While still very choppy, this past week has been much better than the two weeks prior as the selloff in growth stocks has cooled and more investors have begun to think longer term. While the risk of inflation is still an overhang on high-multiple stocks, the passage of time allows global supply chains to re-adjust and for people/companies/policy setters to get a better handle on what the legitimate inflation risk is.
As/if the pendulum swings from “high inflation” to “transitory” the outlook for higher growth names gets better, all else being equal.
I’m still in the transitory camp and think the Fed will act sooner rather than later if things really get too hot. Grumblings of taper talk have sprouted this week. Some cooling in seemingly speculative areas of the market (crypto, meme stocks, etc.) has also helped to reduce signs of “excess,” which is likely healthy for the overall state of the stock market.
In short, a rotation in a variety of asset classes signals that investors are continuing to try to put money to work, not that they are withdrawing to go to cash or because of any looming concerns about a floundering economy. On the contrary, it seems most are optimistic about where we’re going, even if periodically concerned with the details of how we get there.
This points us to what our big picture concept of 2021 looks like – still a bull market but some serious noise along the way.
I’m not calling for a big rally to new highs anytime soon. But we don’t need that to make money. We just need the trends to get better than they’ve been.
As I survey the landscape of new opportunities, I’m seeing plenty that look enticing now. The most recent additions of Revolve (RVLV) and Thunderbird Entertainment (THBRF, TBRD.CA) are two examples, and they are very different from the software and MedTech stocks that we mostly focused on in 2019 and 2020. I like this variety.
We have no new changes today. But heeding the market’s action we will lean slightly more bullish and move three stocks back to buy.
Recent Changes
Arena Pharmaceuticals (ARNA) Moves to BUY
Avalara (AVLR) Moves to BUY
Kornit Digital (KRNT) Moves to BUY
Updates
Accolade’s (ACCD) has been moving sideways in choppy fashion for a number of months. There’s no company-specific news to speak of but the stock is acting better now than last week. No change. BUY
Arena Pharmaceuticals (ARNA) has been going sideways for most of the last week and still trades right above the 60 level. This “should” be an area of significant support. Given the significant upside potential it’s going back on the buy list. BUY
Avalara (AVLR) popped then faded after the Q1 report two weeks ago, but shares appear to have found some support near 119 and are chopping around trying to decide what to do next. This isn’t one of the “crazy” expensive software stocks and given that it’s essentially flat over the last 12 months it’s already had a cooling off period. I’ll upgrade to buy today, however should AVLR dip below 119 we’ll likely pull the rating back in. BUY
BioLife Solutions (BLFS) was let go last week and there’s been no news since. I’m continuing to monitor the stock to see if the trend changes and if BioLife can earn its way back into our portfolio. SOLD
Cardlytics (CDLX) was sold a couple weeks ago as we exited our remaining half position for a gain of 143%. No new news. SOLD
Cerence (CRNC) is doing roughly the same as many of our other stocks, namely bouncing around support and looking to get its sea legs back. There’s nothing specific to report, and the stock hasn’t had as much time as I’d like to digest the pullback. Maintaining at hold. HOLD
Everbridge (EVBG) hasn’t come off our buy list for a while and it won’t happen today. The stock’s trading near the low end of its 12-month trading range but the earnings report and future guidance was good. Like AVLR, valuation isn’t in nosebleed territory here. BUY
Fiverr (FVRR) has firmed up near 160 and begun to gain a little elevation. We’re holding on to our remaining stake and looking to see how the stock digests the continued reopening and trends around work-from-home that were responsible for driving it up so consistently during the pandemic. HOLD REMAINING QUARTER
Goosehead Insurance (GSHD) was sold a couple weeks ago as we took profits on our remaining quarter position. Our gain on that sale was 201%. SOLD
Inspire Medical Systems (INSP) dipped below support around the 185 area last Monday and has since appeared to begin firming up in the low to mid-170s. We took partial profits and continue to hold a half-sized position. I’m not opposed to moving INSP back to the buy list, even at a higher price, because I do think the long-term trend will continue to be up. But clearly momentum has stalled, and we need to respect the chart. Keep holding half. HOLD HALF
Kornit Digital (KRNT) got caught up in the growth stock selling at the beginning of the month even though Kornit is more of an industrial manufacturing/retail play given it is a pure-play digital printing (on fabric) company. The reaction to the earnings report early last week was muted – not a huge surprise given that earnings season was a disaster in general – but KRNT never really fell apart like a lot of stocks did. This week we’ve seen shares begin to climb, and today KRNT is challenging its 50-day line. While the trend is not yet strong, this feels like a name where you could add a little exposure if feeling underinvested. I’ll move back to buy today. BUY
Porch Group (PRCH) reported earlier this week and I gave a high-level review of the earnings report yesterday. The stock has had a good reaction. Wow! Did I really just write that? Unbelievable. If memory serves PRCH may have just been the only one of our stocks to have a good earnings report reaction. I don’t fully attribute this to the results (though they were good) as timing has likely had a lot to do with it (growth stocks better this week than the two weeks prior, when most other companies reported). In any event, with the stock doing OK and buyers showing back up we’ll maintain at buy. I need to go back and watch the earnings Zoom call again as there are a few nuggets I want to mention, but I haven’t had time this morning. BUY
Q2 Holdings (QTWO) is, like many of our software stocks, looking better this week than the last two weeks. This one has been quite badly burned by the selloff, and frankly I think it’s way overdone. The business appears to be on solid ground and activity is picking up. The environment for banks is likely to get more favorable, yet shares of QTWO are trading more than 30% off the high. All that said, I’m maintaining at hold for now – I’d like to see QTWO get back to 100 and hold there – but eyeing an upgrade. HOLD
Revolve (RVLV) was quite volatile last week and the week prior but the stock never broke down like so many growth stocks did. That’s because it’s likely to be a major reopening beneficiary and the Q1 earnings report illustrates just how busy shoppers have been. RVLV is a compelling buy, and I won’t be surprised if we see the stock at all-time highs in June. BUY
Repligen (RGEN) is firming up after a two-week selloff, and chatter about opening up IP to other vaccine producers around the world has cooled somewhat. There’s no change in my thinking here. I continue to see Repligen as a rare asset and think exposure to bioprocessing technology is good for one’s portfolio. BUY
Sprout Social (SPT) has been up and down with growth stocks lately but, overall, the stock has been more resilient than most. I think there’s a lot of gas left in the tank here and if I had to choose one or two software names from our portfolio to add to right now SPT would be on the list. BUY
Thunderbird Entertainment (THBRF, TBRD.V) is acting well since being added to our portfolio a couple of weeks ago. The news that AT&T (T) will spin out WarnerMedia (to merge with Discovery (DSCA) into a new business) has mixed up the media entertainment market and spurred talks of more deals, including an acquisition of MGM by Amazon (AMZN). Little Thunderbird Entertainment isn’t in the mix of these conversations but increased focus on media production companies is still good for the stock. Recall, Thunderbird’s programs are currently available on broadcast and cable channels within the U.S., Canada and other countries, as well as on most of the major digital platforms, including Apple TV+, Disney+, Netflix, HBO Max, Hulu, Netflix, Peacock and PBS Kids. Revenue was up 41% last year, and up 56% over the last six months. We have an earnings report coming next Wednesday. At some point I’d like to hear about a listing on the Nasdaq. BUY
Earnings: Thursday, May 27
Please email me at tyler@cabotwealth.com with any questions or comments about any of our stocks, or anything else on your mind.
