August 31, 2023

Small caps had a decent week with the S&P Small Cap 600 ETF (IJR) rising just over 2% since our last update. This is a welcome relief on a number of levels, including from a technical perspective.

In late July the ETF looked like it was going to challenge the year’s high (from February) near 108. Momentum stalled at 105 as the calendar turned to August. By the 18^th (two weeks ago) the IJR was just below 100, sitting on its 200-day moving average line.

This week’s little rally provides some distance from that long-term trend line, and also has the IJR testing its short-term trend lines (both 25- and 50-day), which are right around 101.

Suffice to say, we’d like the momentum to continue.

If we’re looking to hand out accolades for the market’s recent strength we won’t start with Fed Chair Jerome Powell. His short speech in Jackson Hole last Friday was more hawkish than dovish, with the only two given options at upcoming rate policy meetings as “raise” or “hold.”

Granted, that’s not too surprising given nobody’s expecting rate cuts this year. But the speech left open the potential for, let’s just say, policy moves that we wouldn’t prefer.

Thankfully, the employment data the Fed will be leaning on for upcoming policy decisions has been good lately – not just to avoid more hikes but also to keep the door open for cuts next year.

Specifically, we’re talking about the July JOLTS job data that show the labor market is cooling off (fewer job openings). Then, yesterday’s ADP payroll number came in below consensus and a lot lower than July. The release noted job creation is now more in line with pre-pandemic trends.

Music to the market’s ears!

Finally, for growth stocks this week’s momentum in AI-themed stocks, led by NVDA and GOOG, has been extremely welcome. Yesterday afternoon’s report from Salesforce (CRM) is also good for the tech sector.

Before we get to the long weekend, investors will have to wade through this morning’s PCE inflation reading for July (was in-line with expectations, up 0.2% month-over-month and up 3.3% year-over-year) and the BLS employment report tomorrow, both of which have the potential to move the market.

Let’s look for more signals that both inflation and the labor market are normalizing. That’s what the market needs to really get back into a groove.

Recent Changes
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Updates

Alphatec (ATEC) has been quiet in terms of news but the stock has put together a nice week, rising 9% over the last five sessions. A few weeks ago Canaccord Genuity picked up coverage with a 22 price target (stock closed at 16.2 yesterday). BUY

Braze (BRZE) will report Q2 fiscal 2024 earnings next Thursday (September 7). On Tuesday, UBS bumped up its price target from 38 to 44. Next Friday, management will speak at a Citi conference, then will move on to Piper Sandler on Tuesday, September 12. As far as what to expect from earnings, we want quarterly revenue to be up about 26% to $108.6 million. EPS loss should improve about 14% to -$0.14. Management should guide for full-year revenue of around $445 million (+25.2%) while EPS should be around -$0.51 (about a 21% improvement). The stock is up about 9% over the last five sessions. BUY

Earnings: September 7

Duolingo (DUOL) got a little love from Raymond James this week as the firm said, “prospects compelling” when it reinstated coverage. Not exactly pounding the table stuff but we won’t complain with DUOL up around 11.6% over the last five days. BUY HALF

Enovix (ENVX) continues to trade in the 13 to 15 zone, a welcome change after a nasty multi-week retreat from July’s highs in the low 20s. No news to report. HOLD

Flywire (FLYW) continues to move higher (+7% since last Thursday) following the secondary offering in early August. A rapid recovery after these events is a very bullish signal. It wouldn’t be surprising if the company uses the funds to pursue an acquisition. BUY

Inspire Medical Systems (INSP) was sold a couple of weeks ago. No news to report. SOLD

Intapp (INTA) reports Q4 fiscal 2023 results next Wednesday, September 6. We’re looking for revenue to grow 23% to $93.1 million and for EPS of $0.01. We’re also looking for fiscal 2024 guidance of at least $402 million in revenue (+15%) and EPS of $0.17 (up from consensus for $0.09 this year). Expect some discussion about the CFO transition (Steve Robertson stepping down and David Morton stepping up). Shares are up about 8% since our last update. BUY

Repligen (RGEN) wobbled a bit a couple weeks ago as the broad market sold off, but shares have traded higher in six of the last nine sessions and are back to their recent comfort zone in the 170s. Being patient. There’s been a little M&A activity in the medical products space this week as DHR snapped up ABCM. HOLD A QUARTER

R1 RCM (RCM) has moved sideways over the last week on no significant news. Cantor Fitzgerald picked up coverage a few weeks ago. Shares are up 4.3% since our last update. BUY

SI-Bone (SIBN) continues to look good a week after we added our second half (stock up 5.4% since). No major news, though Morgan Stanley put out a bullish note a couple weeks ago and will host management at their healthcare conference on September 12. BUY

TransMedics Group (TMDX) is up a little this week (4.8%). The stock isn’t doing much as investors digest the Summit Aviation acquisition and await more details about the revenue and earnings, capex, etc., trajectory. HOLD THREE QUARTERS

Please email me at tyler@cabotwealth.com with any questions or comments about any of our stocks, or anything else on your mind.