In recent weeks, I’ve been writing a series called “10 Stocks to Hold Forever,” featuring 10 stocks, selected by Cabot editors, that you might choose to, well, “hold forever.” You can find my background writing on the concept here.
The fifth stock is F5 Networks (FFIV), and it was selected by my daughter Chloe Lutts, editor of both Dick Davis Investment Digest and Dick Davis Dividend Digest. As a product of the digital age, Chloe has an acute awareness of the growth potential of all things digital, and her selection reflects this.
But as editor of the Dick Davis Digests, she hasn’t actually had a chance to write about F5, so the best I can lead with is Mike Cintolo’s recommendation, from Cabot Top Ten Trader, from January 23, 2012.
“F5 Networks is riding the wave of the mass conversion of computer usage from individual PCs to a networked system that optimizes information access and exchange along with network security. This move to “the Cloud” is in full swing, and F5 Networks is a leader in the movement, with application delivery controllers (ADCs) that make networks faster, more flexible and more secure.
“F5 reported its quarterly earnings last Wednesday, and investors were moderately pleased with revenue and earnings, but very impressed with the company’s guidance. The company counts 43 of the Fortune 50 companies among its clients, along with huge majority of other industry leaders and tech companies. With six quarters of after-tax profit margins in excess of 25%, the company clearly has an attractive product mix and a knack for delivering value. Fears of a further deceleration in growth here also abated, helping the cause.
“FFIV was a tractor from March 2009, when it was trading at 18, to January 2011, when it topped out at 146. Eight months later, FFIV was putting in a two-month bottom at 70 in August and October 2011. Now, after gapping up to 120 off a five-week base at 105, FFIV has cleared most of its overhead and looks to be ready to run. Look for a pullback of a couple of points as a buying opportunity.”
When Mike wrote that, the stock was at 121 and it did climb to 139 by early April. But concerns about slowing growth at the company—along with earnings disappointments—sparked a wave of selling that took the stock down to a low of 81 in November. Of course, that trend, like all trends, went too far, and now FFIV is trending up again, and analysts are raising their earnings estimates.
But it’s not out of the woods; in fact, my long-term chart shows that FFIV remains in the broad sideways basing pattern it’s been tracing since the start of 2011, two years ago. And it might keep doing that!
But eventually, I think it will break out, because the business is still growing! And because the long-term prospects for the company are very bright, as the Cloud grows, and the tools that enable efficient operation of applications and delivery of data continue to evolve.
Now, you could just buy FFIV here and put it away for 10 years. My guess is that would work out pretty well. But what I really recommend is that you take a no-risk trial subscription to Cabot Top Ten Trader, so that you can stay on top of Mike Cintolo’s latest recommendations.
You see, all this talk of holding forever is fun, but a ton of stocks are performing well now, telling me there are lots of short-term opportunities for profit. And that’s where Cabot Top Ten Trader shines!
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