Tyler Laundon, Chief Analyst of Cabot Early Opportunities and Cabot Small-Cap Confidential, and Chris Preston, Chief Analyst of Cabot Wealth Daily reviewed:
1) Stock picking methodology to uncover early-stage opportunities,
(2) examples of that methodology in action,
(3) a few names that were on Tyler’s radar.
The webinar was recorded November 14, 2019
You can
find the slides here.
Webinar Transcript:
[00:00:04] Hello and welcome to today’s Cabot Wealth Webinar: Finding early stage growth stocks before the crowd. I’m your host, Chris Preston, chief analyst of the Cabot Wealth Daily advisory and managing editor at Cabot Wealth Network. With me today is Tyler Laundon, chief analyst of our Cabot Small-Cap Confidential advisory, as well as our newest advisory, Cabot Early Opportunities. Today, he’ll talk about the strategy behind the new advisory, his methodology for an uncovering early stage opportunities, small cap or otherwise passed early stage winners and stocks that are on his radar now. This is an interactive webinar, which means we’ll be filling your questions after Tyler’s presentation wraps up. So if you have a question, feel free to ask it at anytime and we’ll try and get to them as time allows once Tyler wraps up. Just keep in mind that we cannot offer advice in regards to your own personal investing situation or portfolio. First, let me introduce Tyler. Tyler spent his entire career managing, consulting and analyzing startup and small cap companies. Prior to joining Cabot, Tyler founded and operated a small business for 15 years. He then worked as a consultant for startup technology companies, as well as Vermont’s largest healthcare institution from 2009 to 2015. He was the chief analyst of growth stocks at Wyatt Investment Research, where his research spanned the full spectrum of the growth stock universe, from micro cap startups to multinational mega caps. He joined Cabot in 2015 and Cabot Small-Cap Confidential portfolio currently boasts an average return of 76 percent of 15 positions at a time when small cap stocks are lagging. They’re up less than 3 percent in the last year. Now he’s open to continue his stellar performance with Cabot Early Opportunities. Tyler holds a B.S., an MBA from the University of Vermont, where he graduated valedictorian. He’s been a long time contributor to Wall Street’s Best Investments, has been quoted by U.S. News and World Report and presented Investing Ideas and Strategies for the Money Show and Bloomberg Markets Love Insights. Long story short, Tyler knows what he’s talking about when it comes to stocks. So I’ll let him do just that. Tyler, take it away.
[00:02:19] All right. Thanks, Chris. So I’d love to do three things today. We’ll talk a little bit about the two advisory services that I manage here at Cabot and then go through my process for finding stocks down to show a few examples of what’s worked in the past and kind of tie that into the process and then look at some stocks that I think look good right now. And then we’ll take some questions, of course. So to kick things off here. Really, everything that I do on a daily basis feeds into trying to find early stage stocks to recommend in Cabot Early Opportunities and Cabot Small-Cap Confidential. When we came up with the idea for Cabot Early Opportunities, we really wanted to design a process or a product that helped narrow and target this process. So what we came up with in Cabot Early Opportunities or CEO is an idea generator for pure play for early stage growth stocks. And we are looking for big opportunities in young companies in a relatively large asset class of small and mid-cap stocks that have market caps from literally, you know, zero dollars all the way up to 10 billion dollars. So pretty large universe within sort of the small and mid-cap asset class. In terms of the content that I’m trying to put out to subscribers, I’ll get into the company overview. So the big idea and the story. Talk about the fundamentals. Talk about the stock chart. Why we like that and what looks good. Really trying to put out an easy to digest consumer friendly advisory service that’s kind of fun to read, but also gets you into some of these great opportunities.
[00:04:13] Transitioning to Cabot Small-Cap Confidential, this is a portfolio of my highest conviction stocks, the stocks that would be appropriate, in my view, for rather significant position sizes, small and microcap stocks. It has a little bit narrower universe than CEO, Cabot Early Opportunities. So I’m looking at kind of your traditional small small cap asset class area. So 250 million up to three point five billion. And I’m doing institutional quality deep dove research reports trying to leave no stone unturned so that you really have the confidence to invest a decent sum of money in these stocks and then managing a model portfolio as well. In terms of the content, in case of a small cap, confidential subscribers will get everything in CEO, but then also more of a overview of the products and services of the company. Talk about the industry analysis, the business model and then the competition risks and the valuation. And then I do weekly updates for a Small-Cap Confidential with buy to hold ratings as well as anything that’s happened with all of the companies. So that has kind of the backdrop of all of the work that I’m doing is trying to feed into these two products. Let’s talk a little bit about the methodology that I use. As I said, you know, for a CEO, I’m looking at stocks from zero all the way up to 10 billion dollar market cap. So that’s a big universe. It’s obviously kind of unmanageable. So I have to narrow that down to something that is manageable. So I’ll do a number of proprietary screens that I’ve come up with and I develop these every quarter. So I kind of tweak them using William O’Neill’s WONDA solution. I’ll show you what that looks like in a few minutes when we get into some individual stocks. But it’s a nice, powerful institutional quality research platform that helps go through stocks quickly. I’ll also scour investment bank research, see what the analysts that I respect are saying, not only about individual stocks, but also I enjoy reading their thematic research reports because it helps me understand what the big money is doing. And then we can try to kind of invest appropriately sometimes in the same stocks, but also finding smaller stocks that are kind of more of a leveraged play on a trend that the big banks are really liking. I also track a number of small and mid-cap funds. I’ve got nothing against mutual funds. Two of the ones that I follow pretty closely come from Brown and Conestoga and these are really high conviction targeted small and mid-cap funds that have like 50 to 75 positions in each fund. So really high conviction by management of the funds and they’re a good place to go in and pull out names that could work for us. And then, of course, I do a lot of IPO research. There’s a lot of stuff coming public every month. And it’s good to have a handle on that. We’re not necessarily jumping into IPO, as you know, on day one. But particularly in Cabot, early opportunities we might be within like two or three months of a company going public.
[00:07:32] So it’s good to have a handle on that. So at the end of the day, I’m doing a mix of a top down kind of thematic research and bottom up fundamental analysis to find stocks in that are in a zero to 10 billion market cap range. That kind of are at the intersection of those sweet spots of great trend and great fundamentals, or at least great developing fundamentals. And all of that research at the end of the day, results in a watch list of stocks that I’m constantly managing. Looking at it on a weekly basis, taking stocks off, adding stocks on, I’m pretty familiar with the stocks on my watch list now and the universe. So I’m not adding that many on a weekly basis. But for instance, I just updated it yesterday and added 15 or so new stocks. So that gives you some sense of the universe that I’m following on a weekly and monthly basis. In terms of what I look for big picture, the first thing is I’m always looking for a story and a big idea. This sounds right to me. What sounds right to me might not sound right to everybody. And conversely, there are some things that, you know, analyst consensus is very positive on. That just doesn’t sound right to me. I think at the end of the day, to be a successful investor, especially an early stage investor, you have to have conviction in the stuff that you’re buying. And there’s going to be corrections in the market and in stocks for you to hold on to even a partial position in an early stage stock to to have it. Do you know really well over the long term? You have to have conviction and that’s going to come from you sort of getting it. So I’m looking for stories and big ideas that sound right to me and mesh with the secular growth trends that I’m following. And that makes sense to me. A few examples that I talk about, you know, in all of the material that I put out for Cabot is cloud software, medical technologies, financials, financial technologies or fintech payment platforms, those kinds of things. A lot of known plays on digital trends there, but these are some of the things that I’m watching.
[00:09:43] And then in terms of stock specific stuff, revenue growth and earnings growth of 20 percent or more is a pretty typical threshold for me. That’s not to say I won’t go down a little bit. I will. And, you know, a lot of times it’s well above that. And, you know, the 40 percent revenue or 60 percent revenue growth range. And then, of course, I’m always looking for a good chart, a good leading, good leading chart with good momentum. That’s not to say that we won’t buy stocks on a pullback. We will. But those pullbacks have to be in the greater context of a chart that looks good on a 52 week or longer timeframes. Not getting into deep value stocks here that have kind of horrible looking charts where people are trying to pick them up at the bottom. That’s that’s not part of my process in terms of more specifics. Deep dove analysis and it gets a little bit more in Cabot Small-Cap Confidential. It’s really important to me too. For a company to have a business model that I understand and that is built for increment incremental sustainable growth and durability. So at the end of the day, looking for management teams that are building businesses for the long haul, and that typically means they’re able to benefit from the and events that are positive, numerous and repeatable. What I mean by that is I’m always looking for management teams that are doing things like new product development, putting out new products, new services, growing through MSA, repeatable MSA strategies, putting out initiatives to cross-sell products to release products that expand the addressable market. All these kinds of things that will build a larger, more successful company with a rational go to market strategy that are all sort of feeding into this, you know, incremental growth business model that’s designed for the long haul. That ties into finding companies that are scarcity value. So at the end of the day, we’re looking for early stage stocks here. These are typically rare opportunities that are not easily emulated. You know, they have business models that aren’t that easy to copy.
[00:12:03] Maybe they’re new or different. Have a tweaked version of something that’s been shown to work in the past, but new and better for now. And so that scarcity value is something that I pay quite a bit of attention to. And then at the end of the day, you know, I am a stock picker, so I am fully recognizing that everything that I put out to subscribers is based on my subjective analysis. Right. So these aren’t, you know, pure number based screens where I’m putting out 15 or 20 stocks that meet a certain set criteria, but no analysis whatsoever. There’s definitely subjective analysis. And I think that’s a good thing because it leaves room for different opinions to enter. I might like something, as I said earlier, that another analyst doesn’t. And that creates opportunity when you’re when you’re looking at early stage stocks. So let’s go through a few examples of what’s worked in the past and, you know, naturally I’m going to post success stories out here. Not everything that I’ve ever recommended has worked, obviously, in terms of managing downside. Quick note on that. We typically get out in Cabot Early Opportunities when a stock is down 20 percent from our entry point. It’s time to just step aside and carve Cabot Small-Cap Confidential. We give a wider rope of 30 percent down than we step out. Going through the learning examples of what hasn’t worked in the past is a different presentation today tying things together. Let’s look at some things that did work. So and gorilla ticker symbol is a MBA. This is a company that’s still out there. Semiconductor stock. We got into an umbrella way back in 2013 at about 15 dollars. This was a play on GoPro, if you remember that stock. You know, kind of a go go growth stock. And 15 brands are 13, 14, 15. Totally flamed out, as did. And Barilla but liked and Zarrella as a way to play that, because Barilla was making the chips for GoPro as well as for a dash cameras and it was putting up 20 percent growth. So a hardware stock ran all the way up. You know, we were well over 600 percent gain. Big correction. We got out. I recognize this is a cyclical stock, which I typically don’t go for, but in this case did. And then the stock shot back up to all time highs, but then eventually collapsed. We got a little bit lucky getting out of this one at the right time. Going back to the beginning, you know, it fit a big picture theme. And it had the 20 percent growth that I was looking for. Susser Holdings total opposite end of the spectrum. Kind of a boring stock. When I first put put this one out there, some of the people that I worked with were wondering why I was interested in it, had the ticker symbol as you assess it. It has since been acquired. So it’s not public anymore. Assessor Holdings ran as chain of convenience stores in the southwest, predominantly Texas. And I’ve always been interested in the convenience store for reasons that I won’t get into now, but really incremental growth in both gasoline and then, you know, chips, snacks, soda. They also had some small restaurants, so tacos, burritos, that kind of thing. But they were putting up 20 percent quarterly revenue growth growing through MSA with a really durable acquisition led growth strategy across Texas in a market that, you know, this business model really worked for. And so we got into this stock and rode it until it was acquired and did pretty well on it. But again, I bring this one up because it’s totally the opposite of an Varela. It’s not a go go cross stock. It’s a relatively boring company. But when my point here is that when you look at the business model and you understand where the growth is coming from, you know, starting with 20 percent revenue growth that faded over time, but the company became profitable and had a steady growth profile.
[00:16:10] You can do pretty well. Never bridge is kind of in the middle we got ever bridges. Ticker symbol, easy B G. We got into this one shortly after the IPO at around fifteen dollars. What they do is they sell software that automates critical response to two events, like in severe weather. Active shooter events, terrorist attacks, all the kinds of things that, you know, we hope never happen, but unfortunately do.
[00:16:44] And so every bridge has a platform that helps send out population alerting notifications, helps with emergency response, helps people who are in situations where they need help to get help. There’s some really interesting use case stories on their website about how in like New Jersey, users of the software help apprehend somebody who had been out trying to do pretty nasty things.
[00:17:15] But at any rate. So every bridge we got into like this stock because big picture sounded great, had scarcity value. There aren’t that many small cap companies out there or even large cap companies with this type of technology that is putting up great growth numbers. I wrote it for a while. I put on here this 33 percent correction. Wanted to highlight that because as I said earlier, when we’re talking about business model and durability, we are going to go through phases where there’s big corrections in these stocks. You’re going to if you’re holding them, you’re going to question, you know, is this the stock that I want to stay in? And you have to have enough knowledge of the business and the business model to have the conviction to stick with it or conversely, to recognize that it’s actually not built to sustain growth through whatever turmoil is happening at the time.
[00:18:08] We’ve had good feelings forever bridged and are actually still in it. That’s up well over 100 percent. Decipher a pharmaceuticals ticker symbol. D.C. P H. This was a relatively recent recommendation in Cabot Early Opportunities. You can see the area there around thirty four forty two. We got it. So it’s a 38, 40 percent sense. So the story here is decipher cells. I’m sorry, develops therapies for various forms of cancer. And the story I wanted to share here is that, as you can see, there was this big gap up in August where the stock jumped from you on the day it jumped down from 28 to 42. So well over 100 percent gain on that day. What happened was positive. Phase 3 data came out for one of the trials. So we kind of got a little bit lucky here, at least in the short term.
[00:19:09] Waited a little bit. The timing of when I wanted to put this out worked well with the publication date for Cabot Early Opportunities. So but big picture, like the stock, like the story. And really had higher conviction in it because of that Phase 3 data. One could easily argue that you would have wanted to buy this stock before this big pop. But the truth is that if you’re investing in biotech stocks, before you have solid Phase 3 data, the chances of success of those molecules ever getting to market in a treatment are much lower. Like in the 40, 45 percent range for phase two. Once you get into a good Phase 3 data they jump closer to around 80 percent. So that’s where we are now with the safer. And the stock has continued to do well because it’s starting to look like this same potential treatment could work for a wider range of indications. That story is still developing, but we’re relatively new to it.
[00:20:19] Let me just jump to just interject just for a second. Just to remind people, if you do have questions, you can send them in now. Just in the question boxes on your control panel and we we will get to them as soon as Tyler wraps up that carry on.
[00:20:33] OK, thanks, Chris. So in terms of things that I’m looking at now. Zendesk is a stock that I’ve been pretty bullish on for a while. Ticker symbol is and market cap of seven point nine billion. Zendesk isn’t really a new name, but I put this one up as an example of a company. That big picture sounds great to me. It sells software, customer service software that helps enterprises, large organizations engage with their customers. You know, we live in a digital age. This company has been developing products since 2007 that has been working really well. It is transitioning now. It’s not like early, early stage. It’s transitioning more to life amidst mid stage company. And it’s I, in my opinion, kind of covering that chasm to become what could be a truly large cap success story. And there’s not that many companies that that make it that far. When you see 20 percent revenue and earnings growth with positive earnings that just came in recently with a company like this, Zendesk starts to look pretty attractive. So on this slide, if you look down at the bottom here, you can see the quarterly numbers there. A little bit hard to see, but I believe we’ll be sending out this presentation later and you would be able to pause the video or whatever to look at those more closely. But for right now, I explored the annual numbers. So for 2019, we’re looking at revenue growth of 35 percent and then still up 31 percent in 2020. In terms of EPS growth, we’re looking for 39 percent this year and then 78 percent in 2020. When EPS should be around fifty seven cents a share. So a significant pullback in the stock, which is pretty typical of software stocks since their summer highs. Zendesk was kind of in the 30 percent range. Again, pretty typical for this type of stock. But if you look at the chart over the last week since earnings, it’s definitely looking more constructive. So I think Zendesk could be something that shouldn’t be overlooked. Garden Health Ticker symbol is G H. Market cap of around six point eight billion. They’re developing noninvasive cancer diagnostics and they really specialize in liquid biopsy tests, which is a growing market. So was a pretty hot stock when it went public last year at nineteen dollars. It’s up to around 73 now, even after a big pullback. So obviously a pretty popular company firmly in the smallish mid-cap range. So again, transitioning into becoming a little bit of a larger company, but still pretty early stage. I mean, the company, which was, you know, founded in 2011 in terms of the numbers. Revenue growth in 2018 was eighty one percent should accelerate to around one hundred and thirty three percent this year and cool off a bit because they’re not going to have the same new product releases in 2020 as 2019, but still 30 percent growth not profitable. It’ll take some time for Garden to get profitable, but nevertheless a pretty attractive opportunity, in my view. And again, the stock had a significant correction from summer highs, but has been rebuilding half of the lows of the mid 50s from early October. Back to Everbridge, I talked about this as an example of something we’ve already had success on, and I put it up here because every bridge market cap right now is around two point six billion. A lot of people would look at this and say, you know, they’ve looked at this for the first time and say it was definitely an early stage stock. Some of my scribe subscribers might not because we’ve been in it since 2013. But you step back and it is very much an early stage stock. It’s growing revenue. You know, 2018 revenue was up 50 percent, should be up 33 percent this year and then 30 percent in 2020. We haven’t even gotten to the transition to profitability yet. That’s probably going to be, you know, a mid 2020 on a quarterly basis, 2021 on an annual basis. That transition to profitability for a small cap software stock is typically extremely well received, carries lower risks, and it’s a stock that mid-cap funds can start to buy. So here we have Everbridge peak this summer at one of four pulled back all the way down to 60. Big correction was still 25 percent off highs it at around 80 dollars. Think it’s up a little bit above that now. But like Garden, like Zendesk for growth stock is starting to come back a little bit. That I think a lot of small cap funds are looking at now again and mid-cap funds will be looking at selling. I haven’t talked about Q2 Holdings yet today. Ticker symbol is QTWO market cap of three point five billion. This is essentially a fintech stock. It sells cloud based virtual banking software to primarily credit unions and small banks, although it is moving upmarket a little bit, but it sells both platform technology for online banking platforms for four credit unions. But it’s also getting into more kind of corporate and business development products. It recently acquired Precision Lender, which will help kind of on the corporate side with selling it and in deeper into exactly what it does. But just stepping back to look at the numbers, revenue growth in 2018 was 26 percent, should be accelerating to 33 percent in 2019 and then we have 25 percent in 2020. But that’s not factoring in the acquisition of precision lender, which should add a little boost. And if my hunch is accurate with cross-selling opportunities and some of the other business development stuff that’s going on, I think 2020 numbers could could prove these 2020 numbers could prove to be quite conservative right now in terms of earnings in 2019, we do have an earnings dip. 54 percent. You have to understand what’s going on in the company. So there are implementation costs to get big new banks on on lot online. Get those projects online. Get them up and running. And so there’s a lot of cost baked in there as well, some acquisition related stuff. So that’s why you see a dip in earnings this year than projected to be back up over 200 percent to around 37 cents in 2020. And then the last new stock I have for today is digital turbine ticker symbol, AP s so much smaller company market cap of around six hundred and sixteen million. So big picture digital turbine has developed a platform that helps with mobile content distribution. So basically applications on Android platforms. So not on iPhone, but on Android. So Samsung tracks on those kinds of devices. It is also delving into other mobile device app distribution, including television. And then also, you know, iPads and those kinds of things. So basically what they’ll do. Is they’ll work with the carriers like Fries and AT&T and then also the device manufacturers, so that when the consumer goes out and gets the new device, it’s very easy for that consumer to find the applications that they want to use to fit their profile. That’s what Digital Turbine does. And so growth has been really, really, really attractive. Fiscal year 2019 is already in the books. Revenue was up 43 percent. Earnings of 8 cents a share. All this information is in this little box right here. And then revenue growth should be up around 30 percent this year with U.P.S. up 138 percent to 19 cents a share. And then 23 percent revenue growth next year. So, again, a small company. A couple of deals could definitely move the needle here. So take these estimates with a grain of salt. But when you step back, big picture, kind of a digital play on mobile device growth, but also other sorts of digital, you know, digital content distribution with applications across TV and other sorts of devices. Digital Turbine is right in there and it has a pretty attractive chart as well.
[00:29:51] So, again, stepping back, so the two products that I manage are really all about finding early stage stocks when they’re in that kind of zero to 10 billion market cap range and getting that research out to subscribers and Kurt Cavett, early opportunities were focused on putting out, you know, a lot of details on a watch list idea.
[00:30:15] So idea generation product focused on the big idea, the story showing you why revenue growth and earnings growth will be around 20 percent or more. And then discussing the reasons behind the stock. The stock chart strained. And then a cab, a small cab, confidential, going in deeper to the business model, the durability catalyst, scarcity value. And then the opinions around whatever management is doing. Chris, I think that’s all I have.
[00:30:53] We’re gonna move on to a question answer.
[00:30:56] But first, I wanna give Tyler a chance just to catch his breath for a minute here. Now I’ll tell you how you can sign up for Cabot Early Opportunities if you’re interested.
[00:31:09] So you can invest alongside Tyler by subscribing to his brand new Cabot Early Opportunities Advisory but first you’ll be receiving email in your inbox with a special discount offer reserved exclusively for today’s listeners and new subscribers can try early Cabot Early Opportunities for just one dollar for the first month. That’s 30 days. You can cancel at any time. And again, that’s just for anyone listening to the webinar today. And when you subscribe, what you get is a monthly issue revealing five of Tyler’s best early stage growth recommendations with special bulletins as needed throughout the month.
[00:31:49] Plus, you get personalized customer support and access to type of personal email address in case you have any investment questions. And again, you should receive this special offer in your e-mail inbox. OK.
[00:32:07] Let’s move on to the questions. Let’s see.
[00:32:16] Here’s one. You mentioned you mentioned IPO was. Would you get in right at the beginning after a company comes public? Or wait for a trend to develop first?
[00:32:28] OK. Excellent question. I think. In some ways, it almost depends on the specifics, General. That’s just a general rule. I would typically wait until what we see here, which is the post IPO pullback kind of approaching when lockup expiration will be, because I think we see this sort of euphoria, you see that this is this is Diana Trace, the company that went public in in guess the end of July. So a popped lot of euphoria. Stock pulls back and then you have this kind of consolidation phase where not a lot is happening. And then typically you’ll start to see a little bit of an uptrend. So generally speaking, I would say that this is the sweet spot that I’m looking to get in. I don’t necessarily have to wait until after lockup expiration.
[00:33:27] I know that a lot of investors will wait for that. I’ve read some pretty compelling statistical research that you don’t really have to wait until after lockup expiration because a lot of that news. You know, it’s known that that is coming out of that news is factored in in earlier. For those that don’t know, lock lockup expiration is just when insiders are allowed to sell more shares. And sometimes a lockup will be phased over a 12 month period with certain milestones.
[00:34:02] OK, good question.
[00:34:05] Here’s another clarifying question. Would you ever go higher than a 10 billion dollar market cap? If the right early stage opportunity developed.
[00:34:16] Yes, definitely.
[00:34:20] Easy to answer there. I think it depends on for me. You know, I mean, there’s a lot of large cap companies that I love. I mean, Microsoft is a great example. Obviously, that company doesn’t have a place and neither are the products that I manage. But in Cabot Early Opportunities, you know, if we want to get up into 12, 14, 15 billion market cap and it’s early stage based on, you know, some subjective definitions, of course. But if it’s in there, then. Yeah. Yes, absolutely. Hall included.
[00:34:55] Good to know. It’s sort of another is a broad question. What would you say is the biggest philosophical difference between Cabot Small-Cap Confodential and Cabot Early Opportunities?
[00:35:11] That’s a good question. It’s actually not that difficult to answer, though, I philosophically. Cavett early opportunities, the way I want to put that product out is it really is sort of an idea generating product. So trying to put out five stocks every month that all look great at that particular point in time.
[00:35:41] Most people that invest using mind methodologies probably won’t buy 60 stocks a year, which, you know, if you just do the math, quit early opportunities, five stocks a month, twelve issues at 60 stocks. That’s that’s an awful lot, especially if you’re trying to run a pretty targeted portfolio. So Cabot Early Opportunities is really an idea generating service to try to put out what looks great every month across my coverage universe. Cabot Small-Cap Confidential. Is that taken like to the next level? Super high conviction in one stock. So 12 stocks recommended every year, but with full coverage every week of those all those stocks, including all previous recommendations in prior years that we still hold. So ultra high conviction, best stock to buy at that one point in time for the next, hopefully 3, 5, 10 years.
[00:36:47] You mentioned you have a. Seventy six percent return in Cabot Small-Cap Confidential.
[00:36:53] Do you think this can produce the same kind of returns in the future?
[00:36:58] Oh, well, I guess the question is probably can Cabot Early Opportunities produce the same types of returns? So those returns in Cabot Small-Cap Confidential, as you would suspect, don’t just cover a stock’s recommended in the last couple of months.
[00:37:21] There are some stocks in there that are up 3 400 percent, which definitely helps pull up the average. We have some stocks recommended in twenty nineteen that are up. You know, one hundred and fifty percent or 50 percent which are also helping to pull that up.
[00:37:37] But we also have a lot of stocks that are well below that average. So it will take time for Cabot Early Opportunities to even be able to come close to having an average gain of 70 percent or so.
[00:37:54] But I would think that. The stocks know if we fast forward two or three years.
[00:38:03] The short answer is yes, we will get rid of stocks that fall lost that don’t look good before they really detract from returns. And we’ll keep those stocks that are doing well so that they add to returns. And so I think following the same sort of portfolio management style, albeit with a much wider group of stocks, I would think that we could have similar returns in those products.
[00:38:30] We’ll do a couple more questions. Here’s a market related one with the market at all time highs right now. Does that make you more or less reluctant to search out early stage opportunities?
[00:38:49] It doesn’t. Neither really, to be honest, I think I’m going to pull up a chart of. IJA Ah, so this is the I shares S&P 600 small cap index. As you can see here, this index has been just going sideways in twenty nineteen. We hit two percent off of off of highs, but it’s still if we bounce back to the weekly chart. You’ll see that had eighty dollars this this ETF, which tracks the S&P 600 index, is still 10 points from its all time high. So we’re not even back to all time highs in the small cap universe.
[00:39:38] What happens in large caps and small caps isn’t totally related, but at the end of the day, I’m not looking for a stocks that are just going to succeed or fail based on what the S&P 500 stocks do.
[00:39:55] I mean, there are always going to be outlier stocks that post market beating performance, not totally regardless of what the broad market does. But within a certain range of potential market outcomes will outperform. And those are the stocks that I’m focused on. Stocks that have, you know, secular growth trends, which by definition means they should grow again, not regardless of what the broad economy is doing. But, you know, to to a reasonable extent, regardless. So a company like ever bridge, for instance, you know, population demand for population alerting software solutions isn’t necessarily tied to GDP. It’s close more closely tied to state spending budgets on population alerting and speaking more globally that there’s a mandate in Europe for countries to implement population population alerting solutions. And so. Long winded answer, but what the broad market is doing certainly matters in the short term, but in terms of signing early stage stocks, I mean, I’m going to be doing this, you know, day in and day out regardless of what the broad market is doing. And there’s always going to be a good stock to buy. In my opinion.
[00:41:20] OK. Last question.
[00:41:25] This covers a little bit worse than what you’ve already talked about. But what is the biggest characteristic you look for in early stage growth? Jack?
[00:41:35] The biggest characteristic for me would be a rational business model. This bill. For durability, and the reason is because. Basically, everything else feeds into that. That includes.
[00:42:01] You know, inherently management style management vision. Ability to develop products that are rational to meet market demand. It inherently involves rational pricing structure for products that you’re putting out there. It really encompasses so many different things. So it’s also one that you can’t really just screen for. It’s more of a subjective and qualitative thing, which I sort of like that from a stock pickers perspective. But yeah, that would be it would be a business model that’s rational and seems built for durability.
[00:42:46] All right. Good answer. Thanks, Tyler, and thanks to everyone for joining us today.
[00:42:53] We’ll be back next month on December 11th at 2:00 p.m. Eastern and again with another webinar, this time with returning options expert Jacob Mintz, editor of our Cabot Options Trader and Cabot Options Trader Pro Advisories. It’s titled Boost Your Profits with covered calls, covered calls, option strategy that you’ll be talking all about. So mark that on your calendar, especially if options are something you’ve thought about but haven’t gotten into yet.
[00:43:24] In the meantime, again, watch in your inbox for a special offer for Cabot Early Opportunities today as a reward for joining us on our webinar. I’m Chris Preston. See you next time.