March 24, 2022

The market is looking a lot better than it did a couple of weeks ago even though the Russia-Ukraine conflict continues and the Fed has become more vocal about the need to hike interest rates in order to battle inflation.

Last week I suggested that the first rate hike (quarter percentage point hike passed last week) could have set up a “sell the rumor” (stocks declining since beginning of the year on rate hike concerns), “buy the fact” (beginning of rate hike cycle) situation. That seems to have been the case so far, though we are still very early in this process.

The bottom line is that rates are set to go up significantly as the Fed will likely hike at nearly every available opportunity this year. There’s been more chatter about 50-basis point hikes too. This is going to keep us all on our toes.

Turning to the major market indices we’ve seen the Nasdaq rally 11% from concerning lows near 12,555 last week and the S&P 500 is up 7% from last week’s lows and “just” 8% off its high.

As for the S&P 600 Small Cap Index, we’ve seen a modest move to the upside as the index is now back to where it was in mid-January. Big picture, this index has been relatively stable and trading in a well-defined range lately so in order to get excited at all we need a move above 1,350 (near the 200-day moving average line) to hold.

Stepping back to look at individual stocks there is no doubt the situation is better today than it was last week. Higher growth names across market cap ranges have firmed up and there are many examples of stocks that are up double digits over the last five to 10 sessions.

It’s too early to say we’re turning bullish – it’s been a harrowing few months and there’s been no real resolution to many big-picture macro concerns. The recent move could just be a bear market rally that will fade.

But recoveries have to start somewhere so we’ll take the recent strength at face value – a welcome move that we’re now looking to build upon.

Recent Changes
None

Updates
Arena Pharmaceuticals (ARNA) was sold (second half position) on Tuesday, March 8 prior to the acquisition by Pfizer (PFE). Shares will be delisted soon. SOLD

Avalara (AVLR) has been performing poorly, prompting me to say last week that we needed signs of stabilization soon. AVLR responded well – shares have traded higher in six of the last seven sessions and are back to where they were two months ago. Looking for more follow through. HOLD

CS DISCO (LAW) dipped below 27 support early last week but bounced back a little near the end of the week. Shares have continued to move modestly higher this week. This is still a beaten-down stock but if the broader market remains relatively stable we should see some of these lesser-known names attract attention. LAW is a potentially disruptive platform in the legal software space. BUY

Inspire Medical Systems (INSP) was at the low end of its 2022 trading range (190 – 250) a week ago but traded up near the high end of that range this week, on no news. We’ll keep at hold as shares continue to be rangebound. HOLD

Procept Biorobotics (PRCT) has been doing very well since I added the position earlier this month. Shares are up roughly 38% since. A solid Q4 report and 2022 guidance have helped. 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 issued 2021 revenue guidance of $54 - $58 million (up 57% - 68%). This was well ahead of consensus estimates for $50 million. Lockup expiration (3/14) may have also removed a potential overhang in the stock. Keeping at buy for now but will likely move to hold soon if PRCT keeps climbing. BUY

JOANN (JOAN) was sold following last week’s Q4 results which showed that new customers aren’t spending as much as expected. While JOAN can still work just fine with slower-than-expected growth given the dirt cheap valuation, we were looking for a more steady growth plus income scenario to deliver more significant stock price appreciation. Ultimately, there are better opportunities elsewhere, so JOAN was moved to sell last Friday. SOLD

Nova LTD (NVMI) has come up off recent lows as the broader semiconductor group has strung together a decent week. NVMI is now at the high end of its last three weeks’ trading range and right on both its 50- and 200-day moving average lines. BUY

Rani Therapeutics (RANI) will give a Q4 update next Tuesday, March 29. As I’ve mentioned, we should expect commentary on three clinical programs: RT-101 (acromegaly), RT-102 (osteoporosis) and RT-109 (growth hormone deficiency). This week the company initiated a Phase 1 study of RT-102. Recall this is an oral formulation of the human parathyroid hormone analog PTH(1-34) delivered via RaniPill capsule. An oral option would mean the roughly 10 million Americans with osteoporosis would have another option beside daily self-injection. BUY
Earnings: Tuesday, March 29

Revolve (RVLV) has come up off the lows near 40 from two weeks ago and is back near 54, slightly higher than where the stock was before the Q4 report. Not ready to upgrade to buy yet but the stock is looking a lot better. HOLD

Repligen (RGEN) and other bioprocessing peers (DHR, TMO) have been fine but not great lately. Repligen management spoke at a KeyBanc Life Science and MedTech forum this week. No major news. HOLD

Shutterstock (SSTK) has gained a little altitude this week to trade back around 95. That’s near the top end of the trading range going back to mid-January. No fundamental news. SSTK yields around 1%. BUY

Sprout Social (SPT) has been able to string together a few good weeks and is back to where shares were trading in mid-December. A broader recovery in many software names is to thank, as are comments from Morgan Stanley’s TMT conference and a collaboration with Salesforce.com (CRM). HOLD HALF

Xometry (XMTR) reported official Q4 results last Thursday. Revenue rose 77% to $67.1 million (beating by $1.86 million) while adjusted EPS of -$0.29 was essentially in line with consensus estimates of $-0.30. Active Buyers on the platform grew 49% to 28,130 with strength seen in robotics, medical devices and consumer products. Active Sellers were also up, by 43% to 2,010. Management guided for Q1 2022 revenue of $81 - $82 million (+84% to +87%), above $79.6 million consensus. Full-year 2022 revenue guide is $390 - $400 million (+83% at the high end), also above the pre-report consensus of $381 million. With adjusted EBITDA in Q4 coming in a little lower than expected EBITDA profitability now moves from 2022 to 2023. Overall, this was a great quarter and illustrates the long-term potential of Xometry as a potentially disruptive marketplace for buyers of industrial manufacturing supplies. That said, I’m keeping a close eye on the stock as XMTR revisited its lows early this week (it bounced yesterday). Keeping at buy for now. BUY

Please email me at tyler@cabotwealth.com with any questions or comments about any of our stocks, or anything else on your mind.