Small caps have been up and down over the last week with the net result being that there was almost no change since last Thursday (through 10:25 AM ET today).
That doesn’t sound too meaningful until you consider that the S&P 500 is down 2.6% over the same period and that small caps have outperformed in all sectors except for consumer staples, energy and utilities.
For the record, the Nasdaq is doing even worse than the S&P 500 and is down about 4.6% since last Thursday.
When was the last time we talked about small-cap tech outperforming large-cap tech! I think I may have had fewer grey hairs back then.
On that note, believe it or not, small caps have been one of the major underperforming asset classes since 2010 (the other two are large-cap value and ex-U.S. stocks). They’ve led for short periods of time, but not for quarters/years. The last time that happened was in the early-2000s.
Things changed recently when the lower-than-expected CPI report increased the odds of rate cuts, which should have an outsized benefit for small-cap stocks given their high exposure to floating rate debt, which is currently expensive.
About 40% of the S&P 600 has floating rate debt versus closer to 5% for the S&P 500.
There was also the added boost from Trump’s surge in the polls and speculation that another Trump presidency would mean more pressure on China (worse for large caps than small caps, which are more domestically focused) and a greater crackdown on large-cap tech stocks (likely opening the door for more rotation to small-cap stocks).
Interestingly, after Biden dropped out and Harris has stepped in AND has risen in the polls, small caps strength has continued.
That makes me think the “Trump Trade” isn’t all that important for small caps. Or, maybe that the cat has been let out of the bag and there’s enough rotation momentum for small-cap outperformance to persist.
Granted, small-cap earnings have dramatically lagged that of large caps (Mag-7 churn out tidy profits) so there’s a reason the asset class has trailed. But still.
The biggest potential fly in the “small caps will outperform” thesis is probably recession risk. Smaller companies tend to get hit harder than larger ones when the economy weakens.
This is something to be aware of, but not yet lose sleep over given the economy was just reported to have grown by 2.8% in Q2, well ahead of the 1.9% expected.
So far, 2024 has been pretty good for us. With earnings season coming to our portfolio next week, I hope it can continue.
Recent Changes
None
Updates
Artivion (AORT) held up like a champ during yesterday’s market selloff as shares closed up slightly on the day. That relative strength was seen in the broader MedTech group as well (IHI +0.25% yesterday). No new news specific to AORT. Management may report next Thursday. We’re looking for 9.4% revenue growth ($97.6 million) and EPS of -$0.09. The company beat on revenue by almost 6% last quarter and smashed EPS expectations by $0.30. BUY
Expected Earnings Date: August 1
Docebo (DCBO) will report on August 8, a week from next Thursday. Shares continue to move sideways in the high 30s with no news. DCBO is growing revenue in the 18% to 20% range and is solidly profitable, with expected EPS of $0.90 this year growing by 40% in 2025. Recall that shares suffered after the Q1 report revealed the loss of a large customer due to M&A, but DCBO should be making progress with other larger customers. BUY
Earnings Date: August 8
Enovix (ENVX) will report Q3 earnings next Wednesday and follow up the event with the grand opening of its Fab2 high-volume production facility in Penang, Malaysia a week later, on August 8. There are sure to be questions about the mixed-reality headset customer (not yet disclosed). Benchmark just picked up coverage with a “buy” rating and 25 price target (ENVX closed at 15.1 yesterday). BUY
Earnings Date: July 31
EverQuote (EVER) traded up to its highest level in three years this week (albeit shares were down yesterday). The Q2 report is a week from Monday. Recall that last week EverQuote’s largest customer, Progressive (PGR), reported better-than-expected results driven by higher margin in personal auto. JP Morgan said about PGR, “... we expect the firm to gain outsized share in the personal auto market in the near term as it shifts its focus to growth while competitors continue to implement sizable price increases.” HOLD HALF
Earnings Date: August 5
Intapp (INTA) was sold for a 35% gain two weeks ago. SOLD
Mama’s Creations (MAMA) is our newest addition and has pulled back this week, but not to an extreme degree. This is a micro-cap company that’s a play on prepared food in grocery stores, which is a big trend that you’ll likely notice more now that we have exposure. Earnings won’t be out until September. BUY
Expected Earnings Date: September 11
RxSight (RXST) pulled back a few weeks ago and has been steady around the 47 – 48 area since. Earnings are out a week from Monday. There is likely to be a lot of discussion on the Q2 call about the $115 million equity raise and related marketing spend, as well as LDD placement attach rates and the LAL+ launch. Consensus estimates call for Q2 revenue of $32 million (+55%) and EPS of -$0.22 (44% improvement). BUY
Earnings Date: August 5
TransMedics Group (TMDX) reports next Wednesday. As I mentioned last week, management will likely talk about how OCS permits market expansion into less-than-optimal organ donor pools and may also touch on the competitive landscape. Revenue in Q2 is expected to have grown by at least 88% to $99 million and EPS should be around $0.21. HOLD A QUARTER
Earnings Date: July 31
Weave (WEAV) will report Q2 results next Wednesday. Revenue should be up 16.8% to $48.7 million and EPS should be around -$0.02. BUY
Earnings Date: July 31
Zeta Global (ZETA) marched up to new highs again this week, then gave it back with an 8% retreat yesterday. We’re looking forward to next Wednesday, when earnings come out, for the next major update. There has been a wave of analyst price target increases over the last four weeks. HOLD
Earnings Date: July 31
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.
Currently Open
| Ticker | Stock Name | Date Bought | Price Bought | 7/25/24 | Profit | Rating |
| AORT | Artivion | 6/5/24 | 23.3 | 27.8 | 19% | Buy |
| DCBO | Docebo | 12/7/23 | 44.6 | 37.8 | -15% | Buy |
| ENVX | Enovix | 10/6/22 | 20.4 | 15 | -26% | Buy |
| EVER | EverQuote | 2/1/24 | 13.7 | 24.9 | 82% | Sold 1/2, Hold 1/2 |
| INTA | Intapp | 1/4/23 | 25.7 | SOLD | 35% | SOLD |
| MAMA | Mama’s Creations | 7/3/24 | 7.2 | 7.3 | 2% | Buy |
| RXST | RxSight | 3/7/24 & 3/28/24 | 52.7 | 46.7 | -11% | Buy |
| TMDX | TransMedics Group | 7/7/22 | 34.1 | 147.3 | 333% | Hold a Quarter |
| WEAV | Weave Communications | 1/4/24 & 5/9/24 | 10.1 | 10 | -1% | Buy Second Half |
| ZETA | Zeta Global | 5/2/24 | 12.6 | 20.1 | 60% | Hold |
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