Cupps Capital Slashes Portfolio in Q3, But Couldn’t Stop Buying These 5 Stocks

Drew Cupps‘ Chicago-based asset management firm, Cupps Capital Management, has been in the news of late after it announced that its five-member investment team will be joining Advisory Research, Inc., a wholly owned subsidiary of Piper Jaffray Companies (NYSE:PJC). The firm was founded by Mr. Cupps in 2000 and currently manages assets worth around $600 million.

According to Cupps Capital Management latest 13F filing, the fund reduced the size of its US public equity portfolio considerably during the third quarter, bringing its value down to $231 million at the end of September from $386.96 million at the end of June. The filing also revealed that apart from reducing its holding in 119 stocks and selling off 29 stocks during the third quarter, the fund initiated a stake in 45 stocks and increased its holdings in 20 stocks. In this article, we will take a look at the five most notable bullish moves made by Cupps Capital Management during the September quarter.

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bluebird bio Inc (NASDAQ:BLUE)

– Shares Owned by Cupps Capital Management (as of September 30): 26,915

– Value of the Holding (as of September 30): $1.82 Million

Let’s start with bluebird bio Inc (NASDAQ:BLUE), which made its debut in Cupps Capital Management’s equity portfolio during the third quarter. Shares of the Massachusetts-based biotech firm saw a huge rally in September in anticipation of the American Society of Hematology ASH conference in December. However, all those gains were wiped out in October after the company revealed at an investors conference on October 13 that all future trials of its drug LentiGlobin will use its improved manufacturing process. Furthermore, because those trials have just started, initial data from them won’t be available until 2018. That news led analysts at Cantor Fitzgerald to cut their rating on the stock to ‘Sell’ from ‘Hold’ and also reduce their price target on it to $37 from $42.

Palo Alto Networks Inc (NYSE:PANW)

– Shares Owned by Cupps Capital Management (as of September 30): 13,767

– Value of the Holding (as of September 30): $2.19 Million

Moving on, Cupps Capital Management upped its stake in Palo Alto Networks Inc (NYSE:PANW) by 48% during the third quarter. Palo Alto Networks Inc (NYSE:PANW)’s stock has been trading in the $120-to-$160 range for many months now and has lost 11.2% of its value so far this year. The cybersecurity company is expected to report its third quarter numbers next week, with analysts projecting it to report EPS of $0.53 on revenue of $400.23 million. For the same quarter of the previous year, Palo Alto Networks had reported EPS of $0.35 on revenue of $297.2 million. Several analysts who track the stock consider it to be trading at a considerable discount to its intrinsic value, which they estimate lies around $175 per share. However, some of them are also concerned that if the stock moves significantly higher from here, it will lead to $508 million worth of convertible notes issued by the company being exercised, which will result in shareholders’ equity being diluted further.

We’ll check out three more stocks the fund was buying during the third quarter on the next page.

Glaukos Corp (NYSE:GKOS)

– Shares Owned by Cupps Capital Management (as of September 30): 65,680

– Value of the Holding (as of September 30): $2.48 Million

Glaukos Corp (NYSE:GKOS) was a new entrant to Cupps Capital Management’s equity portfolio during the third quarter. Shares of the ophthalmic medical technology company have performed exceedingly well in the last few months and are currently trading up by 37% for 2016. On November 10, Glaukos Corp (NYSE:GKOS) reported much better than expected third quarter results. The net income of the company increased by 156.3% year-over-year to $1.2 million, while net sales grew by 55.8% year-over-year to $29.6 million. Despite such strong numbers, Glaukos’ stock took a massive beating the next day due to the comments made by its CFO, Richard Harrison, during the earnings call. Mr. Harrison said that although the third quarter was profitable, the company may not remain profitable going forward due to its rapidly progressing pipeline and its focus on the global market penetration of the iStent surgery.

Medidata Solutions Inc (NASDAQ:MDSO)

– Shares Owned by Cupps Capital Management (as of September 30): 47,254

– Value of the Holding (as of September 30): $2.63 Million

Medidata Solutions Inc (NASDAQ:MDSO) was another stock that made its debut in Cupps Capital Management’s equity portfolio during the third quarter. Nick Niell‘s Arrowgrass Capital Partners also initiated a stake in Medidata Solutions Inc (NASDAQ:MDSO) during that time, purchasing 116,315 shares of the company. Although Medidata’s stock has performed well this year, rising by 12.66% year-to-date, it has largely been range-bound over the last three years. For its fiscal 2016 third quarter, the company reported EPS of $0.28 on revenue of $120.10 million, beating analysts’ projections of EPS of $0.26 on revenue of $118.96 million. Following the earnings release, analysts at Jefferies Group reiterated their ‘Underperform’ rating on the stock on October 26, but boosted their price target on it to $41 from $36, which still represents potential downside of 26%.

Cavium Inc (NASDAQ:CAVM)

– Shares Owned by Cupps Capital Management (as of September 30): 56,822

– Value of the Holding (as of September 30): $3.31 Million

With Cupps Capital Management increasing its stake in the company by 115% during the third quarter, Cavium Inc (NASDAQ:CAVM) jumped to the 15th spot in the fund’s portfolio at the end of that period. The semiconductor processors provider lost more than 35% of its market cap during the second quarter, but its stock made a U-turn in the next quarter and recouped most of those losses. Nevertheless, Cavium Inc (NASDAQ:CAVM)’s stock is still trading down by 17% year-to-date. The company managed to beat earnings and revenue estimates with its third quarter results, which it reported earlier this month. Citing that strong performance, on November 2, analysts at Benchmark Co. upped their price target on the stock to $63 from $60, while keeping their rating on it unchanged at ‘Buy’.

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