Stocks will likely go on sale at some point in early 2025 following the 2024 rally and a massive two-year run that saw the Nasdaq soar over 90%.
Now is a great time to add to your watchlist and pay attention to key levels of strong stocks to take advantage of the next major stock market pullback.
Stocks and indexes can only climb unimpeded for so long before they experience healthy recalibrations to reset valuation levels, shake off the froth, and more. Corrections (drops of 10% to 19% from a peak) and pullbacks are regular events that the best investors and Wall Street giants take advantage of.
The Nasdaq dropped 1.5% on Friday sending it back under its 21-day moving average following the pre-Christmas rally. The tech-heavy index hasn’t fallen below its 50-day since early September, the last time it flirted with its 200-day.
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Long-term investors should lock-in on the 50-day and the 200-day for the S&P 500, the Nasdaq, and their favorite stocks as key levels to start buying into.
The next stock market downturn should be bought up quickly given the outlook for earnings growth in 2025 and 2026. Meanwhile, the backdrop for slower Fed interest rate cuts indicates that the U.S. economy remains sturdy.
The expected pro-growth and lower tax backdrop of the second Trump administration provide additional stock market fuel.
Now let’s dive into two great stocks for investors to buy as soon as they go on sale in 2025.
Cadence Design Systems, Inc. CDNSstock has soared roughly 5,000% in the last 15 years to destroy the Tech sector’s 625% and its Computer–Software industry’s 975%.
Wall Street has flocked to Cadence Design Systems because its modeling and computational software are essential cogs the in lifecycle of semiconductors and other vital technologies.
CDNS underperformed the Tech sector and the market in 2024, setting up a potentially attractive entry point for investors in 2025.
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The growing complexity of semiconductors needed for artificial intelligence (AI), hyperscale computing, and beyond transformed Cadence into an invaluable partner for many chip companies.
Nvidia NVDA and other giants depend on Cadence’s simulation tech before their cutting-edge semiconductors they are made. The electronic systems design leader averaged 14% revenue growth in the trailing five years.
Cadence is projected to grow its revenue by 13% in 2024 and 2025 (adding over $1 billion to the top line between FY23 and FY25) to help boost its adjusted EPS by 15% and 16%, respectively.
Cadence’s 2025 and 2026 earnings estimates faded this year, leading to its underperformance.
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Wall Street has paid a premium for the computational software company for years, with CDNS sitting at 55.2X forward 12-month earnings vs. Tech’s 27.8X. Yet, Cadence trades at a 25% discount to its highs in P/E terms while Tech is 5% below its peaks.
Cadence’s steady growth is coveted on Wall Street, with 13 of the 17 brokerage recommendations Zacks has at “Strong Buys.”
Cadence was range-bound in 2024. CDNS trades 7% below its highs and around its February 2024 levels. The next time CDNS tests its 50-day or 200-day the stock might start to rally and break out to new all-time highs.
Arista Networks ANETis a client-to-cloud networking powerhouse, concentrating on large AI, data center, campus, and routing environments. ANET’s networking infrastructure has expanded rapidly over the past decade alongside cloud computing and the big data explosion. The AI revolution is the newest gust of wind on ANET’s sails.
Arista Networks boasts over 8,000 cloud customers worldwide, including some Magnificent 7 tech companies. Microsoft and Meta are two of ANET’s largest clients. Arista Networks said last year that “cloud titans” accounted for 46% of its revenue.
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Microsoft MSFT and Meta META have grown to rely heavily on Arista Networks for their big data growth and AI dreams.
Wall Street views ANET’s growing relationship with Microsoft and Meta as a long-term vote of confidence in Arista Networks, and 13 of the 19 brokerage recommendations Zacks has are “Strong Buys.”
ANET grew its revenue from $361 million in 2013 to $5.86 billion last year, averaging 37% sales growth over the past three years. Arista Networks is projected to boost its sales by 19% in FY24 and 17% in 2025 to reach $8.15 billion.
The networking infrastructure firm is projected to grow its adjusted earnings by 26% and 10%, respectively, following 52% EPS expansion in FY23. ANET’s improving EPS estimates help Arista Networks earn a Zacks Rank #2 (Buy) and its topped our quarterly estimates for five years in a row.
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Arista Networks has an impressive balance sheet, with $7.4 billion in cash and equivalents against $3.6 billion in total liabilities and zero debt.
This backdrop has helped ANET stock skyrocket roughly 2,800% in the past 10 years, leaving Meta’s 670% and Microsoft’s 820% runs in the dust. ANET’s Tech-crushing performance includes a 92% run in 2024.
Arista Networks has never been a value stock and its always traded at a premium to Tech. ANET’s price per share is now far more attainable to many investors after it completed its 4-for-1 stock split in early December.
Still, Arista Networks appears due for a recalibration since it trades near its all-time highs in terms of forward earnings.Any slide down to ANET’s 50-day, or better yet, its 200-day moving average would mark a screaming buying opportunity for the tech stock.
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