ROPER TECHNOLOGIES INC. (NYSE: ROP)

I recently raised my target price on this large-cap Industrial stock to $410. This well-managed company has a long record of market outperformance and dividend growth. I think the company — which designs software solutions for a variety of end markets, including healthcare, transportation, water and energy — is well
positioned at this stage of the economic cycle given its focus on productivity enhancement. I look for solid earnings growth, driven by acquisition-fueled top line growth, margin improvement, and lower taxes. The shares are suitable as Industrial holding stocks in diversified portfolios.

PPG Industries Inc. (NYSE: PPG)

PPG is a diversified coatings producer and the No. 2 global producer of paints and coatings, with annual revenue of more than $15 billion. It is a top 1-2 producer in nearly every major end market, including auto OEM, aerospace, and auto refinishing. PPG’s coatings sales are split relatively evenly among North America, Western Europe, and emerging market economies. Implementation of price increases and cost-savings initiatives should lead to higher margin growth. We view PPG as a core holding for long-term investors in the specialty chemical sector based on its historically strong operational and financial performance, leading position in high-growth end-markets, and record of returning excess cash to shareholders through stock buybacks and dividends.

Square Inc. (NYSE: SQ)

Square is a technology platform company that provides payment and point-of-sale solutions to merchants worldwide. It provides hardware for sales and payment solutions to merchants along with software that converts iPads to payment terminals. Payments can be made on Square terminals via a tap, dip, or swipe, or through the company’s Square Cash electronic tender. Square also provides CashApp, which allows consumers to send, spend, and store money on an app. For 3Q19, Square delivered a 40% rise in revenues on 25% growth in payment volumes. We believe that Square is taking advantage of the changing payments landscape.

TEGNA Inc. (NYSE: TGNA)

TEGNA is a pure-play local television broadcasting and related digital media company. Its broadcasting segment comprises 62 local television stations and four radio stations in 51 markets, covering about 39% of the U.S. Each month the company reaches 50 million on-air and 35 million digital viewers. Since spinning off its newspaper business in 2015, TEGNA has made acquisitions within the company’s pureplay local broadcast television station model. TEGNA has benefited from strong political advertising growth, and can look forward to a strong revenue boost from the 2020 presidential election. We believe pressure from activist investor Standard General has been a positive for TGNA stocks.

Intuit (NYSE: INTU)

Upon passage of the Tax Cut & Jobs Act, some investors worried that a simpler tax code would mean fewer consumers using TurboTax. Instead, with the sharp decrease in itemized deductions, the number of TurboTax filers went significantly higher. Intuit’s other interest, QuickBooks, is an even better business. Given the rise of the entrepreneurial economy and the demise of the “job for life” that older generations relied upon, QuickBooks and particularly QuickBooks Online are growing rapidly.

INTU is in a very strong long-term trend that has seen the stock price triple in the past five years. But uncertainty around the tax-code change and other factors resulted in a bumpy ride over the past 12 months. From the $230s a year ago, INTU reached the $290s by September 2019. Whereas other stocks were rallying in last year’s fourth quarter, INTU stumbled in a pattern of lower highs and descending lows. The stock has had a strong start to 2020, recently surpassing its former all-time high and setting a new ATH above $300 for the first time ever. We would put a stop-loss under the 20-day at $290, with a final stop at the 50-day at $274. We would take profits in the $320’s.

ARCONIC INC. (NYSE: ARNC, $33.36)

Arconic has lived through transition the past three years, and more changes are in store. Arconic’s business segments currently include Engineered Products and Forgings, and Global Rolled Products. Both have been facing challenges due to the volatile price of aluminum as well as micro challenges at customers such as Boeing (737 Max) and General Motors (the UAW strike). A new management team – the third in three years – has concluded that another spinoff is the answer. The management team has done a good job of setting and meeting expectations over the past two years, and the balance sheet is improved. From a technical standpoint, the shares have been in a bullish pattern of higher highs and higher lows that dates to December 2018. We think current prices undervalue the two businesses – only 12-times projected 2021 EPS — and are establishing a target price of $38.

ARISTA NETWORKS INC. (NYSE: ANET, $223.47)

Arista Networks Inc. (NYSE: ANET) fell by 6% on 2/14/20 as the company beat consensus estimates for non-GAAP EPS. Revenue declined 16% year-over-year, as the company has not been able to replace absent demand from cloud titan customers. Thanks to favorable mix and tight cost management, Arista was able to slightly grow its non-GAAP EPS for 4Q19 on a year-over-year basis. But 1Q20 guidance disappointed the Street and signals that Arista’s cloud customers have not yet fully returned to the marketplace.

In November 2019, ANET stock plunged more than 20% when the company disclosed ongoing challenges in its important vertical of large cloud customers, or “cloud titans.” With 2019 now complete, management reiterated earlier guidance that cloud demand may be flat to down in 2020. Despite the volatility in cloud spending that impacted results, the year 2019 marked the entry into campus and mainstream switching market segments. CEO Jayshree Ullal indicated that Arista is “excited’ about prospects in 2020 and “committed to a multi-year foundation of growth, innovation, and profitability.” Arista used the forum of its annual investor day in mid-2019 to describe its strategy and path forward. Arista is diversifying into the medium-sized enterprise space via its campus strategy, and has other options for further widening its available market. Arista has also acquired Big Switch Networks, which provides SDN and networking monitoring services.

Having declined from peak prices in the $320s to the current $220 level, ANET appears to be going through a retracement similar to that experienced by NVidia. That company’s core markets have come back, and NVDA is close to recapturing past peak prices. We expect a similar trend at Arista given its leadership in cloud networking, although the pace and timing of recovery is uncertain. With recovery likely to materialize in 2H20, ANET appears attractive at current levels. We regard stock price weakness as an opportunity to establish or add to positions in what we regard as premier long-term stocks in the cloud networking space. We are reiterating our BUY rating to a 12-month target price of $265 (raised from $245).

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