We’ve seen a nice little rally as we head into the waning weeks of summer. The S&P 500 has been incredibly strong and even the S&P 600 Index, which hasn’t made any net new progress since March, popped off last week’s low and is back to within 5% of an all-time high.
Interestingly, within small caps there’s normally more divergence when we look at different sectors. But right now, they’re pretty much all telling the same story (i.e. moving sideways). The one downside exception is energy (PSCE). But if you roll through the other sector ETFs (PSCD, PSCC, PSCF, PSCH, PSCI, PSCT, PSCM, PSCU) you’ll see what I mean.
Within our portfolio our stocks are up an average of 2% over the last two weeks and up 8% over the last week.
Two things have jumped to the forefront of my mind lately.
First, school is starting back up. For parents there’s a lot wrapped up in that simple statement beyond the normal back-to-school stuff. Let’s hope it goes well for most of the country.
It also will be back-to-work time for many. That’s because the states that haven’t already opted out are set to stop paying extended unemployment benefits at the end of next week. I haven’t spent the time to evaluate the timing of this, but I’m sure it’s not a coincidence.
There are a lot of angles on the whole extended unemployment thing. My quick take is that, on balance, it’s time to call it. I’ve just heard about and experienced too many situations where there are people that could work but are choosing not to. Meanwhile, businesses are struggling to get things done.
Sure, it’s nice that some people that can work aren’t having to, but I don’t think that’s the direction the country wants to go in. To go along with this, it seems time to up the minimum wage.
I know there are a lot of exceptions where what I’ve just said doesn’t make sense for certain individuals. But again, we’re talking high level here. Overall, the end of extended benefits should be a good thing for the economy.
Second, while digging around for things to feel bearish about I came across a recent note from Bank of America on margin debt, which apparently peaked in June. According to their research that’s not a great sign for the S&P 500, which tends to do somewhat poorly after a peak margin debt cycle.
As always, data is just data. And you always want to look at things from various angles. Still, I wanted to toss this out there as it jumped out at me.
Stepping back, this week we’re going to flip things around a little, moving some of our strongest stocks to hold and some of the weakest to buy. My sense is this should work out over the next month or so.
Recent Changes
Fiverr (FVRR) moves to BUY
Inspire Therapy (INSP) moves to HOLD
Sprout Social (SPT) moves to HOLD
On24 (ONTF) moves to BUY
Updates
Accolade (ACCD) is up 8% over the last week but down 4% over the last two. There’s been no news since the company reported in June. Keeping at buy. BUY
Arena Pharmaceuticals (ARNA) is up 11% over the past week and up 3% over the past two weeks. Buyers are finally stepping back in to pick up shares of the beaten-down stock. The chart looks like garbage, but this is biotech and if ARNA gets the approvals we expect the slate should be wiped clean and ARNA should be off to the races. BUY
Avalara (AVLR) is one of my favorite stocks for the year ahead. Shares are up 6% over the past week and are eyeing a breakout to new highs (AVLR currently bumping up against overhead resistance for the third time since December). An $850 million convertible note offering was absorbed with no issues whatsoever (stock is up since it closed). BUY
Cerence (CRNC) has pulled back since reporting and is down 10% over the past two weeks (down 1% over the past week). Nothing new to say here – big picture the stock has been moving sideways since early June. Keeping at buy and watching the support zone around 101 (stock currently near 108) as an area where we might get concerned. BUY
Everbridge (EVBG) has come alive a little over the past week (relative term – the stock hasn’t done much for a while, but a 6% rally is nice to see). Nothing new to report. BUY
Fiverr (FVRR) looks to have bottomed out around 160 last week and has gained a little altitude over the last five sessions (up 10% over the past week). It feels like there could be an opportunity here as the trends seem to point toward overly conservative guidance and potential for an uptick in freelance/outsourced work (Delta variant, extended unemployment ending). Let’s step back in. Moving FVRR to buy. BUY
Inspire Medical Systems (INSP) is up 6% over the past week and up 13% over the past two. It’s nice to see the stock back to where it was after the Q2 pop, after which it sold off on concerns of curbed procedure volumes (Delta variant). I said a couple weeks ago INSP was a hold for those feeling queasy and a buy for those feeling aggressive. After this recent move I’m going to move back to hold, just until we get a better sense about the hospitalization trends. HOLD
JOANN (JOAN) has been up and down since we added it a few weeks ago. Weakness in retail numbers wasn’t great for retail stocks, but ironically JOAN could benefit if people are pulling back on going-out activities. That said, there’s probably a lag between behavior shifts from “we’re going to do less” to “we’re going to get back into hard core crafting, let’s order supplies from Joann.” On balance, it’s still a buy as I think the stock has potential whether or not Covid gets better or worse this fall/winter. Earnings come out in a week, on September 2. BUY
Kornit Digital (KRNT) continues to look good and after a 7% rally this week the stock is on the verge of making new highs. We need a solid move above 135 to mark an official breakout (stock at 132 now). BUY
On24 (ONTF) took it on the chin after reporting a few weeks ago and we’ve hung in there as I think the selloff is overdone, even though management lowered guidance (never a good thing). I think this is a time frame where management needs to step up and make things happen to get this stock moving again. The bottom line is the market is looking for 20% to 30% revenue growth in each of the next two years, with a chance of adjusted EPS profit in 2022. Is a return to office work a headwind? Yes. Is the extension in work-from-home policies and looming fall/winter/flu/Covid season an opportunity? You bet it is. Let’s go, guys. There’s a case to be made that one can buy this growth stock at value prices (a neat term that’s not really accurate, but you know what I mean) so let’s give it a shot. Moving to buy. BUY
Porch Group (PRCH) reported last week and I spelled out the potential challenges ahead as I moved to sell to lock in a modest profit. PRCH responded by popping back up, which makes me look silly. But I’m sticking with my sell rating as I’m on the hunt for fresh ideas and PRCH hasn’t done much in several months. SOLD
Q2 Holdings (QTWO) was downright ugly in the first half of August and has been a little better over the past week (up 4%). We’re maintaining a hold rating as there seems to be a lull in deal activity that should improve in the next two quarters, driving higher revenue growth in the second half of 2022. HOLD
Revolve (RVLV) is flat over the last week as there’s still some noise out there around retail trends. The company launched an interesting collection with DUNDAS that moves it another step toward higher-end offerings. We’ll stick with a hold rating. HOLD
Repligen (RGEN) is up 6% over the past week and has been on fire since it reported in late July (stock at 206 before reporting, at 273 now). We moved to hold two weeks ago as it feels time to be a little more conservative. HOLD
Sprout Social (SPT) continues to shine and is up 17% over the past week. This is one of those trends that you love to get into with growth stocks and it’s impossible to say how long it will last. At the moment we’re seeing a nice pattern of new highs, a modest pullback, then another rally. Let’s enjoy it while it’s here, but not be too aggressive. Moving back to hold. HOLD
Thunderbird Entertainment (THBRF, TBRD.CA) management has presented at a number of investment conferences over the last two weeks and that does seem to coincide with a little momentum in the stock. That said, shares are more or less moving sideways, so we’re still being patient as we await the next major upside rally. BUY
Please email me at tyler@cabotwealth.com with any questions or comments about any of our stocks, or anything else on your mind.
| Stock Name | Date Bought | Price Bought | Price on 8/26/21 | Profit | Rating |
| Accolade (ACCD) | 8/6/20 | 40 | 44 | 11% | Buy |
| Arena Pharmaceuticals (ARNA) | 2/2/18 | 39 | 51 | 30% | Buy |
| Avalara (AVLR) | 2/1/19 | 40 | 175 | 336% | Buy |
| Cerence (CRNC) | 10/1/20 | 50 | 106 | 112% | Buy |
| Everbridge (EVBG) | 12/2/16 | 16 | 150 | 867% | Buy |
| Fiverr Intl (FVRR) | 3/5/20 | 32 | 178 | 451% | Buy |
| Inspire Medical (INSP) | 10/4/19 | 59 | 217 | 270% | Hold |
| JOANN (JOAN) | 8/6/21 | 15 | 14 | -7% | Buy |
| Kornit Digital (KRNT) | 3/4/21 | 102 | 132 | 30% | Buy |
| On24 (ONTF) | 7/1/21 | 38 | 23 | -39% | Buy |
| Porch Group (PRCH) | - | - | - | - | Sold |
| Q2 Holdings (QTWO) | 4/1/16 | 24 | 84 | 251% | Hold |
| Repligen (RGEN) | 11/2/18 and 12/31/18 | 59 | 273 | 361% | Hold |
| Revolve Group, Inc. (RVLV) | 4/1/21 | 46 | 57 | 24% | Hold |
| Sprout Social (SPT) | 9/3/20 | 36 | 116 | 218% | Hold |
| Thunderbird Entertainment (THBRF, TBRD.V) | 5/6/21 | 3.8 | 3.4 | -11% | Buy |