As compared to the last month, this was a relatively subdued week. Stocks fell modestly, with large caps giving back a mere 0.1% and small caps giving back 0.7%. Biotech continues to be a weak area of the market (it fell by 3.5%), and Obama’s proposed test program to lower reimbursements for drugs administered by Medicare doctors isn’t helping.
My attention is now largely split between research to determine which sectors of the market are most likely to embark on sustainable uptrends, and which undiscovered small cap stocks will become the “new” asset class leaders. Is the gold stock rally for real? Can oil hold above $35.00 a barrel? When will the biotech sector fight back? Is there a direct and simple way to play what seems like an early spring and long summer in 2016 (and maybe in future years)? What are other small cap specialists missing, and where can we beat them to the punch? These are just a few of the things on my mind.
Below is a chart of small and large cap sector performance YTD. The more defensive areas of the market continue to outperform, but there’s also been a big improvement in the most beaten-up sectors.
This chart of small cap sector performance over the past week shows why I say market action has been relatively subdued. Last week I had to expand the scale up to a 25% gain to get energy to fit!
This week we heard from just one of our stocks, new addition Primo Water (PRMW). I recommended selling part of your position in Mitek (MITK) to lock in a +50% gain and letting the other part ride. There are no other ratings changes. Next week, we’ll get earnings reports from PFSweb (PFSW) and eMagin (EMAN).
Updates
Blackbaud (BLKB) It was another quiet week for BLKB as the stock was flat on no news. I signed up for the Save the Bay swim across Rhode Island’s Narragansett Bay, a charity event that relies on Blackbaud’s software to raise funds. The 1.7-mile swim starts in Newport, RI and ends in Jamestown, RI and it typically takes an hour and twenty minutes, though some swimmers do it far faster. I have no idea how long it will take me given tides, waves and conditioning, and it’s fair to say I’m somewhat intimidated by the event (it will be my first long-distance swim). I drive on the bridge over the bay often and its seems pretty long! The stock is still trading just below both the 50-DMA and 200-DMA. BUY.
eMagin (EMAN) Shares have been a little weak since I last wrote. They’re down 6% from last Thursday’s close on no news and very light volume. There is one positive development--management will announce results next Thursday, March 17. I’ll have all the details on Friday. Management needs to give the market something positive and concrete to get the stock moving in the right direction. HOLD.
Confirmed Earnings Release Date: 3/17/16
LogMeIn (LOGM) Shares gave back 3% this week and still trade just 2.00 below the 200-DMA. Management announced that the Rescue product, a remote support platform that provides access and support to smartphones, tablets, computers and applications, now supports Android 5.0+ and 6.0+ devices. I continue to believe LOGM will move in the same general direction as the broader cloud software group, which is taking a breather after a massive snap-back rally. BUY.
Mitek Systems (MITK) I advised taking partial profits on MITK after the stock shot up well over 6.00 this week, and surpassed the 50% gain threshold from our entry point. This is what I wrote in Tuesday’s Special Bulletin, “I think it’s time to take a little MITK off the table. There’s nothing wrong with the stock! In fact, everything seems to be going swimmingly. But we’re now up over 50% and it’s always good to nab a little profit when it’s staring you in the face, especially if you’ve stuck with a position through some dark days. To keep performance tracking simple, I’ll note this as “Sold A Half,” since that terminology is used in our other Cabot advisories. You may decide to sell a half, a quarter or a tenth. Do whatever works for you. As I said, I don’t see anything wrong with the stock and I’m not aware of any imminent negative events, so I’m not suggesting you sell out completely. This is just a portfolio management strategy to take a little off the table while its sitting there and let the rest ride. I hope to hold the rest of the MITK position for a long time, and see it turn into a multi-bagger!” Continue to hold the other half. HOLD HALF.
NanoString Technologies (NSTG) Shares cooled off after last week’s 29% rally and were flat over the last week. They now trade above the 50-DMA and 200-DMA. This week management announced that it will work with privately-owned Cell Signaling Technology (CST), a worldwide provider of antibodies, to use highly validated antibodies from CST in NanoString’s 3D Biology Protein Profiling Panels. CST will supply the antibodies for the assays, which will be marketed under NanoString’s brand for use with the nCounter system. Financial terms weren’t disclosed, so I don’t know how material this deal is. But it’s another expansion of NSTG’s platform and for that reason I like it. BUY.
PFSweb (PFSW) Shares gave back 6% over a quiet week. All attention will be focused on the company on Monday when Q4 results will be released. This will be our first report since adding the stock. Here’s my description of the company in case you need a refresher: “PFSweb provides branded omni-channel (online, brick and mortar, mobile, etc.) commerce solutions to companies throughout the U.S., Canada and Europe. By combining integrated technologies, logistics infrastructure and professional services into customized commerce solutions the company helps retailers and brands with both B2B and B2C business models. Primary services include website design, creation and integration, digital agency and marketing, order management, logistics and fulfillment, customer care, and professional consulting.” I’ll have the details for you on Tuesday. Maintaining at Buy heading into the report. BUY.
Confirmed Earnings Release Date: 3/14/16
Primo Water (PRMW) Last week’s new addition reported on Tuesday and I sent out a detailed Special Bulletin saying, in part, “I’m maintaining at Buy, and suggest you continue to average into your desired position size (using limit orders to choose your price). I’m maintaining my preferred buy range of 7.50 to 10.00 until we get more concrete details about results from ongoing initiatives... That said, I’ll be surprised if the stock trades below 8.50, and doesn’t break above 10.00 soon. It is enjoying a nice pop today and with a little luck will close at a 52-week high... One analyst on the call said that revenue growth guidance seems really conservative, after factoring in nearly 20% Dispenser sell-through growth in Q4 (which drives Water sales in consecutive periods), the potential WMT location adds, other likely adds, and same-store-sales growth that has been in the high single digits. He made a good point, and management agreed, saying they are generally conservative. I like that - it’s always better to under-promise and over-deliver. Things look good with PRMW, and I’m maintaining at Buy.” Shares still trade just below 10.00, so maintaining at Buy for now. Billy Prim will present at the ROTH Conference in Orange County, CA at 12:30 ET on March 15. BUY.
USA Technologies (USAT) The stock was up 2% over the past week. Management announced that Rawls Distributing Company, a large vending service provider in Savannah, GA, has signed up to equip 100% of its machines with USAT’s ePort Connect service, as well as the Premier Support Service. According to the two companies, Rawls equipped some of its machines with an older version of ePort Connect in 2011, and has seen the benefit since. It sounds like the new rollout is already 50% done and Rawls is enjoying greater sales and higher profit margins. I don’t know how significant the deal is since financials weren’t disclosed, but it’s good PR and Rawls’ website says it manages over 1200 accounts, so it’s probably not chump change. Shares remain well above both the 50-DMA and 200-DMA. Management will present at the ROTH Conference in Orange County, CA at 11:30 ET on March 15. HOLD.
Cabot Small-Cap Confidential Stocks and Closing Prices on March 10, 2016:
| Stock | Date Bought | Price Bought | Closing Price | Profit | Rating |
|---|---|---|---|---|---|
| Blackbaud (BLKB) | 11/6/15 | 62.18 | 57.28 | -8% | Buy |
| eMagin (EMAN) | 5/5/14 | 2.69 | 1.70 | -37% | Hold |
| LogMeIn (LOGM) | 11/8/16 | 58.13 | 50.79 | -13% | Buy |
| Mitek Systems (MITK) | 2/4/13 | 3.93 | 6.00 | 53% | Hold Half |
| Nanostring Technologies (NSTG) | 8/7/15 | 15.40 | 15.43 | 0% | Buy |
| PFSweb (PFSW) | 12/4/15 | 12.59 | 12.92 | 3% | Buy |
| Primo Water (PRMW | 3/4/16 | 8.72 | 9.58 | 10% | Buy |
| USA Technologies | 2/5/16 | 3.51 | 4.00 | 14% | Hold |