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Take a Trip with Aruba Networks (ARUN)

ARUN's strong technicals and fundamentals point to a +15% trade


It’s been a tough winter for many of us, especially for those on the East Coast still dealing with the aftermath of vicious winter storms. The Midwest has had its share of inclement weather, too, and even where I am in “sunny” Southern California, we’ve had unseasonably cold weather. Given Mother Nature’s wrath over the last several months, it would be great if we could all just jump on a plane and go to a tropical paradise such as Aruba. Of course, a spur of the moment vacation for most of us isn’t really feasible, so I propose an alternate Aruba trip—namely, a money-making trip to Aruba Networks (NASDAQ:ARUN).

On Thursday, the maker of computer-networking equipment saw its shares spike more than 6%, which took the stock back above the technically significant 50-day moving average. The catalyst for the climb was a Morgan Stanley (NYSE:MS) upgrade on the stock to “overweight” from “equal weight.” Now, being a former Morgan advisor, I can tell you that “overweight” is just their fancy way of saying you should buy the stock.

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The upgrade was announced after results of a Morgan Stanley survey that showed resellers for Aruba’s equipment expect 2013 demand to rise more than what they had anticipated three months ago. In his note to clients, analyst Ehud Gelblum wrote, “We expect stronger earnings growth to lead to multiple expansion.”

The expansion here is the growth in usage of mobile and tablet devices by companies. Aruba makes a lot of the networking gear that allows companies to “bring your own device” to work. What that means is that employees are using their own mobile and tablet devices at work, and making them compatible with corporate networks via the gear Aruba sells.

In addition to the upgrade, Morgan’s Gelblum raised his estimate for fiscal 2014 earnings per share to $1.09, which is well above the current consensus estimate for EPS of 99 cents. More importantly, he also raised his 12-month price target on the stock to $28 from $18.

The positive fundamental drivers for Aruba, as well as the technical bounce we’ve witnessed in the stock on high trading volume, represent a one-two positive punch for traders looking to capitalize on these trends. I suspect getting in on ARUN shares here will net you at least a 15% gain over the next several months, which translates into a price target of about $26.

Of course, I always advocate protecting yourself with a stop loss whenever you trade, so in this stock you’ll want to set your stop-loss around $20.69, which is approximately 8% below the current price.

Hey, if you can’t make it physically down to Aruba to enjoy the sun, at least you can shed the winter blues by making some money in Aruba Networks.

As of this writing, Jim Woods did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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