1 stock to buy and another to sell this week: Arista Networks and Rivian Automotive

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Stocks on Wall Street rose at the close on Friday after a softer-than-expected jobs report boosted hopes that the Federal Reserve could soon begin cutting interest rates.

Source: Investing.com

The three indices added their second consecutive week of gains.

The index and the technology index rose 1.1% and 1.4%, respectively, while the benchmark index rose 0.5%.

This week comes with little economic data. The latest initial jobless claims will be released on Thursday, while the University of Michigan’s consumer confidence survey will be released on Friday.

Source: Investing.com

These reports will be accompanied by a full agenda of Fed spokespersons, such as district governors Thomas Barkin, John Williams, Neel Kashkari, Michelle Bowman and Austan Goolsbee.

On Sunday, financial markets were betting on a 67% chance that the first rate cut would occur in September, according to Investing.com.

Elsewhere, the earnings season continues, with the release of reports from a number of notable technology companies, including Arm, Palantir, Arista Networks, Datadog, Twilio, Trade Desk, Shopify, Robinhood and Roblox.

Some of the other companies that will release their results are Walt Disney (NYSE:), Uber (NYSE:), Airbnb, Tyson Foods (NYSE:), Beyond Meat (NASDAQ:), Toyota (TYO:), Ferrari (NYSE:) , Rivian Automotive, Lucid, AMC Entertainment (NYSE:) and Warner Bros. Discovery.

Regardless of the direction the market takes, below I highlight some stocks that are likely to spark strong demand and others that could suffer further declines. Remember, however, that my time frame covers only the week that begins, from Monday, May 6 to Friday, May 10.

Stocks to buy: Arista Networks

I expect Arista Networks to outperform this week, as the network infrastructure company is likely to deliver another quarter of strong earnings and revenue growth and an optimistic outlook.

Arista will release its first-quarter results after the close of business on Tuesday at 10:05 p.m., and analysts and investors alike are increasingly favorable to the cloud networking solutions provider, known for its computer network switches that speed up communications in data centers.

It is worth noting that 19 of the last 21 analyst earnings per share reviews have been upwards, while 25 of the 29 analysts covering ANET assign it a rating equivalent to “Buy” or “Hold.”

According to the options market, traders are pricing in an implied move of around 9% in either direction for ANET stock following the release of the report. Notably, shares lost 6% following the company’s fourth-quarter report in mid-February.

Arista Networks Earnings Page

Source: InvestingPro

Expectations indicate that the Santa Clara, California-based technology company will earn an earnings per share of $1.74 in the first three months of 2024, which represents an increase of 21.7% compared to the earnings per share of 1.43 dollars from the previous period.

Meanwhile, revenue is expected to increase 14.7% year-on-year to $1.55 billion, reflecting strong demand for cloud infrastructure from large corporations, small businesses, public agencies and educational institutions.

But, as is often the case, it is more about guidelines than results. With this in mind, I think Arista CEO Jayshree Ullal will offer an optimistic outlook for this quarter as the company continues to benefit from growing demand for its suite of cloud-based networking products and call center solutions. data.

Arista has carved a niche for itself in the networking technology sector with its innovative solutions and has managed to take market share from its main rivals Cisco Systems (NASDAQ:) and Juniper Networks (NYSE:).

Its two largest clients are Meta (NASDAQ:) Platforms and Microsoft (NASDAQ:).

Arista shares closed Friday’s session at $274.40, slightly below the all-time high of $306.42 recorded on March 22. At current levels, Arista Networks’ market capitalization is $86 billion.

Arista Networks Chart

Source: Investing.com

The stock is up 16.5% so far this year, along with much of the technology sector, amid enthusiasm for future business prospects related to artificial intelligence.

As InvestingPro’s ProTips notes, Arista Networks has a near-perfect Financial Health score from InvestingPro thanks to its strong track record of earnings and sales growth, robust cash flow, and impeccable balance sheet.

Stocks to sell: Rivian Automotive

I predict a weak performance for Rivian Automotive this week, with the stock possibly falling to new all-time lows, as the battered electric truck startup’s latest earnings and guidance will disappoint investors due to the negative impact of several headwinds on its business. .

Rivian’s first quarter report is scheduled after the close on Tuesday at 10:10 p.m. ET. The conference call with the analysts will take place at 11:00 p.m. (CET).

Underscoring the several near-term issues Rivian faces in this environment, six of the nine analysts surveyed by InvestingPro have lowered their earnings estimates ahead of the report’s release to reflect a roughly 10% drop from their initial expectations. .

Market participants expect a considerable swing in Rivian stock following the report, with an implied move of about 14% in either direction according to the options market. In particular, Rivian shares plunged 28% following the publication of the latest report and suffered their worst intraday drop in reaction to the results since going public in late 2021.

Rivian Automotive Earnings Page

Source: InvestingPro

Wall Street sees the Irvine, California-based electric vehicle maker losing -$1.16 per share in the March quarter, compared with a net loss of -$1.25 in the year-ago period, as continues to spend heavily in an attempt to fend off competition from more established electric vehicle makers, such as Tesla (NASDAQ:), Ford (NYSE:), and General Motors (NYSE:).

Revenue is expected to rise 74% year-on-year to $1.16 billion, although this would mark a slowdown from the previous quarter’s total sales of $1.32 billion as Rivian battles weakening demand in amid a deteriorating electric vehicle market.

This leads me to believe that there is a growing risk that Rivian will cut its sales, production and delivery forecasts for the remainder of the year, reflecting increased cost pressure and lower gross margins.

Rivian shares, which fell to record lows of $8.26 on April 16, closed at $10.07 on Friday. At current valuations, Rivian’s market capitalization is $10 billion.

Rivian Automotive Chart

Source: Investing.com

So far in 2024, the stock has fallen 57%, making it one of the worst performers of the year to date. Even more alarming is that Rivian remains approximately 95% below its all-time highs of $179.47, recorded shortly after its November 2021 IPO.

Not surprisingly, Rivian currently has an extremely poor Financial Health score on Investing Pro of 1.9 out of 5.0. The Pro Health metric is determined by ranking the company based on more than 100 factors compared to other companies in the Consumer Discretionary sector.

Be sure to check out InvestingPro to stay on top of where the market is trending and what it means for your investment decisions.

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Disclaimer: As of this writing, I am long the S&P 500 and {{0|Nasdaq 100}, via the SPDR S&P 500 ETF (SPY) and the Invesco QQQ Trust ETF (QQQ).

I periodically rebalance my portfolio of individual securities and ETFs based on an ongoing risk assessment of both the macroeconomic environment and company financials.

The views expressed in this article are solely the opinion of the author and should not be taken as investment advice.

Follow Jesse Cohen on X/Twitter @JesseCohen_Inv for more stock analysis and insights.

 
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