October 17, 2024

While the S&P 500 Index made record highs (again) this week, the real story has been in small caps.

From last Wednesday’s close through mid-day today, the S&P 600 small-cap index is up 2.9%, more than twice the return of the large-cap index, which is up 1.3%.

The gains have been propelled by consumer discretionary, staples, financials, industrials and tech stocks.

Financials in particular have been strong, both in small-cap and large-cap land, thanks to solid earnings reports from a number of the big banks.

To be sure, this small-cap rally is welcome. But we need more.

The S&P 600 small-cap index has been toying with us for months now, looking like it’s ready to break significantly higher but then fading, only to rise right back to the point of breaking out before dipping again.

Enough is enough!

I’ve talked recently about how small-cap earnings are expected to accelerate at a faster clip than large-cap earnings in 2025. And how small caps trade at a discounted valuation to large caps, not to mention their historical valuation during expansions.

Yes, we have two big events in the U.S. presidential election on November 5 and the next Fed meeting on November 7 that could drive volatility higher short term.

But I think it’s this earnings season that’s most important to small caps. And I’m going out on a limb and saying, ‘tis the season for a breakout. It’s time.

On to our portfolio.

Recent Changes
Zeta Global (ZETA) Moves to Hold

Updates

Artivion (AORT) has traded higher every day this week. Late last week management released clinical data at the 38^th European Association for Cardio-Thoracic Surgery (EACTS) Annual Meeting. The data releases relate to the aortic arch solution AMDS and E-Vita Open Neo, which are used to treat aortic dissections. This condition occurs when the innermost layer of the aorta tears and blood surges through, separating the inner layer from the outer layer, often leading to a ruptured aorta. For AMDS, which is not yet approved in the U.S. (approval is expected in 2025), five-year data from the AMDS DARTS trial showed durable benefits out to at least five years over the baseline, while 30-day data from the AMDS PERSEVERE trial showed resolution of cerebral malperfusion (which often leads to stroke) in most patients (90%) treated with AMDS. The E-Vita Open Neo data showed it is safe and effective in the treatment of aortic arch pathologies and “better” than the current market-leading device. This is all incremental positive progress, especially for PERSEVERE trial data, which will be used to support FDA approval for AMDS. BUY

Expected Earnings Date: October 31

AvePoint (AVPT) reached its highest level since June of 2021 on Monday and has pulled back over the rest of the week, more or less in line with the broader software group. No major news. BUY

Expected Earnings Date: November 7

Docebo (DCBO) outperformed the software space this week as shares have traded higher over each of the last four days (and today). There isn’t any company-specific news, though Morgan Stanley, who has a buy rating and 59 PT on DCBO, continues to talk up the stock on expected margin expansion and durable growth. The firm recently wrote, “As Docebo continues momentum upmarket, we expect consistent growth in new customer average contract value, with more modest total customer count growth given less focus on single-use-case SMB customers. We look for upside to conservatively guided and modeled mid-teens revenue growth in 2H24, which could push shares higher near-term.” BUY

Expected Earnings Date: November 7

Enovix (ENVX) stock is doing the up and down thing again following a strong showing last week. That move was catalyzed by news that Enovix began shipping EX-1M battery cell samples from its Agility Line in Malaysia. We’ll get a significant update after the close on October 29 when management will release Q3 earnings. It’s all about showing the progress that’s been made and narrowing down the time for when high-volume production and shipments will start. BUY

Confirmed Earnings Date: October 31

FTAI Infrastructure (FIP) has had a quiet week with shares moving sideways in the 9-10 range. We have an earnings date of October 30, when management should update us on all the progress being made with the various expansion projects at its businesses. This story is all about growing EBITDA (a measure of earnings), which has potential to expand from around $147 million this year to $240 million (+63%) in 2025. BUY

Confirmed Earnings Date: October 30

Mama’s Creations (MAMA) is bouncing around just above the 8.0 level as we await the next breakout, which will occur if/when shares move through 8.7. All’s quiet on the news front and might be for a little while given earnings aren’t expected until early December. BUY

Expected Earnings Date: December 10

TransMedics Group (TMDX) has become a tough stock to hold as shares have ticked down for most of the last month. I reviewed the notes from Morgan Stanley regarding the surgeon from the University of Pittsburgh last week, which gave a murky picture of expected demand for TMDX’s OCS system versus competing systems, like NRP. We should get a little clarity in less than two weeks given that TMDX will report Q3 earnings on October 28. We should hear if the strength in Heart from Q2 is continuing. And also about trends in the aviation business, which started around this time last year. Hold a Quarter

Confirmed Earnings Date: October 28

Weave (WEAV) continues to act well and shares are knocking on the doorstep of this year’s high at 13.8. Weave just announced it has released a new user interface for veterinary practices that prioritizes pet name visibility and one-click vaccination record sharing. BUY

Confirmed Earnings Date: October 30

Willdan Group (WLDN), our newest addition, has put together another nice week, and shares are trading at their highest levels since the beginning of 2021. The company just announced it has won a four-year contract from the City of Seattle to provide technical assistance that supports energy-efficient design decisions in the development of new multifamily and commercial buildings. BUY

Confirmed Earnings Date: October 31

Zeta Global (ZETA) stock has leveled off since last week’s news that the company will acquire LiveIntent. With shares having run so far and earnings coming up in a couple of weeks I’m going to move the stock to hold. We should hear a lot of news on the Q3 earnings report in a few weeks, including trends with the newly launched mobile product and, of course, future plans for LiveIntent. HOLD

Confirmed Earnings Date: November 11

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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