Value Pick of the Week

No Value Pick this week — no company passed the technical qualifiers.

Market Summary

The S&P 500 fell 0.5% last week, and the drop revolved around Meta Platforms (META), our two-time pick from April 2025 and July 2 of this year. From Monday to Wednesday the market rose each day and was up 1.26% at Wednesday’s close. META reported earnings after the close and went straight to the theme of financing capital spending (capex) for AI — for the third week in a row.

  • Revenue beat expectations.
  • Operating income fell 37% and the margin was cut in half, to 20%.
  • Costs and expenses rose 68%, including $9.9 billion to settle lawsuits over teen mental health.
  • Capex came in at $34.9 billion for the quarter, up ~$4 billion from the second quarter and up 80% year over year.
  • The number that moved the price, and rippled through the tech sector, was free cash flow at a negative $2.1 billion versus a positive $10.6 billion a year ago.
  • Meta also announced a new Class C issue and stock split: each holder of Class A (our shares) and Class B (Zuckerberg and friends) will receive 1 share of Class C (non-voting), effectively a 2-for-1 split structured to keep Zuckerberg in control. It’s scheduled for January 19, 2027.
  • This new Class C will be used for future employee compensation (currently ~$28 billion per year — or 1.7% of shares outstanding — paid with Class A shares) and possibly for future capitalization, without diluting Zuckerberg’s control.

META finished the week down 9.4% and took a number of companies down with it.

How Our Picks Fared

Our past picks gained 1.2% relative to the S&P 500. Despite Meta and eight other companies losing more than 5%, we had seven that gained more than 5% and 44 that beat the benchmark. It was a volatile week, with four others moving by more than 10%.

📉 IES Holdings (IESC) fell 15.2%

  • Third straight double-digit decline with no identifiable catalyst — coverage reads “sector rotation and profit-taking.”
  • The cumulative number is the story now: $339.34 on 10/2 to $213.54 on 10/23, down 37.1% in three weeks, with no earnings, no downgrade, and no new information or events in any of the past three weeks.
  • IES’s current P/E is 19.0, 26.3% below the industry median of 25.7, and down from 30.1 on October 2.
  • Since IESC was recommended in March 2025, it has gained 134.8% and beaten the S&P by 99.6%. I expect it to continue that trend.

📉 Lam Research (LRCX) fell 12.8%

  • Q1 FY2027, reported Wednesday, with revenue up 54.5% year over year, beating expectations, and non-GAAP EPS beating consensus by two cents.
  • The reason for the “beat and drop” was the P/E. Lam entered the week up 52.4% year-to-date at a trailing P/E of 38.9 against a 23.9 five-year median. A $0.02 beat doesn’t support that kind of multiple.
  • Even after the haircut, LRCX is up 34.4% year-to-date, and I expect it to continue beating the S&P benchmark for at least the next several years.

📈 CrowdStrike (CRWD) rose 13.3%

  • Evercore ISI’s quarterly channel partner survey found a strengthening budget outlook across cybersecurity, with spending directed at securing data and AI, protecting identities, and locking down cloud environments. The line that moved the group: “Partners saw no demand cliff ahead.”
  • It lifted the whole sector — Palo Alto Networks (PANW) gained 7.22% and Okta (OKTA) picked up 5.82%.
  • CrowdStrike had also expanded an AI agent security partnership with Nvidia (NVDA) on Wednesday — no financial terms were disclosed, so there’s no way to assess the potential revenue impact.

📈 Zscaler (ZS) rose 23.0%

  • Zscaler didn’t have a down day during the week — three good days and two really good days.
  • On Tuesday, ZS jumped 7.8% on a genuinely odd catalyst: DA Davidson initiated coverage at Neutral with a $215 price target, and the stock jumped nearly 8%, closing ~8% above the target it was just assigned. Even the coverage noting the move couldn’t explain why a neutral initiation produced that reaction.
  • On Friday, ZS popped 7.31% on a wave of price target increases — Truist, Wells Fargo, Bank of America, Oppenheimer, RBC, UBS, Cantor Fitzgerald, Canaccord, TD Cowen, Wedbush, and Freedom Broker — clustering at Buy, Overweight, or Outperform ratings.
  • ZS closed Friday at $255.15, which is $10 above the median price target. The thesis is the $8 billion ARR by FY31 from the October 6 Investor Day, with several firms modeling an AI-driven upside case to $10 billion. Wedbush and RBC cite mid-to-high-teens ARR growth and long-term operating margins around 27–30%.

Past Picks Review — Aerospace & Defense

We have four companies in the Aerospace & Defense industry — two reported last week, two report this coming week. We’ll wait one more week for the other two, General Dynamics (GD) and Textron (TXT), and see what their earnings reports tell us.

Lockheed Martin (LMT) — SELL ($604.18)

Recommended February 25, 2024 at $426.46, LMT is up 40.7% against the index’s 50.2%, trailing the S&P by 9.5 points. It’s being sold on strength, not weakness.

  • The quarter was genuinely strong: sales rose 11%, diluted EPS came in at $7.97 against $7.52 consensus, and free cash flow of roughly $3.0 billion beat the $1.6 billion estimate by nearly double.
  • The company is doing well: backlog hit a new record, up 27% in a single quarter, and the Pentagon agreed to a ten-year framework covering 850 F-35 jets — the most significant structural commitment the program has received.
  • The sell recommendation is because the company jumped 10.3% on this solid quarter, and the good news for the future is already baked into the price. It closed at $604.18 on Friday and the one-year estimate is $600 — the consensus implies zero upside.

GE Aerospace (GE) — HOLD

Recommended December 22, 2024 at $163.59, GE is up 75.3% against the index’s 28.9% — ahead by 46.4 points.

  • The operating quarter was excellent. Revenue and adjusted EPS were solid beats, adjusted operating margin expanded 220 basis points to 22.5%, and orders rose 49%. Management raised full-year adjusted EPS guidance to $8.00–8.10 from $7.65–7.85.
  • The services annuity is the real asset. Services revenue grew 17%, LEAP shop visits (engines removed from the wing for overhaul) rose more than 40%, spare parts sales more than 20%, and the services backlog exceeds $170 billion with low-double-digit services growth expected in 2027. Aircraft grounded on LEAP engine issues have fallen to nearly zero since summer, and management expects departures to increase next year.
  • Honest negatives, and they’re why the stock fell 9.0% last week: the raised full-year guide implies fourth-quarter adjusted EPS about 5% below consensus — the raise was backward-looking. Free cash flow fell 14% to $2.042 billion. Commercial Engines & Services margin held roughly flat at 27.9% despite 21% revenue growth, as inflation and an increasing share of lower-margin LEAP work offset volume and pricing gains.
  • Even after this week’s target cuts, at $285.64 against a $400 median 1-year target, the implied upside is 40.0% plus the 0.60% dividend — well above the anticipated S&P 500 bar of 22.5%. Three analysts trimmed targets after the report (Morgan Stanley and RBC both to $375, Susquehanna to $400), and at $375 the position still clears by 8.8 points. All three maintained bullish ratings, which marks this as valuation trimming rather than a change of thesis.

Have a great week!

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