Markets go neither up nor down in straight lines. Every so often, rising share prices suffer a market correctionthatcould end up being nothing more than a brief interruption in upward progress.
Not every reversal becomes a bear market
If a firms trading fundamentals dont change and the economic environment remains steady, theres every chance that lower share prices add up to nothing more than market jitters. Such share price reversals, as long as they prove to be temporary, could provide a better value buying opportunity as decent, well-performing companies sell for a lower price on the stock market.
The trick for us investors is to make sure a firms underlying prospects havent changed and that the valuation still makes sense. If those things seem in order, theres no reason to be shy about buying. Indeed, if we dont buy on market dips, when do we buy?
On 11 February, chip designer ARM Holdings posted encouraging fourth-quarter results with strong revenue and growth in earnings. Back then, the chief executive said the firm saw strong licence revenue growth all through 2014, driven by market-leading semiconductor companies increasing their commitment to use ARM technology and a broadening range of new customers choosing ARM technology for the first time. The rate of growth for ARMs royalty revenue even increased during the fourth quarter.
The top man reckons 2015 will be a year of exciting opportunities and challenges as ARM invests in new products and technologies, and continues to establish itself in competitive new markets. The firm continues to gain market share and, as chips based on ARMv8-A processors and Mali graphics IP start shipping in higher volumes, the outlook for royalty revenues in 2015 and beyond is encouraging, he says.
Yet despite such a bright outlook, ARM Holdings share price still sold off from recent highs around 1200p over the last few days to follow the stumbles of tech shares across the pond in the US. Can so much have changed for ARMs prospects since February, or is this little trip-up a good time for investors to top up?
As I write, speciality pharmaceuticals company BTG (LSE: BTG) is also down, in excess of 15% from the 828p or so the share price achieved at the beginning of the year. The firms overall performance during the year to date has been in line with the directors expectations, they said, back in February with the interim results release. Theres been an upgrade along the way with the company targeting full-year revenue in the range 345m-360m, up from estimates of 330m to 345m.
All seems well. BTG is a growing international specialist healthcare company that is developing and commercialising products targeting acute care, cancer and vascular diseases.The pharmaceutical sector has great longer-term fundamentals and clear growth drivers, and BTG occupies a sweet spot within the industry. The company enjoys diversified revenues from sales of self-marketed products and from royalties on partnered products. Forward earnings-growth projections remain robust.
Perhaps its the US economic growth figures spooking the market a little. A cooling in the fourth quarter saw general after-tax corporate profits record a drop as a strong dollar dented the earnings of multinational corporations. Who knows? Theres always something to worry about as bull markets usually climb a wall of worry.
My bet is that neither ARM Holdings nor BTG have seen their biggest upward thrusts in this economic cycle. With generally good economic news gathering pace around the world now seems like a good time to play shares on the long side. I’m bullish on ARM Holdings and BTG, but I also rate the outstanding firms covered in this well-researched Motley Fool Wealth report.
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Kevin Godbold owns shares in ARM Holdings and BTG. The Motley Fool UK has recommended ARM Holdings and BTG. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.