In my experience, companies that have an edge usually grow faster, operate more efficiently, and produce more cash. And those qualities have a tendency to make the company unstoppable over the long term. Arista Networks and Union Pacific can be used as two great examples. These businesses have established a strong competitive position, and both stocks have the potential to make you richer in the coming years.
Here is why.
1. Arista Networks
Arista pioneered the software-driven networking for cloud data centers, an approach that doesn’t use dedicated hardware and instead utilizes software to manage network traffic. The business has since extended its tech to the bigger parts of enterprise campus, growing its market opportunity in the process. The Extensible Operating System is Arista’s main innovation, which is software that powers its lineup of routing and switching platforms, providing the speed, scalability and programmability that modern data centers require.
EOS runs across Arista’s whole portfolio of hardware, letting clients deploy a seamless network across public and private clouds. By comparison, vendors such as Cisco Systems use various operating systems in different environments, which boosts complexity and cost. Arista further differentiates itself from CloudVision, software that provides network-wide monitoring and automation from one platform. Here again, Cisco makes its clients use multiple management tools.
Put simply, Arista helps make high-speed networking a less costly and less complex, and that value proposition has turned into strong financial results for the company. Over the last year, revenue increased 25% to $2.8 billion and its earnings soared 10% to $2.47 each diluted share. More importantly, the company is well-positioned to see continued growth in the coming years.
2. Union Pacific
Union Pacific is one of the seven Class I freight railroads within North America, a classification that is reserved for the biggest rail carriers. Union Pacific has benefited from an effective duopoly in the western two-thirds of the United States, where it works with around 10,000 customers and serves as an important link in the supply chain around the world, transporting everything from automobiles and food to plastics and forest products.
Union Pacific’s best asset is scale. The business manages over 32,400 route miles of railroad track that connect the Gulf Coast ports and Pacific Coast with gateways to the Canada, Atlantic Coast and Mexico, making it almost impossible for a new competitor to enter the market. It would take way too much time and cost too much money to construct competing infrastructure. But Union Pacific is also the only railroad that serves all six large Mexico gateways, and it owns about 55% of the refrigerated boxcars within North America, giving the business an edge in shipping perishable items.
Here is the big picture: The transport of completed goods and raw materials is the backbone of the economy, and Union Pacific is a main player in logistics around the globe. To that end, natural economic growth should be a consistent tailwind for the business, and its focus on efficiency should push increased profitability up over time.
Comments are closed.