This is not going to be a good Friday folks.
The U.K. has voted to leave the E.U. in a close vote with 52% saying leave and 48% saying stay. Few people really thought the vote would turn out this way. And nobody knows exactly what will happen as a result, though, as I’ll discuss in a minute, the path forward is simultaneously more cloudy, and more clear, given this hurdle has been cleared.
I’ve tossed out what I wrote last night in light of this news. All I’ll say with respect to last Thursday through this Thursday was we were back on track. These two charts sum up what was a good week:
As I stated last week, not one of the stocks in our portfolio is either a play on, or against, a Brexit. But clearly the markets were not expecting this, and we’re in for a tumultuous period.
Here’s the bottom line on the situation:
The formal process for leaving the U.K. begins if and when Article 50 of the Treaty on European Union has been invoked. That decision may have to wait until new leadership emerges as Prime Minister David Cameron has announced his pending resignation. If Article 50 is invoked, the E.U. is obliged to negotiate withdrawal terms with the UK over a two-year period. It doesn’t sound as if Article 50 will be invoked immediately, and this window could be used as leverage for the UK to negotiate on key issues, such as immigration, austerity, etc. This is being called the “half a Brexit” scenario. Some leaders, including prior London Mayor Boris Johnson, have suggested that the whole purpose of a “Leave” vote is to have more power in such negotiations.
That means we’re going to be dealing with some uncertainty for a while. The market doesn’t like uncertainty, so it’s going to be a bumpy ride. Ultimately, I don’t think a leave or stay decision should have too much impact on our particular stocks, though obviously a broad period of economic turmoil in the E.U. could spill over to the U.S.
What seems clear in the near term is that, in general, stocks will go down, the dollar will go up and gold will go up. Other currency and sector-specific moves are likely within the E.U., but again, our exposure to any of these is relatively low.
What to do now
I’m keeping all of my ratings the same, save one. That said, I advise you sit pat and not to establish any new positions for at least a few days. When it’s time to start buying again, there will be some great deals available. I plan to provide updates on specific stocks as the days roll on. And you should expect some extreme intra-day volatility, especially today. These are notoriously difficult times to trade in, so I don’t advise doing anything too aggressive. Stick to your long-term strategy--these days come and go and ultimately, the market returns to trading on fundamentals. We’ve been through far worse.
If I do choose to move any stocks to sell, I’ll likely begin with the weakest ones. And I will respect my 30% stop loss rule. Right now, PFSweb (PFSW) tops the list.
Updates below are focused on each stock, not necessarily anything related to the Brexit vote.
Updates
Blackbaud (BLKB) Stocks such as BLKB are high confidence names among investors, especially when they’re working. And BLKB is working right now. The stock’s up almost 20% since mid-May and hasn’t had a losing week since that time. I’ve been calling for a 52-week high for a number of weeks, and BLKB knocked on that door yesterday when it closed at 68.40, just $0.11 cents below the high water mark. The stock trades at a premium with a EV/2016 Sales of 4.8, but it’s a reliable grower and will earn around $2.00 per share this year. So valuation will get stretched. Shares are on the verge of being overbought here after a 3% move this week. Keeping at buy, but suggest waiting until the initial smoke from Brexit clears. BUY.
Chembio (CEMI)
The quiet period continues and, as a result, trading volume in CEMI is light. The stock drifted 4% lower this week but should find support here. Keeping at buy, but suggest waiting until the initial smoke from Brexit clears. One of these days we’ll get a stock-moving news release. BUY.
eMagin (EMAN) Shares jumped 6% this week and closed several days above 2.00 for the first time since March. The beginning of this week brought modestly higher trading volume. There’s been a little more buying interest in the micro-cap display companies, including Kopin (KOPN) and Vuzix (VUZI), and some of that is rubbing off on EMAN. There’s still no specific news to trade around, so keeping at hold. HOLD.
LeMaitre Vascular (LMAT)
Another quiet week as the stock added 3%. Management will be presenting at the East Coast IDEAs Investor Conference on June 28. Keeping at buy, but suggest waiting until the initial smoke from Brexit clears. BUY.
LogMeIn (LOGM) The stock was one of our best performers this week as it added 6% and broke out of its consolidation pattern with a convincing move yesterday. The company announced it has launched a stand-alone version of Rescue Lens (previously a part of LogMeIn Rescue), its live HD streaming video feature for customer support. I believe what we’re seeing here is a company entering the middle stages of its high growth phase (a feat most companies don’t accomplish). If so, the stock should make all-time highs this year and, within a couple of years, moving up into mid-cap indices. This is what we want to see, and what I was expecting when I added it. Shares are on the verge of being a little overbought here, so don’t be surprised if there is a little weakness within the next week or two. But as I said last week, I think it’s a good time to just sit and hold, or add to an existing position. I’d love to see it hold the 64.00 level. Keeping at buy, but suggest waiting until the initial smoke from Brexit clears. BUY.
Mitek Systems (MITK) This is most definitely a cool-down phase for the stock. It was down 3% this week. I don’t see evidence of a breakdown though, so keeping at hold. The company was awarded a patent for its ID Solutions, specifically for the technology that extracts content from drivers’ licenses. HOLD HALF.
NanoString Technologies (NSTG) Shares were on the move again and just posted back-to-back 3% weekly moves. It also finally closed back above 14.00. No new news, and despite the move there isn’t a real trend to speak of. Keeping at hold. HOLD.
PFSweb (PFSW) The stock remains our weakest performer and this is one of those times where you hate to move to hold since the upside potential is so significant--50% over a month or two isn’t unrealistic. But you don’t want to get burned either. Fundamentally, nothing has changed. And the stock is sitting just above a major support level. I thought it had potential for a quick bounce, but the Brexit vote could take it below support around 10.00. Moving to hold. HOLD.
Primo Water (PRMW) It’s still quiet out there in the world of bottled water. Shares were up a modest 2% in what looks like a consolidation period. I’ve kept it at hold, and given the Brexit vote am sticking with that rating for now. HOLD.
Q2 Holdings (QTWO) This has been a classic software stock rally. Just as with LOGM and BLKB, QTWO looked great. Also a little overbought after a 5% move this week, so tread lightly and keep new purchases small, if you act. I think the trend will remain up once the Brexit smoke clears, and I’ve been calling for a 52-week high in the month of June. Keeping at buy since that 52-week high threshold was just 6% above yesterday’s close. BUY.
USA Technologies (USAT)
No new fundamental news. The recent pullback looked to have run its course prior to the Brexit vote. Look for a period of consolidation in the 4.00 to 4.40 range, if the stock can hold up in the coming days. Keeping at buy, but suggest waiting until the initial smoke from Brexit clears. 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 23, 2016 at 4pm:
| Stock | Date Bought | Price Bought | Closing Price | Profit | Rating |
|---|---|---|---|---|---|
| Blackbaud (BLKB) | 11/6/15 | 62.18 | 68.40 | 10% | Buy |
| Chembio (CEMI) | 6/3/16 | 8.69 | 8.21 | -6% | Buy |
| eMagin (EMAN) | 5/5/14 | 2.69 | 2.01 | -25% | Hold |
| LeMaitre Vascular (LMAT) | 5/6/16 | 15.99 | 14.82 | -7% | Buy |
| LogMeIn (LOGM) | 1/8/16 | 58.13 | 65.74 | 13% | Buy |
| Mitek Systems (MITK) | 2/4/13 | 3.93 | 7.29 | 85% | Hold Half |
| Nanostring Technologies (NSTG) | 8/7/15 | 15.40 | 14.19 | -8% | Hold |
| PFSweb (PFSW) | 12/4/15 | 12.59 | 10.54 | -16% | Hold |
| Primo Water (PRMW | 3/4/16 | 8.72 | 10.89 | 25% | Hold |
| Q2 Holdings (QTWO) | 4/1/16 | 23.81 | 28.67 | 20% | Buy |
| USA Technologies | 2/5/16 | 3.51 | 4.11 | 17% | Buy |