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Chart Breakout – Part 3

February 8, 2024

The bitcoin chart remains promising. The simple rule is to hold while the moving averages are climbing. The smileys make this easier than it looks because you can only put them on the chart with hindsight. They work to make you money when a share or crypto is in a strong secular uptrend. Plus I use shorter-term charts, other indicators and common sense to make investment decisions. I believe all of these are bullish for bitcoin.

A Portfolio Strategy for Buy and Forget Investors

An alternative to buying bitcoin is to buy IBIT, the iShares bitcoin ETF operated by Blackrock. This can be bought as part of my buy-and-forget investment strategy for investors who don’t want to watch their investments too closely. This strategy consists of 85pc QQQ, 10pc QQQ3 and 5pc IBIT. I would expect such a portfolio to be quite volatile but to do extremely well over the long term. You could even build a $-cost-averaging programme around it.

Backing Shares in Strong Uptrends

Fiserv Climbs and Climbs

Fiserv shares climb every year unless there is a major bear market and sometimes they climb even then. It is a fantastic business. As is obvious from the chart Fiserv is a class act.

Fiserv, Inc. (NYSE: FI), a Fortune 500 company, aspires to move money and information in a way that moves the world. As a global leader in payments and financial technology, the company helps clients achieve best-in-class results through a commitment to innovation and excellence in areas including account processing and digital banking solutions; card issuer processing and network services; payments; e-commerce; merchant acquiring and processing; and the Clover® cloud-based point-of-sale and business management platform. Fiserv is a member of the S&P 500® Index and one of Fortune® World’s Most Admired Companies™.

Fiserv investor relations

The company delivers strong performance year after year.

In 2023, we continue to demonstrate our leadership as proven by our financial performance: 12pc organic revenue growth, more than 200 basis points of adjusted operating margin expansion, 16pc growth in adjusted earnings per share, $4bn of free cash flow and $4.7bn return to our shareholders through share repurchase.

These results are possible because Fiserv possesses a set of assets that’s unparalleled in our industry. From our vast and diverse client base, product portfolio and distribution network, to technology and capital resources, to a deep bench empowered with strategic vision and operational excellence.

Frank Bisignano, CEO, Fiserv, Q4 2023, 6 February 2024

Fair Isaac is no Slouch

Zacks is a US research service that is focused on growth shares and is good at spotting high-quality investments – not as good as me, of course! They are very keen on FICO.

Earnings Growth

Arguably nothing is more important than earnings growth, as surging profit levels is what most investors are after. And for growth investors, double-digit earnings growth is definitely preferable, and often an indication of strong prospects (and stock price gains) for the company under consideration.

While the historical EPS growth rate for Fair Isaac is 30pc, investors should actually focus on the projected growth. The company’s EPS is expected to grow 22pc this year, crushing the industry average, which calls for EPS growth of 13.1pc.

Cash Flow Growth

Cash is the lifeblood of any business, but higher-than-average cash flow growth is more beneficial and important for growth-oriented companies than for mature companies. That’s because, high cash accumulation enables these companies to undertake new projects without raising expensive outside funds.

Right now, year-over-year cash flow growth for Fair Isaac is 5.4pc, which is higher than many of its peers. In fact, the rate compares to the industry average of 3.4pc.

While investors should actually consider the current cash flow growth, it’s worth taking a look at the historical rate too for putting the current reading into proper perspective. The company’s annualized cash flow growth rate has been 20.3pc over the past 3-5 years versus the industry average of 13.6pc.

Promising Earnings Estimate Revisions

Superiority of a stock in terms of the metrics outlined above can be further validated by looking at the trend in earnings estimate revisions. A positive trend is of course favorable here. Empirical research shows that there is a strong correlation between trends in earnings estimate revisions and near-term stock price movements.

The current-year earnings estimates for Fair Isaac have been revising upward. The Zacks Consensus Estimate for the current year has surged 2.1pc over the past month.

Zacks, 31 January 2024

Fico helps lending institutions evaluate the creditworthiness of borrowers. CEO, Will Lansing, had this to say about the outlook.

So we’re very comfortable with our guidance and we continue to see volumes roughly where we expected, frankly. I’m not sure I agree with the view that there’s more optimism. I mean, rates have ticked up in mortgages recently. And so if anything, I guess I feel like the fall in rates might be slower than a lot of industry pundits had been forecasting. That said, as you know, FICO is always very conservative in our view about these things. And so I wouldn’t say that we’re caught in any way by a little uptick in rates or by slowness in rates coming down. There’s no question that we will benefit tremendously as volumes increase when rates come down, and we anticipate that within the year and within next year. But I would say right now, no change in our outlook.

Will Lansing, CEO, Fair Isaac Corporation, Q1 2024, 30 January 2024

Those comments suggest there is plenty to look forward to for FICO shareholders. So let’s have a look at the chart.

This is the kind of chart I love. Like Fiserv, it takes a bear phase in the whole stock market to stop these shares from making progress. At one time I thought their business might be under threat from a newcomer called Upstart but again we see how hard it can be to dislodge an incumbent. It also demonstrates the incredible longevity of these great American growth companies.

A Hot Trucker for the QV Portfolio

XPO is a new entry to the QV portfolio. The chart is just what I like, showing a strong uptrend and a recent buy signal. There are signs of an acceleration in the uptrend since the latest smiley buy signal which makes me wonder if there’s an important ‘something new’ happening at XPO. Below are some pointers to what is happening,

Beginning in 2021, XPO Logistics broke into three separate publicly-traded companies, making XPO solely an LTL provider.

XPO dropped “Logistics” from its name in December 2022 and remains solely as an LTL carrier, which allows multiple customers to transport goods in the same truck.[28] In August 2022, Brad Jacobs announced he was stepping down as CEO and would serve as executive chairman. Mario Harik, XPO’s former chief information officer, who also serves as the company’s president, was appointed as CEO.[24] In March 2022, XPO sold its North American intermodal business to Illinois-based STG Logistics for $710m.[35][36] In March 2023, XPO appointed J. Wes Frye, a retired industry veteran, to its board of directors.[37] In April 2023, XPO announced the hire of Dave Bates as chief operating officer of North American LTL.[38] In December 2023, XPO received approval from a Delaware bankruptcy court to acquire 28 service centres of Yellow Corporation for $870m as a part of Chapter 11 bankruptcy.[39][40] The acquisition was finalised in January 2024.

Wikipedia

We can see that there have been some dramatic changes to the business since 2021 making it far more focused.

What is an LTL provider?

XPO is the second largest provider of less-than-truckload services in North America.[42] Since November 2022, the company’s North American operations have been solely focused on LTL (less-than-truckload) freight transportation.[43] LTL is a freight model which involves shipping smaller quantities of goods for multiple customers at a time.[44] In 2022, XPO’s CEO stated that the company operates in 99pc of US zip codes.[45] As of March 2022, XPO produces new and remanufactured trailers at a factory in Searcy, Arkansas.

Wikipedia

I am learning here but it seems to me that XPO is turning into a delivery network for the fast-growing ecommerce business. This would explain the focus, the accelerating growth and the recent purchase of 28 service centres from Yellow Corporation.

“We delivered fourth quarter results that were solidly above expectations, reflecting substantial momentum in service quality, pricing and productivity,” Chief Executive Officer Mario Harik said in a statement.

“The more service quality we deliver, the more value our customers realise from doing business with us. This dynamic is a key driver of our margin expansion,” the executive said.

Seeking Alpha, 7 February 2024

Many good things are happening at XPO.

Looking at our North American LTL segment, we reported our strongest progress since we launched our LTL 2.0 plan in 2021. We grew adjusted operating income year over year by 51pc and improved our adjusted operating ratio by 380 basis points. We delivered the best damage claims ratio in our history at 0.3pc, as well as a record level of employee satisfaction. And we significantly accelerated our year over year yield growth, excluding fuel, to 10.3pc.

We also improved cost efficiency for the fourth consecutive quarter with further increases in labor productivity and linehaul and sourcing. And we continue to deploy capital efficiently as we reinvest back into the business. All of these are proof points that our plan has strong traction. And the 28 service centres we recently acquired from the Yellow Network will build on this momentum.

This acquisition is a once-in-a-generation opportunity to integrate prime locations into our network to support yield growth and margin expansion. When the market recovers and industry capacity tightens, we’ll be in a stronger position to serve our customers and drive profitable growth for years to come. Now, I want to share some details of the quarter, starting with the first pillar of our LTL 2.0 plan, service improvements. We improved every major component of customer service quality in the quarter, including our customer satisfaction rating, which has risen by more than 40pc since 2021.

Mario Harik, CEO, XPO, Q4 2023, 7 February 2024

I am beginning to realise that XPO is a company at an early stage of a total transformation.

Increasingly, our customers see XPO as a high-value business partner with the resources to help them succeed. This was reflected in our contract renewal pricing, which was up year over year by 9pc for the second consecutive quarter. Accessorials are another opportunity to grow our yield, by delivering more value through premium services. We plan to expand our range of offerings this year.

We saw an early impact in the fourth quarter with the introduction of our retail store rollout offering. We already have over a dozen customers using this service to distribute critical product launches for retailers. And with the third lever, our local channel, we grew shipment counts by double digits for the third consecutive quarter. Our local sales team at year-end was over 20pc larger than in 2022, reflecting the importance we place on this high-yielding margin-accretive business.

So, we have a lot of avenues leading to yield growth and each step forward helps to align our pricing with the value we deliver. The fourth and final pillar of LTL 2.0 is cost efficiency. The main opportunities here are with purchase transportation, variable costs, and overhead. In the fourth quarter, we reduced our purchase transportation cost by 22pc year over year by in-sourcing more miles and paying lower contract rates to third-party providers.

Mario Harik, CEO, XPO, Q4 2023, 7 February 2024

No wonder the shares jumped by nearly 20pc when the latest results were reported. The CEO provided an excellent summary of what is happening.

In summary, in 2023, we made significant progress on our plan across the board, while laying a solid foundation for the future. We improved our operations in all four quarters of the year by generating record service levels, making strategic investments in the network, further accelerating yield growth, and operating more cost efficiently. As a result, the business performed above expectations with robust margin expansion and earnings growth and strong forward momentum.

Mario Harik, CEO, XPO, Q4 2023, 7 February 2024

The chief strategy officer gave a pointer to what was coming.

We’ve taken major strides with our network operations, and we’re still in the early innings of significantly improving our operating ratio.

Ali Faghri, Chief Strategy Officer, XPO, Q4 2023, 7 February 2024

When I first looked at XPO I wondered how shares in a trucking business could be doing so well. I understand much more now and can see why the shares are early in an exciting journey (pun intended).

Strategy – Add These Shares to Your Portfolio

The US economy is amazing to observers because of its resilience. One suggestion is that part of the explanation is high levels of unrecorded immigration.

The resilience of the U.S. economy has been a surprise to Wall Street, and the Federal Reserve, for well over a year now, and the latest GDPNow estimate from the Atlanta Fed suggests the first quarter could once again handily beat Wall Street’s estimates.

The leading theory on why the economy has been so strong, even amid a surge in inflation and then a steep rise in interest rates, is the power of fiscal spending. One paper last year suggested that unless the government pays down the debt – no risk of that with this Congress – excess savings will continue to “trickle up,” for a period of five years.

Analysts at institutional brokerage Strategas led by Don Rissmiller agree that what they call “big fiscal” – the large budget deficits being run at a time of full employment – is a major driver of the economy. But they also point to another factor at work: immigration. “There are good reasons to believe the U.S. has benefited from positive supply effects, ie, there’s surprisingly solid real economic growth (3pc) along with more tame inflation (3pc) as we start 2024,” they say in a presentation. And the upside really appears to be U.S. specific rather than global.

Disinflation, they say, isn’t just about supply chains improving. Measures of stress, they note, suggest the supply-chain-disruption story largely ended by the middle of 2023. They also pour cold water on the energy shock receding, pointing out that happened by the end of 2022.

So that’s where immigration plays a role, helping to offset the aging of the U.S. workforce. “To the extent U.S. immigration has been tough to fully measure in recent years, the reported data may be underestimating this boost. The policy enacted by some states to relocate migrants from the southern border to larger cities may have also had the (likely unintended) effect of matching individuals to regions where there was an ability to work, even if informally. Such an occurrence could then help explain other U.S. data anomalies (e.g., missing workers in the household employment survey, missing income in the gross domestic income calculation)”

MarketWatch, 8 February 2024

ARM Results Stun Market

Results from UK-based, recently floated ARM Holdings have taken the stock market by storm with the shares set to open sharply higher when Wall Street begins trading.

Arm’s second quarter as a public company has produced another strong set of results as we continue to build upon the most popular CPU platform in computing history. We had an outstanding Q3 delivering record revenues and exceeding the highend of our guidance ranges for both revenue and non-GAAP EPS. Growth was driven by both royalty revenue and license revenue. Our highest-ever royalty revenue was driven by multiple factors. Firstly, we continue to benefit from higher royalty rates as the adoption of Armv9 technology increases. The royalty rates for Armv9 products are typically at least double the royalty rates for equivalent Armv8 products, and this will continue to generate royalty revenue growth as
multiple end markets transition to Armv9. Secondly, Arm continues to gain market share in the growth markets of cloud servers and automotive which drive new streams of royalty growth. Lastly, the broader semiconductor market is showing signs of recovery, particularly in smartphones which returned to strong growth in Q3. Arm’s licensing revenue was supported by increasing demand for new technology driven by all things AI. From the most complex AI cloud applications to the smallest edge devices, AI on Arm is everywhere. Arm’s performant and power-efficient CPU platform is used by more and more software developers, making it easier for OEMs to adopt Arm technology, which generates further demand
for Arm-based chips.

We believe these fundamental trends will continue going forward and as a result, we expect next quarter’s revenue to be another record and exceed the previously communicated annual guidance.


Arm is the foundational compute platform for the world’s innovations. It is impossible to build an intelligent electronic device without a CPU, and more chips with Arm CPUs have been delivered in the last decade than any alternative. This virtuous cycle of more CPUs drives more software development on the Arm CPU platform which, in turn generates more demand for our technology. And with so many applications moving to AI, we expect this demand to accelerate. We are only at the beginning. Arm’s strategy promotes multiple long-term growth drivers.

ARM shareholder letter, Q3 2024, 7 February 2024

Is ARM an AI play! Is it ever!

Growth will be driven by the need for more energy-efficient compute and AI capability. We are seeing the demand for Arm technology to enable AI everywhere, from the cloud to edge devices in your hand. Generative AI and Large Language Models (“LLM”) need very high-performance processors. These processors need to operate within constrained energy and thermal budgets making a power-efficient computing platform essential. The most demanding AI applications are already running on Arm today, for example, NVIDIA recently announced that dozens of new AI supercomputers are coming online incorporating their Arm-based GH200 Grace Hopper Superchip. Key players like Dell Technologies,
Hewlett Packard Enterprise (HPE), Lenovo, Quanta and Supermicro are among those using the GH200 to tackle some of world’s most challenging problems. At the edge, Google recently revealed their LLM, Gemini Nano, running on the latest Arm-based Pixel 8 smartphone, and Samsung, Vivo and Xiaomi all have announced new Arm-based smartphones that demonstrate generative AI and LLM capabilities. Some of the features include live call translation, intuitive search features such as circle to search, and advanced photo and video capabilities.

Growth will be driven by Compute Subsystems. The growth of AI is putting more demand on scarce design resources, creating the opportunity for Arm to do more. Complex chips are becoming more difficult and taking longer to design, compounded by chip manufacturing cycles taking longer as well. This means chip designers must do more in less time to hit their product launch window. Our solution to this is Arm Compute Subsystems (“CSS”) which are integrated and verified configurations of Arm technology platforms targeting specific end markets and use cases. We are already seeing proof points of this strategy in the infrastructure market. One Arm Neoverse CSS customer successfully went from concept to working silicon of an advanced server chip in just 13 months, reducing their development time by 50pc, and another reported saving 80 years of engineering effort resulting in over $20m savings in cost. During the quarter, Microsoft announced their first cloud server chip, the Microsoft Cobalt 100, which is based on Arm Neoverse CSS.

Growth will be driven by Arm’s unique ecosystem of software and design partners. Arm already has the world’s largest compute ecosystem with more than 15m software developers. This unprecedented number of developers leads to seamless design choice by OEMs selecting Arm CPUs as the platform of choice. As more applications move to AI, we are investing in the software ecosystem needed to bring AI to the billions of Arm-based devices. One key solution is ArmNN, an optimized AI engine which seamlessly integrates with the most widely used AI frameworks and enables developers to create AI applications for mobile and consumer-electronic devices. Since its launch in 2018, ArmNN has been deployed on more than 700m devices enabling a seamless way to port AI applications to existing products.


The CSS product offering is also benefiting from Arm’s broad ecosystem strength. During the quarter, we announced Arm Total Design which is a program to simplify delivery of custom chips based on Arm’s Neoverse CSS. Arm Total Design currently comprises 12 leading technology ecosystem partners who together combine all the ingredients required to build a complex server chip. This includes pre-integrated, validated IP and EDA tools, design services and expertise, foundry support for leading-edge process nodes and advanced packaging, and commercial software support all optimised for Arm
Neoverse CSS. Arm Total Design broadens the number of potential customers for Arm and will fuel future growth.

ARM shareholder letter, Q3 2024, 7 February 2024

Share Recommendations

Bitcoin BTCUSD. Buy @ $44,967

Fiserve. FI. Buy @ $142

Fair Isaac. FICO. Buy @ $1280

XPO Inc. XPO. Buy @ $116.50

ARM Holdings. ARM. Buy @ $97.50

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