Top Picks Update
Arista Networks (ANET)
From Cabot Top Ten Trader
Arista Networks has been a terrific performer this year, especially since its coming out party in February, when a blowout quarterly report gapped the stock to new all-time highs (breaking the stock free of a huge two-and-a-half-year post-IPO consolidation). Since then, the stock has been trending consistently higher, which is impressive given the market hiccups in May and June.
Beyond the company’s underlying story (it looks like the next great networking company as it was built from the ground up to best serve the cloud computing and data center areas), the stock has been strong for a couple of reasons. First, of course, is that business remains very good, with sales growth actually accelerating a bit recently (33%, 34% and 37% during the past three quarters), while earnings have been rising in the 30% to 40% range.
The second reason: It appears that Arista is generally coming out on top in its long-running legal and patent battle with Cisco. Arista has received numerous rulings in its favor during the first half of 2017, and while there are still a couple more rulings to come in the months ahead, more and more analysts (and, more important, fund managers, 476 of whom now own shares) are becoming comfortable that Arista won’t have to resort to any draconian measures (changing their supply chain, etc.), which was a possibility with an adverse ruling.
What about the stock now? Is it a Buy? Well, my answer is split between the short- and long-term. Short-term, ANET has been running without any sort of pullback since February; I’m not one to call tops, but there will be a correction at some point, so if you want in, I would start small (maybe buying half of what you normally would, dollar-wise).
Longer-term, though, I’m more optimistic because, as mentioned above, ANET just began its major advance in February. Barring a huge market downturn, leading stocks usually don’t top after just a few months of rallying, so my guess is ANET has further to run as the bull market progresses.
Michael Cintolo, Cabot Top Ten Trader, www.cabotwealth.com, 978-745-5532, June 22, 2017