The market’s winning streak officially came to an end this week and small caps retreated swiftly to the level they were at two weeks ago.
The dirty words of the week are “Fed” and “Brexit,” and predicting what will happen with either is about as easy as predicting what will come out of Trump’s mouth next. In other words, don’t even bother trying.
Not one of the stocks in our portfolio is a play on or against a move in interest rates or a Brexit. And for that matter, relatively few stocks are. So while the market will gyrate based on the latest speculations, company-specific fundamentals, which drive share price performance over the long-term, remain the more important story, even if the less entertaining one.
There’s no sense in sugar coating it—stocks were trampled on this week. Everything was down, save utilities. Small caps fell by 2.6%, while large caps fell by 1.8%, and the relative performance of value vs. growth in both asset classes was negligible.
Last week, I stated that I thought the broad-based move was just about over and, “…we’re entering a grind it out phase.” That’s begun. I also cautioned that we tend to see some market weakness heading into summer, and that at some point, we should expect to see some profit taking. But I didn’t call for a full-blown correction, but rather a period of consolidation.
I think that’s what’s going on right now, so I’m not changing my view of small caps for the second half of the year. I still think the S&P 600 can reach 730 this year, which implies almost 4% upside from here. We were almost there last week, so this is anything but a bold prediction. It reflects my belief that small-cap stocks are doing well enough to trade at a slight premium, but need to show us the goods (revenue and earnings growth) in the second half to justify breaking out to all-time highs in 2017.
A number of our stocks were on the verge of all-time highs last week. They pulled back this week so we’ll have to be a little more patient. There are no ratings changes this week. Details below.
Updates
Blackbaud (BLKB) After three consecutive weeks of 4% gains, the stock took a breather this week. Given the decline in the market, an unchanged week should be considered a victory. The stock is still just a hair below its 52-week high, set back in late December. Keeping at Buy given the strength and, I think, a chance at a new all-time high in June. BUY.
Chembio (CEMI) It was another week of no company-specific news for our most recent addition. It’s still trading at around the same price as when I recommended it, and looks to be in a consolidation phase. The latest Zika-related news is that the number of women infected in the continental U.S. has risen to 234, three babies have been born with related birth defects, and three pregnancies were lost as a result of Zika. Expect stock movement once we get the next news release regarding new product development. The stock is still a Buy. As I stated last week, just keep taking it easy given the relatively thin volume. BUY.
eMagin (EMAN) Absolutely no news flow. But despite the volatility, the general trend is up, even if modestly. Keeping at Hold. HOLD.
LeMaitre Vascular (LMAT) I moved the stock from Strong Buy to Buy last week after seven consecutive up days that took the stock up over 7%. It retreated 5% over the past week and is now trading in the middle of last month’s trading range. It’s still a Buy. The stock isn’t heavily traded, so just be aware that there tends to be some volatility. Management will be presenting at the East Coast IDEAs Investor Conference on June 28. BUY.
LogMeIn (LOGM) The stock is still in a consolidation phase after the earnings-induced gap up at the end of April. It looks stable, and fundamentally I think the stock is a good value (relatively speaking for a growth stock!). I think the market is just waiting for a little more confirmation that growth is reaccelerating, and once we get that confirmation, we’ll be off to the races again. We could be waiting for the next quarterly earnings release, which is around five weeks away. So it’s a good time to just sit and hold, or add to your existing position. Keeping the stock at Buy. BUY.
Mitek Systems (MITK) The stock is moving sideways as the market waits for the next meaningful news release. The company was granted two new patents this week for its mobile capture technology for payments documents. The technology is pretty cool—it can read an invoice, including account numbers an amount due, and process the document accordingly. Historically, Mitek has been mostly about mobile check deposit. But with invoice reading, it’s expanding its market considerably. And, of course, it’s recently revealed its identity solutions too. Continuing to Hold. HOLD HALF.
NanoString Technologies (NSTG) This was our best performing stock over the past week, as shares rose 3%. There’s no news driving the stock and volume isn’t out of the ordinary. There is no real trend here, so we continue to hold until we get more information on equipment sales. HOLD.
PFSweb (PFSW) The stock has been our weakest performer by far over the past two months. Nothing has changed with respect to the investment thesis. I think volume is just drying up a little and there’s no momentum in the stock to attract buyers. In April and May, four firms picked up coverage of the stock (Wunderlich, Northland Securities, Canaccord Genuity and B. Riley) with most placing their target price at 18 to 19. Apparently, none of their clients have been listening. With the stock now oversold, the chances of a rebound are going up. I’ve been wrong on calling the stock a Buy for the past couple of weeks. But at this level, it’s difficult to shift to a Hold because I think a 10% move to the upside is just around the corner. If you own it, hold on, and consider adding a little to lower your cost basis. If you don’t own it, this is probably a good entry point for a quick gain. This might be a quick trade scenario—buy around this level and look to take profits if the stock can get to 12, then again at 13 or so. BUY.
Primo Water (PRMW) The stock came down another 4% this week on no news. Still holding. HOLD.
Q2 Holdings (QTWO) The stock came back to its 50-day moving average over the past week but still looks healthy. Still looking for a 52-week high in the month of June. The company’s founder, Hank Seale, and CEO, Matt Flake, were awarded the Ernst & Young Entrepreneur of The Year Award for Central Texas. Keeping at Buy. BUY.
USA Technologies (USAT) The stock pulled back again to drop 8% to 4.15. There’s no new news, and volume wasn’t out of the norm. It’s looking a little oversold here. Keeping at Buy. 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 June 16, 2016 at 4pm:
| Stock | Date Bought | Price Bought | Closing Price | Profit | Rating |
|---|---|---|---|---|---|
| Blackbaud (BLKB) | 11/6/15 | 62.18 | 66.63 | 7% | Buy |
| Chembio (CEMI) | 6/3/16 | 8.69 | 8.59 | -1% | Buy |
| eMagin (EMAN) | 5/5/14 | 2.69 | 1.89 | -30% | Hold |
| LeMaitre Vascular (LMAT) | 5/6/16 | 15.99 | 14.39 | -10% | Buy |
| LogMeIn (LOGM) | 1/8/16 | 58.13 | 61.86 | 6% | Buy |
| Mitek Systems (MITK) | 2/4/13 | 3.93 | 7.48 | 90% | Hold Half |
| Nanostring Technologies (NSTG) | 8/7/15 | 15.40 | 13.79 | -10% | Hold |
| PFSweb (PFSW) | 12/4/15 | 12.59 | 11.17 | -11% | Buy |
| Primo Water (PRMW | 3/4/16 | 8.72 | 10.71 | 23% | Hold |
| Q2 Holdings (QTWO) | 4/1/16 | 23.81 | 27.18 | 14% | Buy |
| USA Technologies | 2/5/16 | 3.51 | 4.15 | 18% | Buy |