It was encouraging to see the market get off its knees this week. But it’s still losing the fight if we’re measuring performance year-to-date—or since the beginning of 2015 for that matter. The chart of the S&P 500 below shows what I mean (blue and green lines are 50- and 200-day moving averages, respectively).
Small caps have had an even tougher time, and are down over the last two years.
But nobody wants to sit at the bar with a guy whose glass is half empty. And the lack of performance in small caps is in no way abnormal—small caps tend to get hit harder when the going gets tough. But they also tend to do better when the market is rising. That’s why I think there’s so much upside potential with small caps if this market can mount a recovery.
The last week was a good start, as this table of small cap sector performance shows. Small outperformed large in most growth sectors, only lagging in financials, materials, industrials and utilities.
At the end of the day, it all evened out though, with both the small and large cap indexes up by 5%. Value outperformed growth in both. Biotech finally put in a decent showing, rising by 6.3%, and junior gold miners had another good week, even after a mid-week pullback. Oil exploded higher, rising almost 20%.
As we head toward the weekend, the backdrop has definitely improved. But we need to see if the bears can be kept at bay. I’d like to see more days like yesterday, where the market was down, but only slightly, to increase confidence that a bottoming process is in the works. As this chart of YTD sector performance shows, it’s anything but a bull market out there at the moment.
The market is still serving up its fair share of surprises, both to the upside and to the downside. We’ve experienced a few of both in our portfolio, and over the last two weeks, we’ve stepped aside from three stocks (my rationale was detailed in the Special Bulletins). This week, two of our stocks reported, and I moved one to Sell. There are no other ratings changes to report.
Mitek (MITK), USA Technologies (USAT)
and LogMeIn (LOGM) posted the best performance in our portfolio over the past week, with gains of 30%, 18% and 13%, respectively. We’ll get a reprieve from earnings season next week as we have no stocks reporting.
Updates
Apigee (APIC) The stock was moved to Sell on 2/9 after it broke below my 30% loss limit level. It posted a small recovery on the three-day market rally, but fell back on Thursday. No new updates. SELL.
Estimated Earnings Release Date: 2/29/16
Blackbaud (BLKB)
The stock is working on mounting a recovery after its solid 2/9 earnings report and was up 8% over the past week. An upgrade from Wunderlich to Buy yesterday is good to see. I obviously agree. Maintaining at Buy. BUY.
Earnings Release: Done
eMagin (EMAN) The stock has been almost immune to the market’s volatility, moving sideways for the past two weeks and down 3% since last Thursday’s close. Volume has been almost nonexistent as the market is obviously waiting for the 3/10 conference call. Expect a lot of poking and prodding from analysts about the licensing deal with the unnamed company, who will use eMagin’s 4-megapixel OLED microdisplays in their VR/AR headsets. I wrote an article about the VR/AR market on Wednesday for Cabot Wealth Advisory. You can find the link here if you’re interested. The rumor mill has been quiet for the past week, so no new gossip to report. Continue to Hold. HOLD.
Estimated Earnings Release Date: 3/10/16
Imprivata (IMPR)
The company reported on Tuesday and I sent out a Special Bulletin on Wednesday changing my rating from Hold to Sell. This is an excerpt of what I wrote: “The report wasn’t awful, but it does imply that the challenges IMPR faces are more long-term in nature, and that the stock isn’t in for a quick recovery. I picture a scenario in which investors hold and hope, and the stock is, at best, dead money. At worst, it breaks back below 10 and heads south from there. Despite the market’s rally, shares of IMPR are moving lower today, which isn’t what you would expect in a recovery scenario...The bottom line here is a company with a lot of potential but it now looks further out than expected. I think the chances of a recovery in the near-term have diminished, especially if the broad market rally fades. With any luck, this rally still has legs, and positions in IMPR can be unwound into some strength. Moving to Sell.” Shares remain week in the two days after the report. SELL.
Earnings Release: Done
LogMeIn (LOGM) I’ve reported a lot on LOGM’s action post-earnings report and have little new to add today. The stock posted a massive snap-back rally, rising by 13% over the past week, and shares are now making a push for 50.00. As I wrote on Wednesday’s Special Bulletin, I’m keeping the stock on Hold for now until we get through a few down days in the market and we can gauge how hearty this rebound is. HOLD.
Earnings Release: Done
Mitek Systems (MITK) Shares had a strong week and rallied hard into the close yesterday. They were up by 10% yesterday and rose 30% over the past week. They’re now trading at a 52-week high of 5.56. It would be great to see shares hold above 5. Shares have been resilient in the face of the weak market. The company announced on Wednesday that a Fortune 50 healthcare company has selected its Mobile Fill identity-capture solution, and plans to use it in several areas of its business. It’s good to see continued validation of the new products, especially since it will be several months until we get another earnings update. Continue to Hold. HOLD.
Earnings Release: Done
Nanostring Technologies (NSTG)
Shares fell from 14 to 12 two weeks ago but rebounded slightly this week, rising 3% on no new news. The next event is the upcoming earnings report, which we’ll get on Monday, 2/29. Until then, I’m likely to keep the stock at Hold. Biotech remains weak, and it makes sense to stay defensive in this market. HOLD.
Confirmed Earnings Release Date: 2/29/16
PFSweb (PFSW) Shares moved 7% higher over the past week on news that PFSweb has launched the new eCommerce website for See’s Candies. The acquisition of LiveArea Labs helped the company land this deal. The website is built on the Demandware (DWRE) Commerce Cloud. This is another validation of the quality of PFSweb’s services. See’s is a subsidiary of Berkshire Hathaway (BRK-B). In fact, it was the first “quality” company that Berkshire purchased when it was acquired in 1972. The move to an eCommerce platform marks a significant expansion from the roughly 200 stores and smattering of kiosks that See’s now operates. I’m looking forward to PFSweb’s earnings report, which is now two weeks away. Keeping at buy. BUY.
Estimated Earnings Release Date: 3/3/16
Resverlogix (RVXCF, RVX.TO)
I moved the stock to Sell after it broke through support last week. There have been no material updates in the week since, and shares remain weak. SELL.
USA Technologies (USAT)
We received USA Tech’s earnings report last Friday morning and I summarized the situation that day, writing “Looking forward, management is guiding for fiscal year 2016 revenue growth of 20% to $69 million to $71 million, 75,000 new connections (for a fiscal year-end target of 400,000), and improvement in adjusted EPS ... It’s notable that USA Tech is already at $35.1 million in sales this year—that’s about 50% of its sales target for the year ... (last year at this point, the company was at only about 25% of the full-year result) ... This begs the question—why didn’t management raise guidance? It was asked on the call. The response was that it’s off to a great start to the year, and is “… not prepared to move the number at this point,” though it’s “…very, very encouraged by the results in the first half”… We’ll have to wait until Q3 results to get another data point. Given the big improvement in device sales due to the QuickStart program, I suspect management is reluctant to say that trend will continue indefinitely. That said, if the company doesn’t beat that conservative guidance it will be a major disappointment. A quick calculation suggests 2016 revenue could be closer to $80 million.” The stock has been strong over the past week, rising by 18%, and is trading near the top of my preferred buy range. I only advise adding small positions here. A better route is to place a limit order in the 3.20 to 3.50 range and see if that gets snapped up. I expect there will be a pullback before the stock marches much higher, so be patient and don’t chase. The 50- and 200-day moving averages are at 3.15 and 3.04, respectively, so those are two support levels to watch now. Maintaining at Buy for small positions only. BUY.
Earnings Release: Done
Remember to email me at tyler@cabot.net with any questions or comments about any of our stocks, Cabot Small-Cap Confidential, or anything else on your mind.
Cabot Small-Cap Confidential Stocks and Closing Prices on February 18, 2016:
| Stock | Date Bought | Price Bought | Closing Price | Profit | Rating |
|---|---|---|---|---|---|
| Apigee (APIC) | 10/2/15 | 9.05 | 5.66 | -37% | Sell |
| Blackbaud (BLKB) | 11/6/15 | 62.18 | 55.90 | -10% | Buy |
| eMagin (EMAN) | 5/5/14 | 2.69 | 1.75 | -35% | Hold |
| Imprivata (IMPR) | 9/4/15 | 19.33 | 10.53 | -46% | Sell |
| LogMeIn (LOGM) | 11/8/16 | 58.13 | 48.92 | -16% | Hold |
| Mitek Systems (MITK) | 2/4/13 | 3.93 | 5.56 | 41% | Hold |
| Nanostring Technologies (NSTG) | 8/7/15 | 15.40 | 12.19 | -21% | Hold |
| PFSweb (PFSW) | 12/4/15 | 12.59 | 11.59 | -8% | Buy |
| Resverlogix (RVXCP) | 5/1/15 | 2.25 | 1.00 | -56% | Sell |
| USA Technologies | 2/5/16 | 3.51 | 3.79 | 8% | Buy |