Small caps resumed their upward trajectory over the past week, rising by 1.3%. Our portfolio did a little better, rising by an average of 2.6% (omitting last week’s new addition, since it wasn’t added until Friday).
Last week, I talked about the relative pace of expected earnings growth for large and small cap stocks. I stated that in 2017, small cap earnings are projected to grow by 35.4%. That’s after an expected 57% increase in 2016. In comparison, large cap earnings are expected to grow by 13.8% in 2017. Clearly, small caps are where the serious growth is.
The chart below shows the 2017 expected rate of earnings growth for both large and small caps, by sector. Note how much faster growth in small caps is expected to be almost across the board? That’s good, especially where Information Tech, Health Care and Consumer stocks are concerned, given our exposure to those areas. The only two sectors where small-cap earnings growth isn’t expected is in Energy (large-cap Energy growth of 290% skewed the chart so much I had to crop it off) and Utilities.
The bottom line is that small cap growth looks good for the year ahead. While anything can happen in the market, the game plan remains the same: stay in good stocks, avoid bad ones, and get out of those that have faltering outlooks. In short, stay the course.
Updates
Aerohive (HIVE) Shares have had back-to-back down 4% weeks on no news. The upward trend has broken, so now we’re looking for signals that can help us predict the next move. Shares are very close to being technically oversold, which should theoretically trigger some near-term buying. That looked to be the case on Wednesday when it traded in a wide range, and with extremely high volume (over 1 million shares). The trend here is murky. Keeping at Buy, but watching closely. BUY.
Aspen Aerogels (ASPN) Last week’s new addition is holding onto the modest uptrend that began in early August. The price of oil was also up this past week. There are no new fundamental developments since last Friday’s Issue. And given all that I wrote last week, I have nothing to add today! Keeping at Buy. BUY.
eMagin (EMAN) The stock was up 1% this week on no news. It’s still trading just above its 50-day moving average. I think the market is getting a little impatient that no press release has been put out after management’s tone on the last conference call. Still, let’s keep holding. HOLD.
LeMaitre Vascular (LMAT) Shares had a terrific week, rising by 16% and bringing our paper gain up to almost 30%. Earlier in the week, I sent out a Special Bulletin in which I wrote, “Today, I think we need to take a more conservative stance on the stock in the short-term. Therefore, I’m moving the stock to Hold right now. This isn’t a call to sell the stock. I simply think the near-term upside is limited barring a major positive announcement or rumors of a takeover (which I haven’t seen yet). If you are a conservative investor, you may want to consider booking a partial profit, perhaps around 25%. Otherwise, just hold your position and let’s see where LeMaitre goes over the coming weeks. Should it hold its recent gain and enter a tight consolidation phase (like that which occurred in August), I will consider moving it back to Buy.” HOLD.
LogMeIn (LOGM) Shares logged a strong week, breaking out above their August trading range and briefly trading above 90 before closing just a few dimes shy of that mark. The company disclosed that the U.K. student insurance provider, Endsleigh, selected LogMeIn’s Rescue Lens interactive mobile video support to power Endsleigh’s video-aided claims service. It’s going to be very interesting in the years ahead to see how many businesses start offering mobile video support. Now that almost all cell phones, tablets and laptops have the hardware, remote video support is only constrained by businesses taking that leap, and consumers’ willingness to follow. HOLD HALF.
MindBody (MB) The stock is trending sideways and still holding above support around the 17 level. This week it announced the acquisition of HealCode, one of MindBody’s established technology platform partners. HealCode offers seven different customizable widgets that wellness businesses can use on their websites (it works with all major website software) and/or Facebook pages to help promote online bookings and/or new customer acquisition. The consumer-facing widgets integrate with MindBody’s business management software, so businesses using HealCode are able to view client data directly through their MindBody software. By acquiring HealCode, MindBody expands its ownership of the customer interaction chain, and captures incremental revenue. Terms were not disclosed. The stock remains a Buy. BUY.
Mitek Systems (MITK) The stock was up 6% over the past week. It reported that b-Sharpe, an online foreign currency exchange, will use Mobile Verify to validate customers’ identities. Consumers can snap a picture of their passport or other form of ID with their mobile phone and submit it in just a few seconds. It’s yet another example of how Mitek is expanding its potential market beyond mobile deposit with its new identity solutions. Continue to Hold. HOLD HALF.
NanoString Technologies (NSTG) My updates on NanoString are getting repetitive. Yet again, shares remain in a consolidation range between 16 and 17. They were up 3% this past week. Management presented at the Robert W. Baird Global Healthcare Conference on Wednesday, and the stock was up both Wednesday and Thursday. That implies it did a good job. Next up is the Morgan Stanley Global Healthcare Conference on September 14. Still a Buy. BUY.
Primo Water (PRMW) Shares were a little soft over the past two weeks but jumped back up 3% this past week to hold above their 50-day moving average. This is a company that is more or less in execution mode; I’m not expecting any major announcements, and that’s just fine. It’s doing a good job of streamlining the core business. The most recent place I saw a Primo water jug exchange cage was at a Hannaford location in Williston, Vermont. Management will present at the B. Riley & Co. Consumer Conference on Tuesday, September 13. HOLD.
Q2 Holdings (QTWO) No new fundamental news to report, and the stock was flat for the past week. It’s still just above its 50-day moving average and is still rated Buy. BUY.
USA Technologies (USAT) Management formally announced the fiscal Q4 earnings release date as September 13 (next Tuesday). For the past few weeks, the estimated release date was yesterday. The report will come before the market opens, which is always interesting timing. I’ll update you once I read the report and listen to the conference call, which starts at 8:30 am Eastern Time. For now, continue to Hold. The stock was virtually unchanged this week. HOLD.
Expected earnings: September 13
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 September 8 2016 at 4pm:
| Stock | Date Bought | Price Bought | Closing Price | Profit | Rating |
|---|---|---|---|---|---|
| Aerohive (HIVE) | 7/1/16 | 6.73 | 6.31 | -6% | Buy |
| Aspen Aerogels (ASPN) | 9/2/16 | 5.14 | 5.13 | 0% | Buy |
| eMagin (EMAN) | 5/5/14 | 2.69 | 2.45 | -9% | Hold |
| LeMaitre Vascular (LMAT) | 5/6/16 | 15.99 | 20.67 | 29% | Hold |
| LogMeIn (LOGM) | 1/8/16 | 58.13 | 89.58 | 54% | Hold Half |
| Mindbody (MB) | 8/5/16 | 18.11 | 17.12 | -5% | Buy |
| Mitek Systems (MITK) | 2/4/13 | 3.93 | 8.35 | 112% | Hold Half |
| Nanostring Technologies (NSTG) | 8/7/15 | 15.40 | 16.66 | 8% | Buy |
| Primo Water (PRMW | 3/4/16 | 3/4/16 | 11.78 | 35% | Hold |
| Q2 Holdings (QTWO) | 4/1/16 | 23.81 | 28.51 | 20% | Buy |
| USA Technologies | 2/5/16 | 3.51 | 5.00 | 42% | Hold |