August 22, 2024

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.

Some of that is surely because expectations of rate cuts and a resilient economy are still on the table.

But also, as I mentioned last week, earnings in the small-cap world are seen ticking higher at a very attractive rate over the next year.

In 2025, S&P 600 Small Cap Index earnings are seen growing by 19%, better than S&P 500 Large Cap Index earnings, which are seen up 15%.

That’s very good news for our asset class, which has been held down by high interest rates and a “meh” economy for the last couple of years.

Next up on the calendar is the gathering of world central bank leaders in Jackson Hole, Wyoming. The annual meeting starts today and runs through Saturday. U.S. Fed Chair Jerome Powell will speak tomorrow (Friday) at 10 a.m. ET.

This will be the biggest event of the gathering. I’m going to go out on a limb (joking) and predict he’ll support the case for a 25-bp cut in September but remain non-commital regarding the pace and cadence of future cuts, rather repeating the Fed’s “data dependent” mantra.

That said, I’m sure Powell will indicate that future cuts are the most likely scenario given that the Fed’s policies have brought inflation down to almost where it needs to be.

Let’s move on to our portfolio.

Recent Changes
None

Updates

Artivion (AORT) has been moving sideways since reporting a modest beat and raise a couple of weeks ago. The company is a pure-play aortic disease MedTech company, selling medical devices, implantable human tissue and preservation services to cardiac and vascular surgeons treating patients with heart valve disease, aortic aneurysms and dissections. The next big product development milestone is to get the NEXUS aortic arch stent graft system approved in the U.S. 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 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 expected to be approved in late 2026. BUY

Docebo (DCBO) delivered a Q2 beat and raise that has helped get the stock going again. Shares closed at 43.8 yesterday, up significantly from the mid-30s level from a few weeks ago. DCBO stock has almost wiped out the big drop (-23%) that came with the Q1 report in May, when we learned a significant customer was lost due to M&A. Conference participation at Canaccord and Oppenheimer went well last week and management will speak at a Citi conference on September 4. The Docebo Inspire event is on September 11. BUY

Enovix (ENVX) is trading around the 10 level after giving back much of the gains it made this spring. The next milestone is to hear that the high-volume production line has achieved Site Acceptance Testing (SAT) and will begin sample production (should be by the end of September). We’re looking for meaningful production and revenue in late 2025. Consensus estimates call for 2025 revenue of $54 million (+160% over 2024), ramping to nearly $1 billion by the end of 2028. As I mentioned last week, 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) was sold the week before last. SOLD

FTAI Infrastructure (FIP) continues to be a buy around the 9.0 level (on the stock’s 50-day line). This management team doesn’t put out a ton of press releases so things can be quiet at times, but don’t mistake that for lack of activity in the business. The company is expanding across virtually all of its businesses. The few analysts following the stock expect revenue to expand by almost 60% between 2024 (estimated revenue of $365 million) and 2026 (estimated revenue of $575 million). Adjusted EBITDA profitability should expand even more, by nearly 90%, from $150 million to $284 million. BUY

Mama’s Creations (MAMA) was added in July and is up about 15% since. The micro-cap company is our play on prepared food in grocery stores. With the summer winding down we’re still waiting/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 work its way into the mid-50s, where the stock was prior to selling off on July 10 (and the weeks afterward). We’re up modestly and looking for RXST to get back on track for us. This is a young ophthalmic MedTech company disrupting the cataract surgery market with the first, and only, FDA-approved intraocular lens (IOL) technology that lets doctors customize a patient’s vision after cataract surgery. BUY

TransMedics Group (TMDX) looks fantastic and has moved to new highs in the low 170s. Nothing new to add. Hold A Quarter

Weave (WEAV) is back to 11 and has now wiped out all of the stock’s decline from May. Shares are up 30% over the last two months and are looking good. BUY

Zeta Global (ZETA) stock rallied to an intra-day high of 25.5 the day after reporting Q2 results, then fell to an intra-day low of 20 when the market fell apart a couple days later. Over the last two weeks, shares have walked steadily higher and are now challenging the 25 level again. Looking for ZETA to bust through. 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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