China’s Struggles Continue

[CLICK HERE JOIN OUR LIVE TRADING & TRAINING SESSIONS]( Hello investor, China’s Struggles Continue We are approaching to the end of August. It was a tough month for stocks. The Nasdaq is on pace to finish 4.5% lower. And a 3.4% decline for the S&P 500. Best Buy and Nio are due to report this morning, while HP will report after the bell. But we’ve got plenty of economic data coming out this morning: home prices, job openings and consumer confidence. (Photo: NYSE) Wall Street, of course, put a lot of premiums on economic data to try and gauge the Federal Reserve’s potential rate decision. If the economy runs too hot, it could aggravate inflation. Wall Street wants a not too hot, not too cold economy. - “It’s a lot of digestion right now as we pulled back a little bit off the year-to-date highs,” said Chris Barto, an investment analyst at Fort Pitt Capital. Traders are “getting back to their desk from summer and looking at their portfolios and reallocating towards the end of the month.” China continues to struggle economically. Data from Sunday showed industrial profits sliding by a whopping 6.7% from a year ago. Analysts are screaming for more stimulus, but the government is determined to break its addiction to debt-fueled growth. The government cut stamp duty for the first time since 2008 – along with curbs on share sales by major stakeholders – during the weekend. But it only led onshore Chinese stocks to rise by just 1.2% for the year. - “Without additional and more aggressive policy stimulus, these stock-markets-focused policies alone have little sustainable positive impact,” said Ting Lu, chief China economist at Nomura Holdings Inc. Global funds sold about $1.1 billion of mainland shares on a net basis via trading links with Hong Kong, taking the total outflows for August to over $11 billion. It’d be a new record. Indeed, foreign investors are heavily bearish on Chinese stocks. Some analysts are worried that a downturn in China may have a global impact. Yes, reducing demand could be good for the Federal Reserve’s fight against inflation. But the key is not too much that it can cause a global recession.  Bet On The Superstar CEO With A Big Revenue Growth Today’s Stock Pick: Arista Networks, Inc. ([ANET]() Jayshree Ullal isn’t a household name for CEOs, but she is easily known as one of the top-performing CEOs in the world. Barron’s named her “World’s Best CEOs” in 2018 and she was also on Fortune’s “Top 20 Business persons” in 2019. Listen, a grizzled business veteran can look at the financial statements of the last five years and immediately know how good the leader is. Financials are the scoreboard of a business. And indeed, Jayshree Ullal’s Arista Networks is a spectacular stock swimming in cash. President and CEO of Arista Networks Jayshree Ullal (Photo: CNBC) Originally, Jayshree worked in Cisco Systems and worked on the Cisco Catalyst switching business. (More on switching later.) Her results were astonishing. The business grew from its beginning in 1993 to a $5 billion business in 2000. Eventually, she oversaw 20 M&As for Cisco in the enterprise sector. Simply said, she was a bona fide superstar at Cisco. It caught the attention of two entrepreneurs, Andy Bechtolsheim and David Cheriton, and she accepted the offer to become the CEO of a 4-year-old startup Arista Networks. Jayshree Ullal took a huge risk in joining Arista Networks, leaving her cushy, lucrative job at Cisco. However, the upside was irresistible. She would get equity in the company. And here’s the important thing. Arista was self-funded by founders, so the ownership structure wasn’t diluted much. In fact, insiders still own 22% of Arista Network despite a nearly $38 billion market cap. The risk paid off marvelously for Jayshree as her 4.9% equity in Arista is worth billions of dollars. But it was not a lottery ticket. Jayshree built Arista into a $36 billion company through sweat and hard work. A lot of Arista’s growth came at expense of Cisco, poaching many of Cisco’s big-time clients like Microsoft and Meta. Cisco didn’t take kindly to the competition. Cisco then-CEO John Chambers made Arista the target. He formed a “Tiger Team” of about 70 salespeople and engineers to keep tabs on Arista and tried to stall its IPO plan. Regardless of the constant attack by Cisco, Jayshree guided Arista to one of the best growth stories in the technology world, saying: - “Every calendar year may be the equivalent of ten cloud years. To navigate high-tech companies in real-time is not for the faint of heart, especially since tech markets move quickly. High tech start-up CEOs must adapt to rapid pace of change, question, iterate and constantly course-correct. It transcends education and traditional business models. They must be nimble, make decisions in ‘tech-time’, anticipate trends, project customer patterns and place big bets that keep the start-up relevant.” Her business skills are the reason why Arista Network is a buy. You can just look at its revenue growth to see how good she is at her job. Arista grew from $361 million to $4.38 billion in nine years – a spectacular annual growth rate of 31%. And best of all, Arista was profitable in all these years, with EPS growing at a 42% annual rate: (Graph: MacroTrends) Shareholder’s equity also grew at a phenomenal rate of 58% CAGR in the last nine years: (Graph: MacroTrends) What’s driving the incredible growth? Stephen Covey, the author of the timeless best-seller The Seven Habits of Highly Effective People, said: - “Effectiveness — often even survival — does not depend solely on how much effort we expend, but on whether or not the effort we expend is in the right jungle.” In other words, a horse transportation business will face its death after the popularization of automobiles, no matter how hard they work or how brilliant managers are. When you are in the right jungle, you’re riding on tremendous momentum. Arista Networks was in the right jungle by being in the cloud data center business. Obviously, the industry became so big that it becomes one of the most profitable sectors for Amazon and Microsoft. Arista pioneered software-driven networking – which eliminates dedicated hardware and instead uses software to control network traffic. The key difference is that Arista allows clients to run networks across private and public clouds in one operating system. Its competitor, Cisco, requires different operating systems for each environment, which jacks up cost and complexity. In short, Arista makes high-speed networking less complex and less costly. Sure enough, Arista gobbled up market share from previously dominant Cisco, going from 3.5% to 25.3% in nine years: (Source: Arista Networks) A 6% discount? Believe it or not, Arista Networks is swimming in so much cash that equals 6.7% of its market cap. That’s right. Arista has $3.74 billion cash and a market cap of $56 billion. Is it inflated by debt? Not so much. Its total debt is only $51 million. Bottom line: Arista Networks plays in the hottest industry of cloud computing, but you don’t need to pay for its growth at eye-popping levels. Best of all, Arista isn’t highly-leveraged which makes its stock price less risky. You can get its steady revenue growth without the risk of leverage. That’s a rare bird. It’s a no-brainer pick for your portfolio.   [CLICK HERE JOIN OUR LIVE TRADING & TRAINING SESSIONS](     © All Rights Reserved, Trade Alliance  If you no longer want to receive these messages, you may [click here]( to unsubscribe.