Two Ferocious Dips: Cogent Communications and United Logistics $CCOI, $ULH

Thank you for your understanding for any typographical errors, these hands are not accustomed to laptop keyboards. We are three UHaul loads deep into this move, and I need to buy a new computer desk before I get my work station up and running.

But I wanted to point out that this earnings season is very unforgiving, misses result in huge selloffs. This behavior is unusual for a bull market reaching new all time highs. It seems that the AI disruption uncertainty still has market participants looking for opportunities to short. While I do believe the path forward for the market is higher, I am always looking for data points that point the other direction. The disproportionate punishment of earnins misses is one of those inconvenient data points.

Two stocks in my portfolio were hammered on Monday, Cogent Communications (CCOI) and United Logistics (ULH). I took the opportunity to add to both, I even dipped into margin a bit because they weren’t what I was planning on buying this week.

The next day, CCOI bounced back hard, which is a good indication that the bottom is in. ULH, on the other hand, continued to sell off. From a one year perspective, ULH could bounce here forming a double bottom, but from a 10 year perspective, it could easily fall toward $10.50. The RSI is extremely oversold at 23, anything could happen over the next few days, but over the weeks and months, I think buying ULH at $12.28 and 0.21x price to sales is a smart move.

Meanwhile, trucking volumes and rates have exploded higher, especially in flatbeds, which is about 35% of ULH’s revenue. The recent earnings call wasn’t what the market wanted to hear, but the big selloff came with the announcement that Amazon would start selling logistics services to third parties. While Amazon is a juggernaut, logistics is a market where XPO split itself up into four pieces in order to unlock efficiencies. I won’t get shaken out of a trucking company just because Amazon will participate. ULH routinely trades at a price to sales ratio of 0.4x, and at peaks, trades up to 0.6x. On higher revenues, it’s probably a three bagger from here.

Regarding Cogent Communications, all three business segments are growing for the first time since the longhaul fiber acquisition and the three year process of firing legacy customers began. Management has only captured about 3% of the data center market, but they still guide toward taking 25% market share over time, which is their market share for their traditional business. One of the reasons I am so confident is that with data centers, they aren’t choosing one provider in the same way that a suburban household chooses between Frontier or Spectrum, in a world where data centers need 99.999% uptime, they choose all providers. The data centers won’t allow a multi billion dollar facility to go offline because an idiot with a backhoe severed a conduit in Sheyboygan. Instead, they hook up their data center to all providers. I am confident that Cogent will take market share and reach their stated goal.

Over the longer term, it seems implausible that the AI revolution won’t benefit data traffic volumes over time. And the threat of disruption seems nil because laid fiber is already traveling at the speed of light without packet loss, so not even Starlink can compete. Keep in mind that we are currently operating with data centers that were started before the fall of 2024, because they take 18 months to build. Data center capex has only accelerated, and token prices and Anthropic throttling Claude Mythos tells me that we are still relatively early in the cycle.

Someday, CCOI could be recognized as an AI beneficiary, and when that day comes, it could trade at absurd multiples along with AAOI and BW. I have the value disease, I prefer to buy dips instead of chasing new highs. That probably guarantees underperformance, all the smart people seem to be buying Nokia (NOK) right now. But I am who I am, a value degen, and when good companies sell off hard, I have to add a bit more.

Also, on the last earnings call, CCOI did say that they had a nonbinding letter of intent to sell 10 of their 24 excess data centers, with the transaction expected to close in the early summer. A little bit of deleveraging would certainly be welcome, but the price action on Tuesday makes me think that the worst is behind CCOI either way. I could be wrong of course.

Best regards,
Steve Farrington aka The Unemployed Value Degen