Should You Buy Last Week’s Fallers ARM Holdings plc & Diageo plc?

Today I’m looking at the investment prospects of two battered FTSE-quoted beauties.

A chipper growth play

Microchip giant ARM Holdings had five days to forget last week, the stock conceding 10% of its value between last Monday and Friday. And market appetite failed to ignite following full-year results released later in the week.

Still, I believe investors may be missing a trick here, with ARM Holdings’ financials giving investors plenty to get excited about.

While the company remains at the mercy of slowing smartphone and tablet PC sales across the globe, the introduction of new technologies such as its ARMv8-A technology should keep the business at the pinnacle of the sector and a firm favourite with industry giants like Apple and Samsung.

Indeed, ARM Holdings noted that these chips “are expected to continue to gain share in mobile and enterprise markets, and the higher royalty rate earned on these products helps to underpin growth in royalty revenues.” The Cambridge firm saw underlying processor royalty revenues jump 24% between October and December as adoption of its new technology took off.

On top of this, ARM Holdings’ decision to diversify into new growth sectors like servers, networking and the Internet of Things is also paying off handsomely. The company advised that its partners have seen a 20% increase in ARM-based chips being used in networking infrastructure equipment during the fourth quarter.

The City expects ARM Holdings to enjoy a 43% earnings rise in 2016, leaving the business dealing on a conventionally-high P/E rating of 32.6 times. But a sub-1 PEG reading of 0.8 suggests the tech play may not be an expensive pick relative to its growth prospects after all.

And this solid growth picture and brilliant cash-generative qualities are expected to keep dividends trucking higher, too — ARM Holdings hiked the dividend 25% last year to 8.78p per share, and an extra 15% rise to 10.1p is forecast for 2016.

A delicious drinks pick

While fears over economic cooling continue to subdue appetite for Diageo (LSE: DGE) — the drinks mammoth saw its shares fall a further 2% last week — I believe this weakness represents a canny entry point for long-term investors.

Not only is the business throwing huge sums at heavyweight labels like Johnnie Walker whisky and Guinness stout to keep sales flowing in, but Diageo’s desire to expand its presence across Asia, Latin America and Africa promises to deliver rich gains in the years ahead as emerging market spending power clicks higher.

The City expects Diageo to brush-off deteriorating economic conditions and adverse currency movements and punch a 1% earnings advance in the year to June 2016, resulting in a slightly-elevated P/E rating of 21.3 times. But I believe the strength of Diageo’s growth prospects merits such a premium.

And Diageo’s progressive dividend policy helps take the edge off, too — last year’s payout of 56.4p per share is projected to rise to 58.4p in 2016, resulting in a chunky 3.1% yield.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended ARM Holdings and Diageo. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.