There are many reasons for stocks to go up or down.

Many times, they trade with the direction of their operating profits. Sometimes, they trade alongside other companies in their industry.

Most often, they simply trade with the stock market.

A few times, though, they will trade based on what investors call a “corporate action.”

This is where they are doing something big and strategic at the company.

While many of these moves are value-added in the intermediate term, in the short term, they may pressure the stock.

Today’s idea for HX Income is one of these situations.

Here is the idea…

The company is global advertising agency giant Omnicom Group Inc. (NYSE: OMC).

Omnicom Group was founded in 1986 by merging three large advertising agencies. Today, this NYC-based company is the second largest advertising agency in the world, with over 75,000 employees and almost $75 billion in annual revenue.

Over the years, scale has become key in the advertising agency business. Clients require larger firms to address their increasingly complex needs successfully.

This scale and positioning have led to solid growth in profitability over the last decade.

This table shows their earnings per share or "EPS" results over the last ten years…

The growth in EPS hasn't been tremendous, but it is remarkable for its consistency. Despite advertising being notoriously cyclical, they have grown almost yearly.

COVID-19 (2020) and the post-COVID-19 collapse (2022) are the only exceptions. This is a solid track record.

They also have delivered an admirable track record of exceeding analysts' expectations for EPS. Here is that table over the last five years…

They clearly understand their operations very well. They have only missed one quarter in the last five years, during the heart of COVID-19.

Again, given the underlying advertising business, this is pretty impressive.

Companies that beat numbers consistently will also see analysts having to increase those estimates. This is called positive earnings "revisions" and is the single most potent driver of stock prices.

Here is the chart showing the analyst estimates for 2025 EPS, along with a chart of the stock price…

OMC's numbers have been moving consistently higher and the stock price has (mostly) been moving along with it. Again, we are surprised by the consistency of their growth over the years.

The combination of growth, beating numbers, and rising estimates almost always leads to a higher stock price.

Here is a chart of the stock price over the last five years…

OMC has a relatively stable growth business, highlighted by the stock doubling since the 2020 COVID-19 lows.

Recently, though, the stock has been sold off quite a bit. It has sold off so much that it has triggered our relative strength index or “RSI” buy signal of trading below the 30 level.

Here is a stock price chart over the last eighteen months, along with the RSI…

After hitting a new high just a few weeks ago, the stock dropped by more than -15% over two consecutive weeks.

Has the stock been caught up in the market sell-off like many other companies?

That has undoubtedly played a role, but the reason the stock initially traded down was the announcement of a "corporate action."

In this case, they announced that they would be acquiring the fourth largest advertising agency in the world – The Interpublic Group of Companies, Inc. (NYSE: IPG).

This would make the combined company the largest advertising agency in the world and lead to many cost cuts.

So, why is the stock down then?

In this case, the deal will be a "stock-for-stock" deal where OMC will pay a premium. In these types of deals, a lot of stock is issued, which can overwhelm the demand for the stock.

In this case, it would represent a 60% increase in the share count. That is a lot of stock!

Even with good deals, it is common with THIS much additional stock issued; the stock initially sells off.

The deal was announced on December 9, and the market sell-off exacerbated the resulting sell-off.

We think this is creating a great income opportunity.

Here is a table showing how the stock has performed after it traded through the “30” RSI buy signal in the past decade…

Looking ninety days into the future, the stock is up almost three-quarters of the time. We think those odds are even better with this kind of deal.

Historically, the stock has not gone up, but remember, the great thing about HX Income is we don't need it to go up. We just need it to not go down much.

We think this is a fantastic setup for the strategy.

Buying a solid business doing a strong transaction that has sold off on the technical aspects of this “corporate action.”

The stock is advertising some potential income, and we are buying!