June 13, 2024

Small caps are off ever so slightly over the last five sessions, though yesterday’s CPI data and Jerome Powell’s press conference/FOMC meeting helped the asset class bounce back from what was a fairly ugly looking four-day slide. The big-picture takeaway here is that the asset class is suffering from the same type of bad breadth malaise that’s keeping a lid on much of the broader market.

Drilling a little deeper, we’ve seen a nice trend develop with a number of our positions, with Enovix (ENVX), TransMedics (TMDX) and Zeta (ZETA) the clear standouts over the last week or two.

Our software positions, Weave (WEAV) and Docebo (DCBO), are stable but not great. And our newest position, Artivion (AORT), remains a buy with shares still moving sideways in the mid-24 price area.

Turning to the big macro news of the week, May’s headline CPI inflation rate was flat compared to April and up 3.3% compared to May of 2023. Core was up 0.2% versus April and up 3.4% compared to last May, making for the lowest reading since April of 2021.

That’s good.

The Federal Reserve kept its federal funds rate (FFR) unchanged at 5.25% to 5.5%, as was expected, and signaled that there would be one rate cut before the end of the year. The takeaway is that the Fed is content to leave rates about where they are, but no higher, since it sees the economy as capable of handling it.

As of 7 a.m. ET this morning, market odds sit at a 60% probability of a September cut, with November sitting at 52%. The next FOMC meeting is on July 31.

What this all boils down to is that investors will continue to watch the market bounce around as data comes in and Fed officials speak out. So no real change that makes me wildly bullish or bearish in the short-term.

Let’s get on to our stocks.

Recent Changes:
None

Updates

Artivion (AORT) is our latest MedTech addition. It is an innovative, pure-play aortic health 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. Artivion is growing through new product introductions, new indications, global expansion and M&A. It has several products (including the On-X heart valve and the CryoValve SynerGraft, which is used in Ross Procedures) that are unique in this highly specialized field and which are gaining market share quickly. With products that are approved overseas expected to gain FDA approval here in the U.S., and a number of acquisitions now hitting their stride, Artivion’s growth rate should accelerate from the low teens currently to the mid-to-high teens over the coming years. BUY

Docebo (DCBO) is our cloud-based learning management software position. Shares took a hit after reporting earnings on May 9 but have acted better over the last two weeks. We recently learned that Warburg Pincus increased its holdings by about $2.33 million and now owns roughly 10% of the company. Also, Craig-Hallum picked up coverage with a 58 price target (DCBO closed at 38.2 yesterday). Cloud software stocks are in the dumps (look at the WCLD and CLOU ETFs) so I’m not pounding the table here. On the other hand, buying quality software at depressed prices is likely to work out well for those that can be patient. Keeping DCBO at buy. BUY

Enovix (ENVX) has continued to act very well since late April and over the last three days shares have broken out above 11.5 on higher-than-normal volume. What’s behind the move? Part of it is that a number of beaten-down industrial stocks are recovering. But the bigger part is the continued execution of the stated growth plan combined with a decent effort to get the word out about what the company is doing. Management spoke at the JPMorgan Global Technology, Media and Communications conference a number of weeks ago (talk of 50% gross margin on larger batteries priced in the $13 - $14 range and potential to get close to profitability with four lines and over the hump with eight, along with no need for funding soon, were positive for shares) and then at a William Blair conference on June 4. At that event there was a lot of talk about the energy demands of the new generation of AI applications and how Enovix’s silicon batteries have such a high energy density and ability to fast charge that they’re far superior to currently available options for consumer electronics devices. The company is still expecting to get batteries off the Agility Line by the end of June (i.e. in Q2) and have those out to customers for testing in Q3, setting up commercial volumes in mid-2024 (i.e. 9-12 months after customer testing). BUY

EverQuote (EVER) has pulled back to its 200-day line. That performance isn’t out of step with other lead generation type companies with insurance marketplaces, such as LendingTree (TREE), though TREE enjoyed a boost yesterday that snapped its down trend (at least in the short-term). Continuing to watch EVER closely. It may be that the conservative talk on the Q1 earnings call hasn’t provided a lot of incentive to snap up shares recently, even though a number of analysts seem to believe actual results will come in above management’s guidance. I think that’s tough to forecast given the nuances of the insurance lead gen market. It’s worth noting that stocks of the big carriers, Allstate (ALL) and Progressive (PGR), have also gone soft lately. HOLD THREE QUARTERS

Intapp (INTA) remains at buy. The only news lately is that the company announced a new partnership with Bite Investments, a SaaS provider for the alternative investments and private markets industry. The deal allows for integration of Bite Stream within Intapp’s DealCloud solution. BUY

RxSight (RXST) is trading about 12.5% off its May high (closed at 58 yesterday), which isn’t bad considering a $115 million equity offering that priced at 56 in mid-May. No news to report. BUY

TransMedics Group (TMDX) hit another all-time high earlier this week, possibly helped along by new coverage from CL King (161 price target) and a price target increase from TD Cowen (bumped up from 130 to 175). Shares closed just below 142 yesterday. HOLD A QUARTER

Weave (WEAV) has flatlined around the 8.8 price level after selling off after earnings in early May. Lack of performance recently isn’t a rare story in the world of software and, as with DCBO, I’m keeping WEAV at buy since I think the upside potential is greater than the downside risk. That said, I’m not shouting from the rooftops that software is a buy right now – I’d like to see the entire group start to act better – so I wouldn’t fault anybody for putting their money to work elsewhere. On the business front, Weave is launching a partner marketplace with products related to patient education, membership plans, human resources management, compliance, clinical intelligence and virtual reception, with access via its website or from within its platform. Details on how this will be monetized were not disclosed. An integration with ezyVet, a solution for veterinary practices, was also announced. Weave is a software/communications company with a customer experience and payments platform built around a proprietary VoIP (voice over internet protocol) phone system. BUY SECOND HALF

Zeta Global (ZETA) has begun to bounce back from a pullback to its 25-day line. The stock is still a high flyer and is likely getting support from management commentary at the William Blair (June 5) and Mizuho (yesterday) conferences. Next up is ROTH on June 26. No major changes, but good for management to be reminding folks about the Zeta story. At a super high level, the company helps businesses acquire new customers and reach existing ones via a consolidated marketing platform that consistently delivers positive ROI. Moreover, Zeta’s marketing platform isn’t being negatively affected by all the changes in the marketing industry, including IDFA, third-party cookies, etc. In fact, these changes appear to be a net positive for Zeta and are driving new client inquiries. HOLD

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

Copyright © 2024. All rights reserved. Copying or electronic transmission of this information without permission is a violation of copyright law. For the protection of our subscribers, copyright violations will result in immediate termination of all subscriptions without refund. Disclosures: Cabot Wealth Network exists to serve you, our readers. We derive 100% of our revenue, or close to it, from selling subscriptions to our publications. Neither Cabot Wealth Network nor our employees are compensated in any way by the companies whose stocks we recommend or providers of associated financial services. Employees of Cabot Wealth Network may own some of the stocks recommended by our advisory services. Disclaimer: Sources of information are believed to be reliable but they are not guaranteed to be complete or error-free. Recommendations, opinions or suggestions are given with the understanding that subscribers acting on information assume all risks involved. Buy/Sell Recommendations: are made in regular issues, updates, or alerts by email and on the private subscriber website. Subscribers agree to adhere to all terms and conditions which can be found on CabotWealth.com and are subject to change. Violations will result in termination of all subscriptions without refund in addition to any civil and criminal penalties available under the law.