Today we’re jumping into a small-cap recovery story that appears to be in its early innings. It’s a familiar name, and we’re not the first to jump on it. Bank of America just put out a very bullish note after the company posted a big earnings beat.

But this stock isn’t a consensus buy, far from it. There’s a lot of work to be done before Wall Street jumps on board. That spells opportunity.

I don’t think it’ll be a small-cap stock for long. Because of the crazy week with the election and FOMC meeting we will start with a half-sized position with today’s stock.

Surging data center demand. Electric vehicles. Heat pump HVAC systems. Severe weather events. Hurricanes. Rising sea levels. North Carolina flooding.

This is just a short list of the drivers behind rising electricity demand, the harsh realities of being behind the curve when it comes to global warming, and the resulting push toward energy efficiency and greenhouse gas emission reductions.

Today’s portfolio addition is a small and still-unknown company that helps solve these challenges, moving the country toward a more sustainable, clean-energy future.

I think you’ll find it interesting.

Everybody is talking about the potential of generative AI. But a lot of organizations haven’t yet organized their digital data in such a way that they can leverage it for AI, let alone protect it once AI applications gain access.

Today, we’re jumping into a steady-growth software company that helps solve this problem.

Infrastructure has been a hot topic for the last couple of years given passage of a bipartisan bill to finally spruce up the U.S. and try and address climate change.

This month we’re jumping into a pure-play infrastructure company that owns railroads and deep-water ports supporting crude oil and clean fuel shipments, as well as a modern power plant that’s getting tons of calls from AI data centers.

One thing – the company reports quarterly results after the bell today!

In 2022 new management took the helm of a small, deli-focused food company that was underperforming its potential. Fast forward a couple of years and management is executing an ambitious growth plan, while consumers are flocking to the deli section like never before.

This month’s Issue tells the story of a micro-cap company that’s hitting its stride a century after the woman it’s named after completed the journey from Italy to Brooklyn, NY.

In 2000 a small company began selling a proprietary surgical adhesive to seal up arteries. Over the next two decades that company would acquire several highly specialized products for patients undergoing heart surgery.

Today, the company is hitting its stride as surgeons and patients (and the FDA) see how much better its solutions are.

This month’s Issue has all the details.

The digital marketing world has been turned upside down as new privacy measures make it more challenging to track consumers across online and in-app activities.

But one company has been building out a unique opt-in data set and the backend technology to do just that. It sells this information to the biggest companies in the world so they can reach consumers with personalized marketing messages. With the new privacy measures, business is strong.

All the details are inside the May Issue of Cabot Small-Cap Confidential.

There is a growing mental health crisis going on out there.

But it’s starting to be addressed by a tiny, unknown (so far) company with a virtual care platform that’s beginning to make a difference across the U.S. And it’s doing so while growing both the top and bottom lines.

All the details are inside the April Issue of Cabot Small-Cap Confidential.

Half of all people need cataract surgery. But even though messing with your eyes is a massive decision, the Big 3 MedTech players in this market don’t have the best solution out there.

This is where today’s company comes in. It has developed cutting-edge technology that drives better outcomes for patients needing cataract surgery. The key? Its lens can be customized once in the eye!

All the details are inside the March Issue of Cabot Small-Cap Confidential.

The auto insurance market has been in a deep freeze since the middle of 2021. But now it’s thawing ... maybe even shifting into growth mode. That means huge potential for companies with direct access to the market.

That’s where today’s idea comes in. It’s a micro-cap internet company that offers unfiltered exposure to the auto, home and renters’ insurance markets.

All the details are inside the February Issue of Cabot Small-Cap Confidential.

This month we’re jumping into a small software company that provides solutions for a specific small- and mid-sized business (SMB) market.

While the market for SMB software has been tough for the last two years, this company’s revenue growth has accelerated and customers that bailed in 2022 are coming back. In short, best-of-breed software isn’t dead! And this player is about to become profitable too. Enjoy!

This month we’re adding a small company that specializes in software that helps organizations train their employees and the partners they work with.

The company has a market cap of $1.5 billion, is growing revenue by about 25% and throws off a ton of cash relative to its size. Moreover, I rarely see this stock in the media, despite impressive growth and achievements. I think that’s about to change.

All the details are inside this month’s Issue.

Quick Note: Due to the Thanksgiving holiday, you will receive next week’s Small-Cap update a day early, on Wednesday, November 27, 2024.

The S&P 600 SmallCap Index raced higher right after the election, gave a little back last week, found support at the previous all-time high early this week, and is now rallying again.

I think the small-cap story is starting to get out there and driving a wave of interest from investors who haven’t given small caps much thought for a few years. There is so much potential to rally from here that it can be a little hard not to get too bullish.

Trump’s victory has given the S&P 600 SmallCap Index the jolt it needed to break out above this year’s overhead resistance at 1,465.

This is what it looks like on a daily chart going back about a year ...

The broad market has been resilient up until today when we see Microsoft (MSFT) leading the Nasdaq lower.

That said, small caps are hanging tough and are almost exactly flat over the last week.

The darn 10-year yield is still up, which signals the market thinks the Fed did not need to cut by 50bps in September. I’m increasingly dubious about a rate cut next Thursday, even though the market is saying there’s a 95% probability of a cut.

The S&P 600 SmallCap Index has dipped about 3% over the last week while yields have gone up.

The chart of the 10-year yield and the small-cap index plotted together makes this inverse relationship (in the very short term) clear as day.

While the S&P 500 Index made record highs (again) this week, the real story has been in small caps.

From last Wednesday’s close through mid-day today, the S&P 600 small-cap index is up 2.9%, more than twice the return of the large-cap index, which is up 1.3%.

The gains have been propelled by consumer discretionary, staples, financials, industrials and tech stocks.

The small-cap indices (Russell 2000 and S&P 600) have been totally uninspiring over the last three weeks, which is sort of odd given that the Fed cut interest rates by 50 basis points almost exactly three weeks ago.

Theoretically, lower rates should benefit small caps given higher exposure to variable rate debt, which requires lower interest payments as rates decline.

Small caps have bounced around this week, taking a break from the rally that began on September 11 and continued through the 19^th.

Behind the scenes, analysts have been increasing their earnings expectations for the asset class. This is largely because rates are falling, but also because the economy is holding up.

Finally! The Fed met yesterday and, as expected, began a rate cutting cycle. The market, and small caps, love it.

The magnitude of the September cut, 50 bps, is a bit of a surprise. Despite what Fed Chair Jerome Powell said during the press conference yesterday, this is partially a make-up cut. Since there was no meeting in August, and the Fed didn’t cut in July, it was time to make a statement.

After a couple of tough weeks, maybe due to a lingering yen carry-trade impact and a little too much concern over a weakening economy, the market has acted much better the last couple of days.

It seems we’re in one of those periods where there isn’t a major market catalyst, even though we’re getting inflation reports, presidential debates and a Fed meeting. So the market is just bouncing around.

The S&P 600 Small Cap ETF (IJR) closed out last week on a high note as the index rallied 3.4% on Friday following comments from Fed Chair Jerome Powell in Jackson Hole that confirmed what investors were expecting, that an interest rate cut in September is likely.

Small caps have chopped around this week, inching a little lower but not making any dramatic moves.

The market is now pricing in a roughly 35% probability of a 50-bp rate cut next month, and just over 100 bp of easing by the end of this year.

While the S&P 600 Small Cap ETF (IJR) hasn’t yet challenged its high for the year of 120.7, hit just prior to the market rout a few weeks ago, the index’s performance lately has still been impressive.

For most of this year the IJR bumped up against overhead resistance near 111. It finally blasted through in the second week of July. But that market turbulence from a few weeks ago seemed like it could put a lid on the index for a while.

That hasn’t been the case.

Small caps have come back swiftly, jumping back above that 111 level a week ago and acting very well this past week.

With this week’s PPI inflation number (Tuesday morning) coming in lower than expected and the CPI reading (Wednesday morning) coming in as expected, the trend of lower inflation remains intact.

That’s a good thing, unless you have a hankering to buy more Treasuries and have held off.

The 2-year Treasury yield is now below 4%.

Last evening Zeta (ZETA) responded to the Culper Research short report with a scathing review of the allegations, saying, in short, that Culper is full of it and doesn’t know what the heck it’s talking about. It couldn’t even get Zeta’s auditor right. Link to the press release here.

I moved Zeta (ZETA) to buy this morning given the rather extreme selloff after earnings. Not long after that alert went out, a short seller by the name of Culper Research issued a short report on Zeta. | By far the most questions I’m getting right now are about Zeta (ZETA). You read my update yesterday, and it was bullish. Analysts increased price targets from the mid-30s into the low 40s, with some going up to 50.

AVPT, AORT and DCBO Still Buys After Reporting

Willdan Group (WLDN) Delivers Q3

Shares of our silicon battery startup Enovix (ENVX) are trading up nicely today after the company reported Q3 results after the close yesterday. Lots to cover here so I’ll bullet point the most relevant stuff then give my two cents:

We went into the TransMedics (TMDX) Q3 earnings report yesterday afternoon with a quarter of our original position and lingering questions about the underlying trends in the business.

Shares of Zeta (ZETA) are up about 5% this morning after the company announced it will acquire LiveIntent, a people-based marketing technology company founded in 2009.

Mama’s Creation (MAMA), our micro-cap grocery company that’s a play on the growth in deli prepared food, reported a solid Q2 after the closing bell yesterday that slightly surpassed expectations.

Artivion (AORT) Delivers Q2 Beat; Sell Remaining Half of EverQuote (EVER)

EverQuote (EVER) and RxSight (RXST) Deliver; FTAI Infrastructure (FIP) Still a Buy