1) reopening/normalcy should be a benefit, (2) strong competitive position in a niche industry, (3) store refreshes provide additional upside, (4) “Blue Ocean” initiatives on the horizon (think JV with Singer as example), and (5) most attractive valuation in Hardlines. The stock moved through overhead resistance at 13 yesterday. Suffice to say we’d like the stock to hold above that line after earnings are released. BUY
Earnings: Thursday March 17
Nova LTD (NVMI) has held up in the 100 – 110 trading range for the last three weeks and the recently announced $100 million share repurchase program should help keep 100 as a floor. No new news. BUY
Earnings: Done
Rani Therapeutics (RANI) has been bouncing around lately without any real sense of direction. We’re awaiting the Q4 update, which should include notes on three clinical studies: RT-101 (acromegaly), RT-102 (osteoporosis) and RT-109 (growth hormone deficiency). No revenue is expected through 2023. BUY
Revolve (RVLV) pulled back to support near 40 last week and has bounced back to around 47 since. This morning Needham initiated coverage with a buy rating and 60 price target. No fundamental updates. HOLD
Repligen (RGEN) retested the May 2021 support zone around 162 last week and held there. This could be a terrific entry point for new purchases, but we’ll give RGEN just a little more time. Of note, larger peers TMO and DHR have traded in roughly the same pattern (but held at slightly higher relative levels). HOLD
Shutterstock (SSTK) continues to hang out mostly in the 85 – 95 level with no new news. Shares rallied back to their 50-day line yesterday. We’re looking for follow through now. BUY
Sprout Social (SPT) management was at Morgan Stanley’s TMT conference recently and spoke about the growing use cases for the platform as social media management becomes critical for business of all shapes and sizes. The collaboration with Salesforce.com (CRM) is an incremental positive. SPT popped above its 50-day moving average yesterday. HOLD HALF
Xometry (XMTR) will report official Q4 results after the close today. Recall that management reported preliminary results on January 31 (revenue within the expected range and above Q4 guidance. Analysts are looking for Q4 revenue of $63.3 million (+67%) and adjusted EPS of -$0.30. Revenue guidance for 2022 needs to surpass $390 million (+86%). We’re expecting to hear more about the Thomasnet.com acquisition, which should add around 3% to topline growth (synergies, cross sell, etc. should be additive to this) while plumping up margins a bit. Keeping at buy. Best guess is XMTR pops back into (at least) the 40 – 50 trading range on a halfway decent result and into the 50 – 60 trading range if forward guidance surprises to the upside. That said, in this market anything can happen. BUY
Earnings: Thursday, March 17
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 3/17/22 | Profit | Rating |
| Avalara (AVLR) | 2/1/19 | 40 | 85 | 111% | Hold |
| CS Disco (LAW) | 9/2/21 | 57 | 29 | -48% | Buy |
| Inspire Medical (INSP) | 10/4/19 | 59 | 225 | 285% | Hold |
| JOANN (JOAN) | 8/6/21 | 15 | 13 | -15% | Buy |
| Nova LTD (NVMI) | 2/3/22 | 113 | 110 | -2% | Buy |
| Procept BioRobotics (PRCT) | 3/3/22 | 25 | 33 | 30% | Buy |
| Rani Therapeutics (RANI) | 10/7/21 | 17 | 15 | -13% | Buy |
| Repligen (RGEN) | 11/2/18 and 12/31/18 | 59 | 180 | 205% | Hold |
| Revolve Group, Inc. (RVLV) | 4/1/21 | 46 | 48 | 6% | Hold |
| Shutterstock (SSTK) | 11/4/21 | 121 | 92 | -24% | Buy |
| Sprout Social (SPT) | 9/3/20 | 36 | 70 | 92% | Hold Half |
| Xometry (XMTR) | 1/6/22 | 53 | 39 | -26% | Buy |