August 15, 2024

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%.

The path should be clear for the Fed to start cutting rates in September. In fact, PCED inflation is on track to hit the Fed’s 2.0% target by the end of the year, assuming rent inflation continues to drop. It’s the last of the sticky bits in the CPI and PCED readings (it’s excluded from PPI) and the only component keeping those inflation measures above that 2% threshold. The next PCED reading is on August 30.

Market odds for September are pretty evenly split between a 50bps (56% probability) and 25bps (44% probability) cut right now.

This sets up an interesting situation. After September, the next Fed meeting is November 7, just two days after the U.S. presidential election on November 5. There is no meeting in October.

Would the Fed cut 50bps in September so it doesn’t have to do anything through the election, until December 18? Or run with a 25bps cadence (September, November and/or December)?

There is sure to be a lot of speculation about this in the coming months. Might depend on the evolution of the geopolitical situations between Russia and Ukraine and Iran and Israel.

Turning to small caps, the S&P 600 ETF (IJR) has lifted off support at 104 and is inching its way back to 110. Prior to the market swoon last week, the ETF had rallied to 120.7.

One of the challenges for small caps has been a lack of earnings growth. While earnings in the S&P 500 are expected to grow by 10% this year, earnings in the S&P 600 are expected to be flat.

However, that changes for the better in 2025.

Earnings for the S&P 500 are seen growing 15%, while the S&P 600’s earnings are currently expected to grow by 19%.

If that holds, the S&P 600 has a very good chance of getting back to its recent high by the end of this year. That’s good for the broad market and should continue to create ample opportunities for us to jump into leading, pure-play small-cap stocks.

Let’s move on to our portfolio.

Recent Changes
None

Updates

Artivion (AORT) reported a modest beat and raise after the close last Thursday. As I wrote in the Special Bulletin on Friday, the main attraction outside of the currently approved product lineup is the NEXUS aortic arch stent graft system, which is owned by partner Endospan (Artivion has a deal to acquire upon U.S. FDA approval). NEXUS allows for aortic arch disease patients with aneurysms and dissections to avoid open-chest surgery (multi-week recovery) and instead have a minimally invasive endovascular procedure (walk out of hospital the next day). Management sees a global revenue opportunity of $600 million from NEXUS alone (roughly 1.5x this year’s estimated company-wide revenue). NEXUS is being studied in the U.S. IDE TRIOMPHE trial, which should be fully enrolled by the end of 2024 (50 of 60 patients enrolled) and is expected to be approved in the back half of 2026. AORT stock hasn’t done much since the release, but both Oppenheimer and Stifel bumped up their price targets (30 and 28, respectively). BUY

Docebo (DCBO) reacted positively to last week’s earnings report (slight beat and raise, likely with some conservatism baked in). Management is seeing relative strength in the Enterprise segment and expects more government customers later this year while also beginning to monetize AI solutions and tweaking its pricing strategy to attract customers and speed up deal closures. Management spoke at the Canaccord and Oppenheimer conferences (Tuesday and Wednesday, respectively) and moves on to a Citi conference on September 4 and the Docebo Inspire event on September 11. BUY

Enovix (ENVX) hasn’t been the strongest stock since July. But there are many twists and turns as a company like this (manufacturing) builds a plant and gets up to full-scale production. We’re not there yet, but it’s coming. The company officially opened the Malaysian plant last Thursday, and we should see the high-volume production line achieve Site Acceptance Testing (SAT) and begin sample production by the end of September. Enovix filed a shelf registration allowing the sale of up to 6 million shares by current shareholders (i.e., no dilution). On the one hand, this extra liquidity could tamp down shares when sales are made, but on the other, it could be seen as an opportunistic filing with some of those shares planned to be sold upon positive, stock-moving news. BUY

EverQuote (EVER) had a great Q2 report, but shares failed to hold their post-earnings report gain. With a few moving pieces that could be business and/or sentiment headwinds (regulatory, hurricane season) I decided to book a gain of 63% on our remaining half position last Friday and not risk letting EVER slip on us. SOLD

FTAI Infrastructure (FIP) was added two weeks ago, right before the market rout. The stock has pulled back to its 50-day line near 9.0 and remains a buy there. There is no change to the story, it is still a PE-type infrastructure company with businesses in transportation, energy, clean energy and industrial products markets. It’s only a matter of time before a few more analysts pick up coverage of the name. BUY

Mama’s Creations (MAMA) is our play on prepared food in grocery stores, which is a big trend that you’ll likely notice as you walk around your favorite grocery stores. The company recently refinanced some debt that was coming due in 2025 (kicked out maturity date to 2027). Yesterday The Wall Street Journal ran a piece, “’Stress on Shelves’ – the Battle for Space in Store Aisles,” which mentioned Mama’s. The relevant excerpt said, “Fresh deli prepared foods manufacturer Mama’s Creations is looking to expand organically and by acquiring outside brands, said CFO Anthony Gruber. The focus for growth is in the deli area of the grocery store rather than in the frozen-food or other aisles, he said. This, according to the CFO, allows Mama’s Creations to keep its retail partners, such as BJ’s Wholesale Club, Whole Foods Market and Foodtown, happy, which helps with good shelf placement. Mama’s Creations typically avoids paying slotting fees, Gruber said, but the company is investing more in packaging and technology to add shelf life to its meatballs, tuna salad and other food offerings with the aim of keeping prime space. ‘Shelf space is always something where you’re fighting your competition to make sure you get front and center,’ Gruber said.” MAMA stock was up 7% on Tuesday. Hmm, did somebody know that story was coming out? Earnings won’t be out until September. We’re hoping for news of significant new customer wins in August and/or September, along the lines of Walmart (WMT) and/or Target (TGT). BUY

Expected Earnings Date: September 11

RxSight (RXST) continues to act well after reporting last week. Shares have moved from below their 200-day line (sold off during that market swoon last Monday) back up to their 50-day line near 52.8. Looking for more follow-through. Take note that the iShares Medical Devices ETF (IHI) has been chopping steadily higher (albeit slowly) over the last two weeks and seems poised to move above both its 20 and 50-DMAs (a good sign). BUY

TransMedics Group (TMDX) has acted well since reporting a big quarter on July 31. Management spoke at a Canaccord Genuity conference on Tuesday, mostly discussing topics from the earnings conference call. Hold a Quarter

Weave (WEAV) continues to hold up well in the wake of reporting earnings on July 31. The stock has almost recovered all of the decline that came after the Q1 earnings report on May 2. That’s a good sign. BUY

Zeta Global (ZETA) has the best-looking chart in our portfolio right now and while shares were up and down after reporting on July 31, with the benefit of hindsight it seems like the broader market volatility was the culprit. Now, shares have moved back to where they initially were after the Q2 report (i.e., up 12% from the day prior to reporting). I moved to buy last week. BUY

That’s it for this week. Please email me at tyler@cabotwealth.com with any questions or comments about any of our stocks, or anything else on your mind.

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