Yahoo Finance Arm Holdings and Cable One have been highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL – March 25, 2024 – Zacks Equity Research shares Arm Holdings ARM as the Bull of the Day and Cable One CABO as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Iron Mountain Inc.IRM, Host Hotels & Resorts HST and Gladstone Commercial Corp. GOOD.
Here is a synopsis of all five stocks:
Bull of the Day:
Arm Holdings, a Zacks Rank #1 (Strong Buy), develops and licenses central processing unit (CPU) products and related technologies. The British chip designer continues to benefit from underlying strength in semiconductor stocks. The company has enjoyed a strong showing since its U.S. IPO last year, with ARM stock recently surging to a new high. Shares are displaying relative strength as buying pressure accumulates in this market leader.
The company is part of the Zacks Technology Services industry group, which currently ranks in the top 35% out of more than 250 Zacks Ranked Industries. Because it is ranked in the top half of all Zacks Ranked Industries, we expect this group to outperform the market over the next 3 to 6 months.
Historical research studies suggest that approximately half of a stock’s price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1.
It’s no secret that investing in stocks that are part of leading industry groups can give us a leg up relative to the market. By focusing on leading stocks within the top 50% of Zacks Ranked Industries, we can dramatically improve our stock-picking success.
Company Description
Arm Holdings offers microprocessors, systems intellectual property, graphics processing units, and other related software and services. Its products are used in various markets such as automotive, computing infrastructure, consumer technologies, and Internet of Things.
The company operates in the United States as well as international markets such as China, Taiwan, and South Korea. Arm Holdings was founded in 1990 and is headquartered in Cambridge, the United Kingdom.
Robust demand for products that run leading-edge artificial intelligence has boosted investor appetite for companies that produce the chips. Chip leader Nvidia recently disclosed a nearly $150 million stake in Arm Holdings in its first-ever 13F filing with the SEC.
Nvidia previously attempted to purchase ARM about two years ago in a blockbuster $80 billion deal, but the agreement turned sour after it hit antitrust issues. Arm Holdings was taken private by Japan’s SoftBank in 2016 before returning to the public stage last year.
Earnings Trends and Future Estimates
Since its September 2023 Nasdaq debut, Arm Holdings has established an impressive earnings history, surpassing earnings estimates in each of the last two quarters. Back in February, the company reported fiscal third-quarter earnings of $0.29/share, a 16% surprise over the $0.25/share consensus estimate.
Quarterly revenues of $824 million also beat projections by 7.69%. Consistently beating estimates is a recipe for success.
Analysts covering ARM are in agreement and have been raising their earnings estimates across the board. For the upcoming fiscal year, analysts bumped up earnings estimates by 9.42% in the past 60 days. The Zacks Consensus EPS Estimate now stands at $1.51/share, reflecting potential growth of 24.8% relative to the prior year. Revenues are projected to climb 24.1% to $3.91 billion.
Let’s Get Technical
ARM shares have advanced more than 180% in the past five months. This is the kind of stock we want to include in our portfolio – one that is trending well and receiving positive earnings estimate revisions.
Notice how the 50-day (blue line) moving average is sloping up. The stock has been making a series of new highs. With both strong fundamental and technical indicators, ARM is poised to continue its outperformance.
Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. As we know, Arm Holdings has recently witnessed positive revisions. As long as this trend remains intact (and ARM continues to deliver earnings beats), the stock will likely continue its bullish run this year.
Bottom Line
The future looks bright for this highly-ranked, leading stock. The company has shown an ability to adapt to the ever-changing technological landscape, which puts it in a strong position moving forward.
Backed by a leading industry group and impressive history of earnings beats, it’s not difficult to see why ARM stock is a compelling investment. An appealing technical trend along with robust fundamentals paint a bullish picture for Arm Holdings.
Bear of the Day:
Cable One provides data, video, and voice services in the United States. The company offers residential data services including Wi-Fi signal enhancements, digital video services with access to hundreds of channels, and a cloud-based DVR feature. Sparklight TV, its IPTV video service that enables customers to stream video from the cloud, is supported through devices such as Amazon Firestick, Apple TV, and Android-based smart televisions.
The Phoenix, Arizona-based company also provides its services to business customers including small to mid-markets, enterprises, and wholesale and carrier customers. Cable One serves over one million residential and business customers combined.
The Zacks Rundown
CABO, a Zacks Rank #5 (Strong Sell), is a component of the Zacks Cable Television industry group, which ranks in the bottom 15% out of more than 250 Zacks Ranked Industries. As such, we expect this industry group as a whole to underperform the market over the next 3 to 6 months. Note how this group has widely underperformed the market so far in 2024:
Candidates in the bottom tiers of industries can often be solid short candidates. While individual stocks have the ability to outperform even when included in a weak industry group, the industry association serves as a headwind for any potential rallies and the journey forward is that much more difficult.
CABO has hit a series of 52-week lows this year and failed to produce any meaningful rally, all while the general market reaches new heights. When a stock fails to rally while the general market is bullish, it’s telling us that buying pressure remains weak and the stock should be avoided at all costs.
Recent Earnings Misses & Deteriorating Outlook
CABO has fallen short of earnings estimates in each of the past four quarters. Back in February, the company reported fourth-quarter earnings of $10.66/share, missing the $12.86/share consensus EPS estimate by -17.11%.
Cable One has posted a trailing four-quarter average earnings miss of -22.81%. Consistently falling short of earnings estimates is a recipe for underperformance, and Cable One is no exception.
The Zacks Rank #5 (Strong Sell) stock has been on the receiving end of negative earnings estimate revisions as of late. For the current year, analysts have decreased estimates by -15.44% in the past 60 days. The 2024 Zacks Consensus EPS Estimate is now $43.36/share, reflecting negative growth of -3.94% relative to last year.
Declining earnings estimates are a huge red flag and need to be respected. Negative growth year-over-year is the type of trend that bears like to see.
Technical Outlook
As illustrated below, CABO is in a sustained downtrend. Notice how the stock is trading below both the 50-day (blue line) and 200-day (red line) moving averages. The stock is making a series of lower lows, with no respite from the selling in sight. Also note how both moving averages are sloping down – another good sign for the bears.
CABO stock has also experienced what is known as a ‘death cross’, wherein the stock’s 50-day moving average crosses below its 200-day moving average. CABO would have to make a serious move to the upside and show increasing earnings estimate revisions to warrant taking any long positions in the stock. Shares remain in negative territory this year while the general market is showing strength.
Final Thoughts
A deteriorating fundamental and technical backdrop show that this stock is not set to produce new highs anytime soon. The fact that CABO is included in one of the worst-performing industry groups provides yet another headwind to a long list of concerns.
A history of earnings misses and falling future earnings estimates will likely serve as a ceiling to any potential rallies, nurturing the stock’s downtrend. Potential investors may want to give this stock the cold shoulder, or perhaps include it as part of a short or hedge strategy. Bulls will want to steer clear of CABO until the situation shows major signs of improvement.
Additional content:
3 REITs to Pick as the Fed Indicates 3 Rate Cuts in '24
Real estate investment trust (REIT) investors now have reasons to rejoice because the Fed officials have held the benchmark rate steady at 5.25-5.50% but indicated a three-quarter-percentage-point cut by year-end.
Specifically, the Fed officials' median projections for the federal funds rate by the end of December 2024 have been kept unchanged at 4.6%. For 2025, the Fed now expects the interest rate to fall three-quarters of a percentage point, which is less than the one percentage point guided earlier. With another spate of reductions in 2026, the median projection for the federal funds rate by the end of December 2026 is pegged at 3.1%, while the long-run outlook is pegged at 2.6%.
Any rate cut, even a slight one, is good news for the rate-sensitive REIT industry. This is because REITs' dependence on debt for business keeps investors optimistic about their performances in a rate-cut environment as the companies benefit from lower borrowing costs. Moreover, low interest rates contribute to higher valuations. Also, their dividend yield grabs investors' attention more than yields on fixed-income and money market accounts in times like these.
Apart from making this indication for three rate cuts in the current year, the Fed also revised its forecast for 2024 GDP growth, expecting it to now grow 2.1%, up from 1.4% projected earlier. The FOMC statement acknowledged that "economic activity has been expanding at a solid pace", as suggested by recent indicators. It further noted, "Job gains have remained strong, and the unemployment rate has remained low."
The projections for the U.S. GDP growth rate for 2025 have been upgraded to 2% from the 1.8% stated in December, and the same for 2026 has been revised upward to 2% from 1.9% guided earlier. The projection for 2024 unemployment has been revised to 4% from 4.1% guided earlier.
A resilient economy obviously brings in cheers for REITs as it acts as a tailwind for leasing activity. With the REIT industry offering a real-estate structure for several economic activities, real or virtual, the sector's prospects get a boost when an economy is going strong. This is because a healthy economy entails more economic activities and empowers people to spend more. Demand for real estate shoots up, occupancy goes up, and landlords get more power to command higher rents. Therefore, REITs' earnings, cash flows and dividends gain strength.
Though higher interest rates are likely to limit real estate capital market activity in the first half of the year, the same is expected to tick up once the Fed starts lowering rates as the year progresses.
Moreover, with regard to inflation, the Fed pointed out that though inflation "has eased over the past year" but still remains "elevated". The core PCE inflation projections have now climbed slightly up to 2.6% from 2.4%, and this comes after the sticky inflation reports of recent months.
Markedly, REITs provide natural protection against inflation. Particularly, both rents and real estate values have a tendency to move north with prices increasing, thereby aiding dividend growth. A majority of leases are tied to inflation, which leads to rent increases as inflation goes up. Therefore, even amid the inflationary period, investment in the REIT industry can offer a steady stream of income.
Stocks to Consider
Here, we have picked three REITs using the Zacks Screener. Apart from having robust fundamentals, these REITs have higher chances of market outperformance. Further, these stocks have been witnessing upward estimate revisions, reflecting analyst optimism.
Iron Mountain Inc.: This REIT provides records & information management services and data center space & solutions. Its offerings include digital transformation, data centers, secure records storage, information management, asset lifecycle management, secure destruction and art storage and logistics. A recurring revenue business model and a well-diversified tenant base assure steady cash flows.
IRM currently sports a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for the company's 2024 FFO per share has been raised 4.5% over the past month to $4.42, which indicates an increase of 7.3% year over year. Moreover, the Zacks Consensus Estimate for 2025 FFO per share has been revised north 3.5% over the past month. You can see the complete list of today's Zacks #1 Rank stocks here.
Host Hotels & Resorts: This hotel REIT has a portfolio of luxury and upper-upscale hotels that is well-poised to benefit from its presence in the top U.S. markets with strong demand. Host Hotels is expected to witness a stable operating environment in 2024 due to the continuous improvement in the group business, a gradual recovery in the business transient and steady leisure demand.
Host Hotels currently sports a Zacks Rank #1. The Zacks Consensus Estimate for HST's 2024 FFO per share has been raised 1% over the past week to $1.97. Moreover, the Zacks Consensus Estimate for 2025 FFO per share has been revised north 5.2% over the past month.
Gladstone Commercial Corp.: This industrial REIT focuses on the acquisition, ownership and operation of net leased industrial and office properties across the United States. Gladstone Commercial has been witnessing active leasing, aiding solid occupancy, healthy rental collections and ample liquidity to back its acquisitions and growth efforts.
Gladstone Commercial currently sports a Zacks Rank #1. The Zacks Consensus Estimate for GOOD's 2024 FFO per share has moved 5.3% northward over the past month to $1.38. Also, for 2025, the consensus mark for FFO per share has been raised 10.1% over the past month.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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Host Hotels & Resorts, Inc. (HST) : Free Stock Analysis Report
Iron Mountain Incorporated (IRM) : Free Stock Analysis Report
ARM Holdings PLC Sponsored ADR (ARM) : Free Stock Analysis Report
Gladstone Commercial Corporation (GOOD) : Free Stock Analysis Report
Cable One, Inc. (CABO) : Free Stock Analysis Report