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Identifying which stocks are best positioned to see price appreciation is a daunting task, but by utilizing the Zacks Ranking System, it becomes much easier, and more profitable.  A Zacks Rank #1 (Strong Buy) has a long history of outperforming the markets over a 1-3 month time period, and only 5% of the Zacks Rank universe receives this unique grade.  Not only does this ranking system help identify the most elite stocks, it also enables you to stay in a particular company while is continues to gain in value beyond the three month investment horizon.  

The example below illustrates how an investor could have utilized the system to identify a company that was just beginning to see accelerated price appreciation, and by following the Ranking System, could have stayed in that company while it beat and raised estimates for the next three consecutive quarters.  

Example: Arista Networks, Inc. (ANET - Free Report)

Arista Networks, Inc. (ANET - Free Report) , is engaged in providing cloud networking solutions for datacentre and cloud computing environments. It offers ethernet switches, pass-through cards, transceivers, cards, and enhanced operating systems, host adapter solutions and networking services. The Company serves a range of industries, including Internet companies, service providers, financial services organizations, government agencies, and media and entertainment companies.

On February 24th 2017 Arista was added to the Zacks Rank #1 (Strong Buy) list just after it posted 2016 results which saw the company exceeding one billion in annual sales for the first time in its history.  The company easily beat both earnings and revenue expectations, and increased revenue guidance for Q1 17.  Sales grew by +34.8% YoY, as demand for its “Cloud Titan” acted as the major tailwind for the company.  On February 24th, the stock closed at $120.59.

Even with elevated expectations for Q1 17, Arista beat both top and bottom line estimates, and once again increased revenue guidance for the following quarter (Q2 17).  Sales were up another +38.5% YoY, due to the continued success of its “Cloud Titan”, and new products.  Then on August 4th 2017, Arista reported Q2 17 results that once again easily beat both top and bottom line expectations.  Sales were up +50.8% YoY, and management increased revenue guidance for Q3 17.  On November 3rd 2017, management posted its third consecutive estimates beat and raise guidance once again.  Sales were up another +50.7% YoY with sustained strength in the cloud, and product innovation driving the continued success.  

After each quarterly report, the Zacks consensus earnings estimates rose, and Arista received further #1 Rankings due to the impressive performance by the company.  On May 24th (three months after being added to the Zacks Rank #1 list) the stock closed at $144.28, a +19.7% gain.  After the Q2 earnings announcement, the stock price closed at $172.05, a +42.7% gain from when it first became a Rank #1.  Then after the November 3rd earnings announcement the stock price jumped up to $201.49, a +67.1% gain.  Arista remained a Zacks Rank #1 post earnings, and as of the close of the bell on December 8th, the stock price was at $222.79, a +84.8% gain since it first became a Zacks Rank #1 on February 24th.

The table below shows the price performance of ANET (in green), and the 12 month forward looking EPS (in red) from when it became a Zacks Rank #1.

Overall, by utilizing the Zacks Ranking system, you can easily identify the elite stocks which are best positioned to beat the market on a consistent basis, and how to stay in those top stocks as they continue to grow.

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