Investors and traders always want an edge as the calendar flips over to a new year, and Innovative Industrial Properties (NYSE: IIPR), Zscaler (NASDAQ: ZS)
and Axcelis Technologies (NASDAQ: ACLS)
are showing signs of technical and fundamental strength that could lead to further gains.
A little context on market conditions as we wrap up 2021: When the Federal Reserve held its last meeting for the year on December 14 and 15, the central bank said it would hasten the tapering process, as well as give more insight into rate increases.
The S&P 500 is up 1.9% since December 15, in something of a Santa Claus rally that picked up steam this week and last. That gain comes despite sharp declines on December 17 and 20 on renewed Covid fears.
One often-repeated theme throughout 2021 is companies notching strong sales and earnings gains over a moribund 2020. For 2022, growth estimates are lower, as the year-over-year comparisons are much tougher this time around.
Innovative Industrial Properties is a REIT specializing in real-estate financing for the medical cannabis industry. The stock is forming a consolidation with a 19% peak-to-trough correction and has been etching the right side of a base in tandem with this month’s market rally.
Revenue has been growing at double- and triple-digit rates in the past eight quarters, with earnings growing at those rates in seven of the past eight quarters.
For the full year, analysts expect earnings of $6.63 per share, up 36% over 2020. Annual revenue growth accelerated in the past three years, since the company began reporting after going public in early December 2016.
Notably, Wall Street sees a 35% earnings increase in 2022, putting IIPR in the ranks of quality companies expected to post more strong gains in the near future.
As a REIT, IIPR has the added benefit of pass-through income to investors, which can pick up some slack even during corrections. Earlier this month, the company declared a fourth-quarter 2021 dividend of $1.50 per share, equivalent to an annualized dividend of $6.00 per share.
Zscaler is a cloud-based cybersecurity specialist. That means enterprise clients are freed up from having to install security software on employees’ devices or on their local networks. For a workforce that’s increasingly remote, and for businesses that rely on a growing number of apps, that makes Zscaler a good cybersecurity choice.
Enthusiasm among customers shows in the revenue numbers: Sales have been growing at rates between 36% and 62% in the past eight quarters. Earnings growth was a little more choppy, although the company has been consistently profitable since 2019.
It’s probably no surprise that given its business model, Zscaler grew earnings and revenue in 2020 as more businesses went remote. However, rather than eyeing a decline due to tough year-over-year comparisons, analysts expect earnings to hold steady in fiscal 2022, at $0.52 per share.
In fiscal 2023, that’s seen rising 79% to $0.93 per share.
The stock is currently working on a base below its November 19 high of $376.11. Here, too, you can see an uptrend in recent weeks as the broader market has trended higher. Zscaler is not a buy today, but is one to watch in the coming weeks, as continued growth in the coming years looks to be reasonably certain.
Axcelis Technologies is another fast-growing tech with strong earnings estimates for the coming year. With a market capitalization of $2.435 billion, the semiconductor designer and manufacturer is on the cusp between small- and mid-cap.
It’s not unusual to see higher betas, meaning greater volatility, in smaller stocks, and that’s the case here. Axcelis has a beta of 2.65, meaning it’s significantly more volatile than the broader market.
That’s not always a negative, though. Volatility to the upside can benefit investors. In fact, Axcelis boasts a year-to-date return of 151.92%. That trounces not only the S&P 500’s return of 27.08% but also the S&P 400 mid-cap index’s return of 23.66% and the S&P 600 small-cap index return of 16.62%.
Revenue grew between 2% and 65% in the past eight quarters, with double-digit growth in the past seven. Earnings grew at double- and triple-digit rates in that time frame.
According to MarketBeat earnings data, Axcelis topped earnings and revenue estimates in seven of the past eight quarters. The sole exception was the quarter ended in December 2020, when the company met earnings views while beating on the bottom line.
Analysts see earnings up 84% this year to 2.08 per share, rising another 40% to $3.74 per share in 2022.
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