The Smart Way to Own ANET: Collect 10% Before You Even Buy
At about $131.84 a share, Arista Networks (ANET) is trading about 19% below its 52W high.
Do you think ANET stock is a good long-term bet at current levels? What about at a 40% discount at about $80 per share? If you think that is a steal, and have some cash ready to go, here is a trade.
10% annualized yield at 40% margin of safety, by selling Put Options.
- Sell a long-dated Put option expiring 12/18/2026, with a strike price of $80
- Collect roughly $479 in premium per contract (each contract represents 100 shares)
- That’s about 6.1% annualized yield on the $8,000 you’re setting aside for the possibility of buying the stock
- This cash parked in a savings or money market account will earn an extra 4.0%, taking total yield to 10.1%
- And you give yourself a chance to buy ANET stock at deep discounted price of $80
However, this is not the only stock strategy in town. Trefis High Quality Portfolio is a sophisticated framework designed to reduce stock-specific risk while giving upside exposure.
- Triggers That Could Ignite the Next Rally In Meta Platforms Stock
- Can Coca-Cola Stock Withstand These Pressures?
- Fiserv Stock: Strong Cash Flow Poised for a Re-Rating?
- Comcast Stock Pullback: A Chance to Ride the Uptrend
- Has Accenture Stock Quietly Become a Value Opportunity?
- GLOBALFOUNDRIES Stock Delivers Strong Cash Yield – Upside Ahead?
Possible Trade Outcomes: You Win Either Way
| Stock Price Outcome | What It Means For You |
|---|---|
| ANET stays above $80 | You keep the full $479 premium – 6.0% extra income over the next 357 days on cash that might otherwise earn you 4.0% or less. You never buy the stock and simply walk away with the cash. |
| ANET closes below $80 | You’ll be obligated to buy 100 shares at $80. But thanks to $479 premium, your effective cost basis is just $75.21 per share – a roughly 43% from current level. |
But to hold this trade with conviction, you want to see long term upside in the stock. Because if it comes to it, you want to be excited about buying the stock cheap.
First, you want fundamentals to check out. For details, see Buy or Sell ANET Stock or check Arista Networks Investment Highlights
Second, you want to better understand competitive advantage and industry tailwinds. Below is what specifically gives us the conviction.
Why Hold ANET Stock Long-Term
Arista Networks exhibits the classic signs of a long-term compounder with a wide moat and strong secular tailwinds. Its leadership in the high-growth data center networking market, particularly for AI and cloud workloads, positions it for sustained growth. The sticky ecosystem around its EOS software and its entrenchment with major cloud providers create a durable competitive advantage. A pristine balance sheet with no debt and strong free cash flow provide a significant margin of safety. In the event of assignment, we would be comfortable owning a best-of-breed company that is a critical enabler of the digital economy’s most powerful trends.
Competitive Advantage
We classify ANET’s economic moat as WIDE, with the primary source being Switching Costs
- Arista’s Extensible Operating System (EOS) is a key differentiator, and while it shares similarities with Cisco’s IOS, which can lower the initial learning curve for engineers, the deep integration with Arista’s hardware and software suites like CloudVision creates a sticky ecosystem.
- The company has successfully penetrated and become a critical supplier to major cloud providers (“Cloud Titans”) like Microsoft and Meta, who have high technical requirements and are less likely to switch providers for minor cost savings due to the potential for operational disruption.
- Arista has consistently gained market share from competitors like Cisco, particularly in the high-speed data center switching market, indicating a strong preference for its technology and performance.
See Arista Networks Full Analysis.
Industry Tailwind
The industry tailwind is STRONG, with CAGR projection of 10.5% (Kings Research), 11.0% (MarketsandMarkets), 11.2% (Grand View Research), 13.10% (Fortune Business Insights)
Secular Trend: The data center networking market is experiencing robust growth driven by the secular megatrends of cloud computing, artificial intelligence (AI), the Internet of Things (IoT), and widespread digital transformation across industries.
Key Risks: Significant customer concentration with a heavy reliance on a few large cloud providers. The ever-present threat of technological disruption and heightened cybersecurity risks within the data center industry.
Financial Guardrails
Cash Generation: Positive Free Cash Flow
Balance Sheet: Arista Networks maintains a flawless balance sheet with no debt and a substantial cash position, indicating a very low risk of bankruptcy.
Not comfortable with options or stock-specific trades? PORTFOLIOS are even better.
A Multi Asset Portfolio Beats Picking Stocks Alone
Individual picks are volatile but diversified assets offset each other. A multi asset portfolio helps you stay the course capture upside and reduce downside.
The asset allocation framework of Trefis’ Boston-based, wealth management partner yielded positive returns during the 2008-09 period when the S&P lost more than 40%. Our partner’ strategy now includes Trefis High Quality Portfolio, which has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices