Investment management company First Pacific Advisors recently released its “FPA Queens Road Small Cap Value Fund” third-quarter 2025 investor letter. A copy of the letter can be downloaded here. In the third quarter, the fund returned 7.46% compared to a 12.60% return for the Russell 2000 Value Index. In the first three quarters of 2025, the Fund returned 13.77%, compared to 9.04% for the index. As the firm’s focus is on a diligent, disciplined, and patient process, it expects the fund to outperform in dow ...

Core Insights - Arista Networks, Inc. (ANET) reported strong third-quarter 2025 results, with revenues and adjusted earnings significantly increasing year over year, driven by robust demand trends and innovative product launches [1][7] Group 1: Financial Performance - Arista's Q3 revenues and earnings rose sharply, beating estimates due to strong demand trends [7] - Earnings estimates for Arista for 2025 and 2026 have increased by 1 cent each to $2.83 and $3.26, indicating optimism about the stock's growth potential [13] Group 2: Product and Market Position - Arista holds a leadership position in 100-gigabit Ethernet switches for high-speed data centers and is gaining traction in 200- and 400-gig high-performance switching products [2] - The company has introduced various products to meet the rising demands of AI/ML-driven network architectures, enhancing customer experience and engagement [3] - Arista's cloud networking solutions promise predictable performance and programmability, benefiting from the expanding cloud networking market [4] Group 3: Innovations and Acquisitions - The company has announced several additions to its multi-cloud and cloud-native software product family, including cognitive Wi-Fi software and the acquisition of Awake Security [5][8] - Unified edge innovations across wired and wireless networks have been introduced for its Cognitive Campus Edge portfolio [8] Group 4: Challenges and Risks - Arista faces high customer concentration risk, deriving a substantial portion of its revenues from a limited number of large customers [9] - Increased operating costs due to efforts in developing new technologies and supply chain redesigns have eroded margins [9] - Despite strong demand, supply bottlenecks for advanced products are impacting working capital [9] Group 5: Market Performance - Arista's stock has surged 35.6% over the past year, outperforming the industry growth of 10.1% and peers like Hewlett Packard and Cisco [10]

Core Insights - Buying dividend stocks at low prices can yield higher immediate income and potential long-term returns [2] - Three recommended dividend stocks under $100 are Cisco Systems, AT&T, and JD.com, which are considered undervalued with above-average yields [3] Cisco Systems - Cisco is recognized for its IT infrastructure products and offers a relatively stable investment with growth potential due to business upgrades [4] - The stock is trading at a forward P/E multiple of just under 17, indicating strong expected earnings growth [5] - Cisco provides a dividend yield of 2.3%, which is significantly higher than the S&P 500 average of 1.2%, and is currently priced around $71 [6] AT&T - AT&T offers a higher dividend yield of 4.4%, despite a 17% increase in share price over the past year [7] - The company reported 405,000 postpaid phone net additions in the last quarter and improved free cash flow of $4.9 billion [8] - AT&T is expanding its 5G and fiber network, which is expected to enhance financial performance and returns for investors [8]

Core Insights - Dell Technologies has seen a 17% increase in stock price over the past month, but Hewlett Packard Enterprise (HPE) may present a more attractive investment opportunity due to its superior revenue growth and profitability metrics [2] - Regular assessment of investment alternatives is essential for a robust strategy, with HPE showing better performance indicators compared to Dell Technologies [2] Company Performance Comparison - HPE's revenue growth over the last 12 months was 14.0%, while Dell's was 10.5%. Over the past three years, HPE's average revenue growth was 5.9%, significantly outperforming Dell's -1.3% [6] - HPE's three-year average margin stands at 7.6%, compared to Dell's 6.1%, indicating stronger profitability for HPE [6] Business Segments - Dell operates in various segments including infrastructure, client devices, and VMware, offering a range of products such as desktops, workstations, software, multi-cloud solutions, networking, security, and digital workspace solutions [4] - HPE focuses on data solutions, general and workload-optimized servers, and networking hardware, including wired and wireless components like Wi-Fi access points, switches, routers, and sensors [4]

Core Insights - CommScope Holding Company, Inc. (COMM) and Celestica Inc. (CLS) are key players in the communications and networking hardware sector, with CommScope focusing on solutions for wireline and wireless network convergence essential for 5G technology [2] - Celestica is a major firm in the electronics manufacturing services (EMS) industry, providing a wide range of manufacturing and supply-chain solutions to various sectors [3] CommScope Overview - CommScope is implementing stringent cost-cutting measures and focusing on core operations, including the divestiture of its Home Networks business and the acquisition of Casa Systems' Cable Business assets to enhance its market position [5][6] - The company has launched the HX6-611-6WH/B antenna, which offers a high-capacity microwave backhaul solution, ensuring reliable connectivity for mobile network operators [7] - Despite its strategic moves, CommScope faces intense competition from companies like Amphenol Corporation and Corning Incorporated, along with challenges from trade tensions and raw material price volatility [8] Celestica Overview - Celestica is benefiting from AI-driven demand and has a diverse customer base across high-value industries, with projected sales and EPS growth of 20.6% and 43% respectively for 2025 [10][14] - The company focuses on product diversification and has a strong R&D foundation, allowing it to produce both high-volume and complex technology infrastructure products [12] - However, Celestica is experiencing margin pressures due to high R&D costs and faces competition from firms like Foxconn and Flex [13] Financial Performance - The Zacks Consensus Estimate indicates that CommScope's 2025 sales and EPS are expected to grow by 11.2% and 4,400% respectively, while Celestica's growth estimates are significantly higher [14][16] - Over the past year, CommScope's stock has increased by 170.4%, while Celestica's has surged by 324.1% [17] - From a valuation perspective, CommScope's shares trade at a forward P/E ratio of 10.04, which is lower than Celestica's 38.01, making CommScope appear more attractive [19] Investment Outlook - CommScope holds a Zacks Rank of 3 (Hold), while Celestica has a Zacks Rank of 2 (Buy), indicating a more favorable investment outlook for Celestica [21] - Both companies anticipate improvements in sales and profits for 2025, but Celestica's consistent revenue and EPS growth, along with its better performance metrics, suggest it may be a superior investment option at this time [22]

Core Viewpoint - Ribbon Communications reported strong second-quarter 2025 results, driven by robust demand and key customer wins, with total revenue of $221 million, a 22% sequential increase and a 15% year-over-year rise, surpassing estimates by approximately $6 million [1][2] Revenue Performance - Domestic revenue reached $117 million, jumping 40% quarter-over-quarter and 45% year-over-year [5] - International revenue was $104 million, rising 6% sequentially but declining 7% year-over-year [5] - The Cloud and Edge segment generated $137 million in revenue, up 27% sequentially and 24% year-over-year, primarily due to strong growth from Verizon and government customers [5] - IP Optical revenue rose to $84 million, up 13% sequentially and 2% year-over-year, beating estimates by 6% [7] Profitability Metrics - Company-wide gross margin reached 52.1%, expanding 340 basis points quarter-over-quarter but contracting 230 basis points year-over-year [8] - Operating margin expanded sharply to 12.5%, up 1,120 basis points sequentially and 300 basis points year-over-year, beating projections by 20 basis points [8] - Adjusted EBITDA totaled $32 million, representing a 433% increase sequentially and 47% growth year-over-year [8] Segment Insights - The Cloud and Edge segment's gross margins contracted 110 basis points sequentially and 410 basis points year-over-year to 61.9% [6] - The IP Optical segment's gross margin expanded 760 basis points sequentially to 35.9%, supported by stronger North American sales and improved mix and margins in Asia-Pacific [7] Future Outlook - Management guided third-quarter revenue between $213 million and $227 million, slightly below prior estimates [9] - The company reiterated its full-year 2025 outlook, maintaining revenue guidance of $870 million to $890 million and adjusted EBITDA of $130 million to $140 million [10] - Management expects the fourth quarter to remain the strongest quarter of the year, typical for Ribbon [11] Analyst Commentary - Analyst Mike Genovese reaffirmed a Buy rating for Ribbon Communications and increased his price forecast from $5.50 to $6.00 [3] - Genovese highlighted Ribbon's ability to weather recent headwinds and consistently deliver on guidance across multiple quarters [12] - The analyst noted meaningful improvement in the Cloud and Edge narrative, particularly with Verizon's shift to next-gen voice infrastructure [13]

Core Insights - Arista Networks, Inc. (ANET) and Juniper Networks, Inc. (JNPR) are leading players in the global networking industry, with Arista focusing on data center and campus Ethernet switches and routers, while Juniper provides networking solutions and communication devices for network infrastructure [1][2] Arista Networks - Arista is experiencing strong demand from enterprise customers, supported by its multi-domain modern software approach, including the single EOS (Extensible Operating System) and CloudVision stack [4] - The company has introduced cognitive Wi-Fi software that enhances application identification, automated troubleshooting, and location services, differentiating it from competitors [4] - Arista's cloud networking solutions offer predictable performance and programmability, integrating with third-party applications for network management [5] - The Arista 2.0 strategy focuses on investing in core businesses, emphasizing software-as-a-service, and entering adjacent markets to broaden its customer base [5] - However, Arista faces high operating costs, with total operating expenses in Q1 2025 rising approximately 22.3% to $417.3 million due to increased headcount and product introduction costs [6] Juniper Networks - Juniper is capitalizing on the 400-gig cycle to capture hyperscale switching opportunities, benefiting from increased demand for data center virtualization and cloud computing [7][8] - The company is leveraging AI-driven platforms to reduce costs by up to 85% and accelerate deployments by nine times [7] - Juniper's AI-Native Networking Platform aims to simplify and enhance the deployment of AI-driven networking solutions, potentially reducing operational expenses by 85% and network trouble tickets by 90% [9] - Despite its strong security portfolio, Juniper faces significant competition, particularly from Cisco Systems, which has historically led innovation in the industry [10] Financial Performance and Estimates - The Zacks Consensus Estimate for Arista's 2025 sales and EPS indicates year-over-year growth of 18.7% and 12.8%, respectively [11] - Juniper's 2025 sales are expected to grow by 6.9%, with EPS improving by 20.9% [12] - Over the past year, Arista's stock has gained 8.6%, while Juniper's has increased by 0.7% [15] - Juniper's shares trade at a forward P/E ratio of 16.72, significantly lower than Arista's 33.78, making Juniper more attractive from a valuation perspective [15] Investment Outlook - Both companies anticipate improved sales and profits in 2025, with Arista showing steady growth and Juniper facing challenges [18] - Juniper holds a superior Zacks Rank of 1 (Strong Buy) compared to Arista's 2 (Buy), suggesting it may be a better investment option at this time [17][18]

Group 1 - The U.S. administration announced that smartphones, computers, and other electronics will be exempt from new reciprocal tariffs, benefiting consumers and companies like Apple [1][3][11] - Nearly twenty electronic items, including routers and semiconductor chips, are included in the exemption list, which appears to cover products manufactured in China [5][6] - The exemptions are effective for merchandise entered for consumption on or after April 5, 2025, as per the guidance issued by Customs and Border Protection [6] Group 2 - The administration's decision follows a presidential memorandum and is part of a broader strategy to manage trade relations, particularly with China [2][8] - A new 10% baseline tariff and harsher reciprocal levies will affect numerous countries, including key allies, while online Chinese retailers like Temu and Shein are no longer exempt from tariffs [9] - The Dow experienced a significant drop of over 1,000 points following the announcement of these tariffs, indicating market concerns about a potential trade war [9]