Small caps made a heck of a move over the past week to close just below 700 on the S&P 600. That 4.3% move was led by growth (up 4.6%). Sector wise, tech led the charge with a 6.2% rally.
But nothing was really left behind in the broad-based move, including most of our stocks. Eight of our 10 stocks rose, and our average gain was 6.3%.
The S&P 600 Small Cap Index is still in the 660 to 710 range, and the strength of this week’s move has me a little more bullish on its prospects to smash through that 710 barrier in the near-term. It’ll be a challenge, but if it can do so then I expect another leg up in small caps, which should benefit most of our stocks.
I’ve read several analyst reports that echo what I’ve been saying about small caps all year--that they’re relatively attractive--compared to large caps (I always think there are attractive small caps even when the index isn’t looking hot, as you know). I don’t hang my hat on what asset allocation analysts are saying, but it’s still good to have an idea of what institutional investors are telling their clients, since they’re the ones that move the market.
Of note, I see forward earnings and revenue estimates going up for small cap health care, tech, financials and consumer discretionary. These sectors are all in our wheelhouse, so I think we’re well positioned if these sectors continue to climb. An earnings bottom may be in for energy, so I’ve been ramping up research in this area too and I revisit my oil-related watch list stocks almost daily.
I’m moving one stock from Buy to Strong Buy this week in anticipation of a bounce from oversold levels. There are no other rating changes. And I’ll be sending you the next issue of Cabot Small-Cap Confidential a week from today. Enjoy the long weekend!
Updates
Blackbaud (BLKB) The stock leapt 4% and back up to its 50-day moving average around 61.60 after the company announced release of a full-featured product, Blackbaud Success Assurance for Higher Education, to serve the higher education market. The company’s been moving in this direction through acquisition, so this isn’t a surprise. But it’s good to see that it has rolled its education products up, and that effort should help considerably with marketing. The product will cover fundraising, relationship management, analytics, services and payments. I expect we’ll see more tuck-in acquisitions to support the product, as well as greater performance tracking from management in upcoming quarters. The big question is--will Higher Ed be the market that help turns the 60.00 stock into a 100.00 one? We’ll see. I think it’ll help. Management’s road show started in earnest this week at the B. Riley Conference yesterday, and it has three more to go:
- June 1: Bank of America Merrill Lynch Global Technology Conference
- June 8: Robert W. Baird & Co. Global Consumer, Technology & Services Conference
- June 9: Citi Small & Mid Cap Conference
Maintaining at buy. BUY.
eMagin (EMAN) The stock’s up 5% over the past week but still remains in the same trading range. Nothing fundamentally new to report. HOLD.
LeMaitre Vascular (LMAT) The stock was drifting lower this week then hit its 200 day moving average yesterday. That event looks to have ignited some selling as the stock closed below 14.00 for the first time since late March. There have been some insider stock sales in May that could be a factor in the stock’s relatively lackluster trajectory this month. I think this action will clear out and the stock is looking oversold at the moment, especially given the recent strength in biotech and healthcare. I’ll be surprised if there isn’t a quick bounce here, and this is probably a good stock to pick up for a quick trade in anticipation of a move from around 14.00 to 15.00 (a 7% move). Of course, I expect larger gains will be made by buying and holding for a while, but not every investor wants to do that. The stock has a tendency to move in a wide trading range, volume isn’t overly high, and I haven’t dug up any negative fundamental news. Moving to strong buy given what I believe to be oversold conditions. STRONG BUY.
LogMeIn (LOGM) The stock regained its momentum this week with a 7% move higher as analysts raised estimates and the company announced the next generation of its BoldChat live chat solution. It’s an encouraging sign that the stock held on to its earnings gap and is back above 60.00. If it can break above 62.00 our chances for a return above 70.00 are much improved. It’s a buy. BUY.
Mitek Systems (MITK) Shares were up 3% this week as management announced a collaboration with Avoka, a company that helps financial institutions acquire new customers. Mitek’s products will be integrated into Avoka’s digital sales platform. Financial details weren’t disclosed, but I suspect Mitek will get a commission or revenue share when a new customer is secured through the Avoka application. The announcement came on Wednesday, the same day the company presented at the B. Riley & Company 17th Annual Investor Conference. As I mentioned last week, these events tend to be a good time for news announcements, so it’s worth paying a little extra attention around investor conferences. HOLD HALF.
NanoString Technologies (NSTG) The stock posted a modest and partial comeback this week of 4%. Management announced that Cigna will now cover its Prosigna Breast Cancer Gene Signature Assay. This adds roughly 13 million members to the 122 million that were previously covered through other insurers. And management says this means around 80% of patients indicated for Prosigna testing are now covered. The stock is at 13.93 and we’re looking for a close above 15.00 to signal it can move past the disappointment from last quarter’s equipment sales shortfall. That will probably require a press release stating the sales teams are executing. Until then, we’re holding. HOLD.
PFSweb (PFSW) The stock posted an 8% gain this week as management presented at the at the B. Riley & Company Conference. Next week it moves on to Craig-Hallum 13th Annual Institutional Investor Conference (Wednesday) and then to the Cowen & Co. 44th Annual Technology, Media & Telecom Conference (Thursday). It’s still a buy at this oversold level. BUY.
Primo Water (PRMW) The stock is essentially unchanged this week as the consolidation pattern continues. Nothing new to report. Still a hold. HOLD.
Q2 Holdings (QTWO) The stock was our second best performer this week as it rallied 12% and closed back above the 200 day moving average and at the post-earnings point around 25.00. It was an encouraging move, helped in part, perhaps, by the broader push in technology stocks and financials, the latter of which have improving prospects given the higher likelihood of a rate hike. Last week I said the stock was oversold. I hope you were able to jump on the opportunity. It’s still a buy here, and if we can just get it to push through 25.00 in convincing fashion I see a quick trip to 28.00. BUY.
USA Technologies (USAT) My gaff at calling USAT a buy two weeks ago, promptly before it shot down to 3.80, was (hopefully) made up for by calling it a buy last week at oversold levels. If you followed that second bit of advice, you just made 13% over the past week. There is no new fundamental news. The stock is right back to its 50 day moving average. BUY.
Please email me at tyler@cabot.net with any questions or comments about any of our stocks, or anything else on your mind.
Cabot Small-Cap Confidential Stocks and Closing Prices on May 26, 2016 at 4pm:
| Stock | Date Bought | Price Bought | Closing Price | Profit | Rating |
|---|---|---|---|---|---|
| Blackbaud (BLKB) | 11/6/15 | 62.18 | 61.58 | -1% | Buy |
| eMagin (EMAN) | 5/5/14 | 2.69 | 1.88 | -30% | Hold |
| LeMaitre Vascular (LMAT) | 5/6/16 | 15.99 | 13.93 | -13% | Buy |
| LogMeIn (LOGM) | 11/8/16 | 58.13 | 60.95 | 5% | Buy |
| Mitek Systems (MITK) | 2/4/13 | 3.93 | 9.09 | 131% | Hold Half |
| Nanostring Technologies (NSTG) | 8/7/15 | 15.40 | 13.93 | -10% | Hold |
| PFSweb (PFSW) | 12/4/15 | 12.59 | 13.11 | 4% | Buy |
| Primo Water (PRMW | 3/4/16 | 8.72 | 11.49 | 32% | Hold |
| Q2 Holdings (QTWO) | 4/1/16 | 23.81 | 24.92 | 5% | Buy |
| USA Technologies | 2/5/16 | 3.51 | 4.31 | 23% | Buy |