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3 Strong Stocks to Buy in May and Hold

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Today’s episode of Full Court Finance at Zacks explores a few key stock market levels as Wall Street digests Jay Powell’s speech and what the Fed might do next. The episode then dives into three strong stocks—Arista Networks (ANET - Free Report) , Uber Technologies (UBER - Free Report) , and Shopify (SHOP - Free Report) —that investors might want to buy before their upcoming earnings releases and hold for the long haul.

The bulls fought back on Thursday following a late-afternoon selloff that washed away the initial post-Fed pop. 

Powell appeared to rule out the possibility of the Fed hiking rates, helping the bulls feel comfortable pushing the S&P 500 and the Nasdaq near their 21-day moving averages.

The unknowns around the corner shouldn’t deter investors since the last several years show how difficult market timing is. 

Investors who want to stay constantly exposed to stocks might consider buying these strong tech stocks in May. 

Arista Networks ((ANET - Free Report) – Q1 2024 Financial Results on Tuesday, May 7

Arista Networks is a networking infrastructure provider and a leader in data-driven, client-to-cloud networking for large data centers and beyond. ANET has accumulated over 8,000+ cloud customers worldwide, including the likes of Microsoft ((MSFT - Free Report) ), Meta ((META - Free Report) ), and many other tech titans. The firm’s offerings are at the cutting edge and critical considering that six of the largest cloud service providers based on annual revenues are Arista Networks clients.  

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ANET stock has skyrocketed 1,800% during the last 10 years to blow away the Zacks Tech sector’s 340%, Meta’s 630%, and Microsoft’s 1,100%. Arista Networks has soared 95% in the last 12 months, yet it is down 15% from its March records and trades 12% below its average Zacks price target. The stock is trying to find support at its 21-week moving average and it is on the cusp of retaking its 21-day.

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Arista Network trades at a 65% discount to its 10-year highs and near its median at 36.4X forward 12-month earnings and at a 45% discount to its three-year highs. Arista Networks has a stellar balance sheet and its Communication – Components industry is in the top 9% of over 250 Zacks industries.

Arista Networks is projected to post strong earnings and revenue growth in 2024 and 2025, and its upbeat EPS revisions help it land a Zacks Rank #1 (Strong Buy).

Uber Technologies, Inc. ((UBER - Free Report) – Q1 2024 Financial Results on Wednesday, May 8

Uber posted its first full-year profit as a public company in 2023 by expanding its ride-hailing and delivery businesses while streamlining its operations. Uber’s CEO called 2023 an “inflection point” proving it can “continue to generate strong, profitable growth at scale.”

Uber grew its monthly active platform consumers by 15% YoY in Q4 to 150 million, fueled by growth across ride-hailing and delivery. The firm’s two core businesses are especially popular with higher-income consumers who are less impacted by lingering inflation and various economic cycles. Uber also still has an eye on its autonomous vehicle future via strategic partnerships with Waymo and others.

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Uber grew its revenue by 17% in 2023 after its sales soared 83% in 2022 and 56% in 2021. Uber is projected to post 16% growth in both 2024 and 2025 to hit $50.49 billion next year (vs. $13 billion in pre-Covid 2019).

Uber is expected to post 41% adjusted EPS growth in 2024 and 66% in FY25 to reach $2.04 per share (vs. an adjusted loss of -$4.65 a share in 2022). Uber’s upbeat EPS revisions earn it a Zacks Rank #1 (Strong Buy).

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Uber has climbed 80% during the last year to hit new all-time highs in mid-February. The stock is trading 15% below its records and 26% below its average Zacks price target. Uber is attempting to find buyers at its 21-week moving average, while trading between its 21-day and 50-day and at some of its most oversold RSI levels over the last five years.   

Uber’s valuation is improving. The stock trades at a 50% discount to its highs at 3.2X forward sales and 30% below the Zacks tech sector. Plus, its PEG ratio, which factors in its longer-term earnings growth outlook, sits at 0.9 vs. tech’s 1.8.

Shopify ((SHOP - Free Report) – Q1 2024 Financial Results on Wednesday, May 8

Shopify provides “essential internet infrastructure for commerce.” The firm helps its clients with everything from website design and sales to marketing, payments, shipping, and beyond. Shopify grew in the e-commerce world dominated by Amazon ((AMZN - Free Report) ) by focusing on the seller, while Amazon cares almost entirely about the consumer.

Shopify grew its revenue by an average of 65% between FY17 and FY21. Those massive growth days are over, but Shopify made up for slowing top-line expansion by raising its prices in 2023 for the first time in over a decade.

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Shopify is projected to grow its sales by 21% in 2024 and 20% in 2025 to reach $10.20 billion. The company is also committed to expanding its bottom line, with its adjusted earnings projected to climb 30% this year and 33% higher next year.

SHOP lands a Zacks Rank #3 (Hold), but its earnings estimates for FY24 and 2025 have skyrocketed over the last year. Shopify has also crushed our EPS estimates in the trailing four quarters.

Shopify stock is down 57% from its November 2021 highs even though SHOP soared 160% off its 2022 lows. SHOP has skyrocketed nearly 2,500% since its IPO in 2015 vs. Amazon’s 750% run during that stretch.

Shopify’s sky-high valuation levels are holding back the stock amid the new interest rate environment. SHOP’s balance sheet is stellar and it might be worth considering as other tech stocks trade near all-time highs.

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