May 16, 2024

We’ve been able to enjoy a break in the earnings action this week (finally), and without a lot of company-specific updates, we’ll keep things short and sweet today.

The main message is that the broad market continues to rise on the back of rate cut expectations and a falling 10-year yield (down to 4.35% from over 4.7% a couple weeks ago).

Credit goes to the details of this week’s PPI and CPI inflation reports, some soft economic data and Powell’s recent comments that he does not see another rate hike.

The odds are now rising for a September rate cut (53% probability), with some (like Goldman) speculating that a cut could come as soon as July.

That potential is one of the main reasons the S&P 600 Small-Cap Index has jumped back to the highs from the beginning of the year, which is also about where the index was two years ago, which is still about 9% shy of all-time highs from November 2021!

In other words, at the index level, small caps represent something of a coiled spring. The asset class just really needs rate cuts, without a recession and/or other economic drama, to get moving.

Recent Changes
None

Updates

Alphatec (ATEC) has come back a little from its 22% slide the day after the Q1 report. As I stated last week, I think that selloff was way overdone. While the company missed on EPS, it beat on revenue, and management raised full-year revenue guidance by more than the beat. Considering a move back to buy, but for now, just hold. HOLD

Docebo (DCBO) was another position with a rough reaction to earnings, which beat expectations but lowered guidance owing to (1) a significant customer loss due to M&A (acquirer has its own LMS system), (2) a little softness in the small and mid-sized customer segment (enterprise and government space still strong) and (3) foreign exchange fluctuations. It’s another situation where, at the risk of being stubborn, we’ll stick with a buy rating since the selling seems overdone. BUY

Enovix (ENVX) announced this week that it has begun customer sampling of its EX-1M battery, which was being made in Fremont, CA, but is seeing production move to Malaysia as the company consolidates operations in a lower-cost location. The headlines about the company laying off about a third of its staff are somewhat misleading (if we take management at its word). Due to the shift in production, it makes sense that the U.S.-based labor workforce would shrink significantly. BUY

EverQuote (EVER) continues to look very strong nearly two weeks after delivering a great quarter. Management presented at the Needham Technology, Media and Consumer Conference this week. One of the big-picture reasons the business is doing well is that auto insurance rates have climbed about 45% since January 2020, and insurers finally feel like the market is stable enough to invest in advertising (i.e., they’re not freaked out about repair costs surging and losing their shirts). That advertising spend is good for EVER. HOLD THREE QUARTERS

Intapp (INTA) was moved to buy last week after a better-than-expected Q3 fiscal 2024 report sent the stock back above 35. Management will speak at the J.P. Morgan Technology, Media and Communications Conference next Tuesday. BUY

RxSight (RXST) gave up a little after last week’s announced $100 million secondary offering priced at 56. But that offering was snapped up ($115 million raised), and shares have jumped back near all-time highs. So far it’s looking like keeping at buy was the right call, so I’ll stick with that rating. BUY

Talkspace (TALK) was sold on May 7. No update. SOLD

TransMedics Group (TMDX) has continued to climb after the company’s Q1 report on April 30. We’re up roughly 300% on our remaining stake and enjoying the ride. HOLD A QUARTER

Weave (WEAV) dropped after Q1 results were reported on May 1, but for reasons discussed over the last two weeks, I’ve felt the stock is well-poised to claw its way back. I elected to add to our position last week and am keeping at buy now. BUY SECOND HALF

Zeta Global (ZETA) is our most recent addition and shares have gone vertical since the company delivered an impressive report on May 6. I love the story and the stock’s performance, but given this move (+35% in a few weeks), I’m getting a little wary. Will keep at buy for now but suggest smaller purchases here. BUY HALF

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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