Tag Archives: stocks

If Arista Networks ‘Superbly Positioned,’ What Drove Down Stock?

Needham issued a glowing report on Arista Networks ( ANET ) Thursday, but it fell 4.1% to 61.11 in the stock market . And Arista’s No. 1 switching rival  Cisco Systems ( CSCO ) closed down 0.8% to 27.38. On a trading day when indexes started out on an up note, declined and ended mixed, a fractional slip for Cisco after its 2.1% gain Wednesday can be taken in stride. However, both stocks saw rather wide trading ranges Thursday — especially Arista — coming off its 3% gain Wednesday. There “could be confusion on SONiC,” Needham analyst Alex Henderson told IBD. SONiC stands for “software for open networking in the cloud,” free software-defined networking (SDN) that makes Cisco’s high-speed switches less needed. Microsoft ( MSFT ) announced this contribution to the Open Compute Project at the OCP U.S. Summit in San Jose, Calif., on Wednesday. “SONiC will enable cloud operators to take advantage of hardware innovation while giving them a framework to build upon an open source code for apps on the network switch and the ability to integrate with multiple platforms,” posted Kamala Subramaniam, principal architect of Azure Networking, on a Microsoft blog Wednesday. “SONiC is not just prototyped software but deployed today and planned to run at scale in the future.” Arista is part of Microsoft’s team that created SONiC, along with Broadcom ( AVGO ), Dell and Mellanox Technologies ( MLNX ). Broadcom stock closed up 1.7% to 144.42. But Microsoft stock fell 1.5% to 52.05 Thursday and Mellanox slipped 0.6% to 48.42. As for Arista, SONiCally confusing or not, the company is “superbly positioned” to grow, Henderson wrote in a research note issued Thursday. “We like to think we are pretty technology savvy, but we always feel humbled when we go into Arista and delve into the technology landscape in detail,” Henderson said. “We hit a number of key issues including the 10G to 25G transition, the quality of the Broadcom Tomahawk, the opportunities in storage, the potential of the Jericho chip in the Edge router market, and the advantages Arista has in the SDN market. “This last point is particularly punctuated by the Microsoft contribution of . . . SONiC to the Open Compute Foundation. We come away convinced that ANET has multiple avenues of growth, and we expect continuing share gains.” He reiterated Needham’s buy rating and 105 price target. Henderson noted that “Cisco has been questioning the quality of the Tomahawk chip” but Arista, which made the Tomahawk chip set available in its switches in September, “argues the bugs in this first pass are minor and easily worked around in software” and has “good traction in the market already.” He said Arista “seems to be seeing accelerating conversion of storage area networks (SAN) to storage over IP as “major customers drive to a single unified architecture over IP.” He also observed a “solid ramp,” starting in the second half of this year, for Arista’s 25G/50G/100G speed transition and learned that “Arista thinks some portion of that (Edge router) market can be addressed with much lower-cost switches.” Arista’s “Linux-based, open, programmable and merchant silicon-based products are winning, and the trends continue to increase its advantage,” Henderson said. “We expect ANET to continue to outperform Cisco.” He probably means Arista should outperform Cisco’s growth rate. In the fourth-quarter, Arista grew adjusted earnings per share by 51% to 80 cents, on revenue up 42% to $245 million. In Cisco’s last quarter, ended in January, it grew adjusted EPS by 8% to 57 cents on flat revenue of $11.9 billion. In the current quarter, analysts polled by Thomson Reuters expect adjusted earnings to grow 22% for Arista and 2% for Cisco. Image provided by Shutterstock .

Who Are The Lions In Retailing Kingdom? They Specialize Like Crazy

Defensive sectors are still outperforming the general market. However, strength among some retail groups indicates that U.S. consumer spending is still strong overall. In the U.S., the retail and consumer sectors are like the Grand Canyon. Incredibly vast. Yet companies doing well both in the field and in the stock market are often excelling in a super-specific niche. In Wednesday’s IBD, this column noted a strong rebound in the shares of Urban Outfitters ( URBN ), which reported its third quarter in a row of earnings growth. The Street expected a profit drop. The stock gapped up 16% on Tuesday and reclaimed its key 200-day moving average. Yet Urban Outfitters’ stock is still on the mend. In its apparel retail industry group, which ranked No. 25 as of Thursday’s IBD, you’ll find five stocks with a Composite Rating of 90 or higher. They include Ross Stores ( ROST ), a current member of IBD Leaderboard ; TJX Cos. ( TJX ), operator of the T.J. Maxx, Marshalls and Home Goods chains; Express ( EXPR ); and former big winner and yogawear giant Lululemon ( LULU ). Express debuted on the NYSE in May 2010. Its stores target fashion-focused young men and women via mall and urban street-corner locations. While sales in the January-ended fiscal fourth quarter rose a modest 5%, it marked the fifth straight quarter of top-line growth. Plus, Q4 same-store sales increased 4%, a good sign amid an economy that is generally seeing less traffic at the mall and more shopping online. Express’ e-commerce sales rose 8%. Q4 earnings jumped 37%, helped in part by the fact that in the year-earlier quarter earnings had dropped 14%. The company is succeeding in boosting gross merchandise margins, which helped boost overall gross margin in Q4 to 34% vs. 31.7% a year earlier. Express’ SMR Rating of C needs further improvement, but it masks a healthy ROE of 19.8% last year. The stock is trading close to its 52-week high of 20.72 and has formed a lopsided double-bottom base with a 20.01 entry. However, much of the base’s right side is in the lower half of the base, a flaw. In the tiny five-member discount and variety retail group, Five Below ( FIVE ) (98 Composite Rating) and Ollie’s Bargain Outlet ( OLLI ) (97 Composite) show excellent IBD ratings. The former has carved out a spot in the IBD 50, ranking 30th as of Thursday’s list (which is updated every day at IBD Leaderboard ). Five Below sells merchandise popular among teenagers and kids for $5 or less. It’s a concept that has worked well not only in the U.S., but also in Japan, where the 300-yen and 500-yen shops (or roughly $3 and $5) flourished in the 2000s. Philadelphia-based Five Below’s annual sales have been impressive, rising 27% to 51% each year since fiscal 2009. It’s entered new markets in the Midwest and South, including its first store in Miami, opened on March 4. Ollie’s provides a warehouse-like environment within its 203 stores across the East Coast. Its strategy to provide great finds for shoppers is working. Sales have grown on average 18% over the past seven quarters; EPS has risen 56% over the same time frame. The July 2015 IPO is up year-to-date but is struggling to surpass the 22 level.

Can You Deal With A Stock Market Downturn?

Sometimes we’re late to interesting polls, but hey, they’re still interesting. Back in November, Gallup and Wells Fargo polled people to ask them how well they could stomach a “significant” market downturn, publishing the results on January 22nd . Or note, they defined significant as 5-10%. The results were quite confident: Gallup/Wells Fargo Downturn Poll Some wacky lines there – 87% of stockholders were at least moderately confident in their portfolios, and 82% of investors overall. People in a better position to actually handle downturns with smaller returns – those who don’t hold stocks – were only 61% moderately or better confident. Should We Trust Our Peers at their Word? In a word, no. These are interesting results, for sure, but I see lots of problems here – not just the fact that a significant downturn is defined as only 5-10%. The most recent recession saw drops an order of magnitude larger – in percentage terms (!) – of over 50% in major indices. We lost major financial institutions over a hundred years old, investors panicked, and maybe 10% of people (that’s a stretch) were confidently buying at any opportune time, let alone not panic-selling everything they owned. (We played around with what a “significant” drop might actually be in the past, but found you can be more than a few years early with your calls in some circumstances and still weather a downturn.) So let’s concentrate on our peers’ answers themselves. Do you really think this poll accurately reflects how people would react in a downturn? No, neither do I. You’ve got something of a Lake Wobegon effect going on here – you know, the “fictional” town where everyone was above average. In reality, stock markets have a tendency to over-correct – markets historically oscillate somewhere between ridiculously overpriced and a bargain (of course, identifying those periods is, perhaps, impossibly hard except in retrospect). That’s because previously confident people are selling into a downturn – “locking in losses” – and buying only when the stock market has come back “buying the highs!”. In fact, identifying actual investor results backs up those statements to a degree you’d almost think impossible. Dalbar releases studies on actual investor performance in the markets versus price (or dividend reinvested price) returns, and the results are crazily disconnected: through November 2015, in the order of earning 5.5% on S&P 500 funds in the last 20 years, versus stated returns around 9.85% . (We have a calculator so you can see dividend reinvested returns for the S&P 500 and the Dow Jones Industrial Average). Okay Smart Guy, What Then? For the average investor – and, Wobegon aside, we’re all probably closer to average than we tell ourselves – the best move is to set it and forget it. Consistently, when we do have market downturns, it turns out that many investors have actually overestimated their intestinal fortitude. For a typical person, the best move is to set your portfolio during market doldrums , with a mind to setting in up in such a way that you won’t mind too much if there is a massive move to either the upside or downside. As for re-balancing, it’s best if you go in with a plan, and openly rebalance at a standard time – and, if you can, avoid doing it that often. Believing in your portfolio is one thing, but investing during mania or a crash is no formula for a successful long-time plan. So, make the case. Would you be prepared for a significant downturn without selling most of your portfolio? Why, or why not?