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Got $3,000? 2 Tech Stocks to Buy and Hold for the Long Term

By Trevor Jennewine - Updated Jun 11, 2021 at 2:00PM

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Both of these companies should benefit from near- and long-term catalysts.

As a long-term investor, I aim to buy stocks I can hold for at least three to five years. Typically, I start by researching specific industries or trends that should create wealth, then look for companies that could benefit from those tailwinds.

For instance, Arista Networks (ANET 2.53%) and Okta (OKTA 0.05%) are riding the trends of cloud computing and cybersecurity, and both should benefit as those industries continue to expand. Here's what investors should know about these two tech stocks.

1. Arista Networks

Arista provides cloud networking solutions for data centers and enterprise campus environments. Its reputation for low-latency, programmable switching platforms has helped it win customers like Microsoft and Facebook.

Graphs and charts on blackboard, along with a glowing lightbulb.

Image source: Getty Images.

Arista takes a software-centric approach to networking, which differentiates it from rivals like Cisco Systems (CSCO 5.81%). For instance, rather than designing custom silicon for its switches, Arista exclusively uses merchant silicon from partners like Broadcom. This enables Arista to incorporate the latest chip technology into its products, which translates into better price performance for clients.

Moreover, Arista's model provides clients with greater flexibility, allowing them to choose which chips power their networks. By comparison, many of Cisco's products rely on proprietary silicon, which results in vendor lock-in.

In the first quarter, Arista's revenue popped 28%, a strong recovery after sales dropped 4% last year. But the biggest news came from COO Anshul Sadana. During the earnings call, Sadana expressed conviction that the next industry upgrade cycle would start in the second half of 2021, which should drive demand for Arista's 100Gbps, 200Gbps, and 400Gbps Ethernet switches.

Notably, as the leader in this segment of the switching market (i.e. 100Gbps and above), Arista stands to benefit significantly from this upgrade cycle. In the short term, it should boost sales; but in the long term, as the industry permanently transitions to faster switches, it should reinforce Arista's edge over Cisco. 

From that perspective, this company is well-positioned for long-term growth. That's why I'm an Arista shareholder. 

2. Okta

Okta specializes in identity and access management (IAM), a branch of cybersecurity that seeks to ensure only the right people have access to corporate resources. Today, with ransomware attacks on the rise, Okta is more relevant than ever.

At the core of its platform is the Okta Universal Directory, a cloud-based records system where user profiles are stored. This enables IT admins to enforce contextual access policies. For example, multi-factor authentication might be required for high-risk requests, such as a login attempt from an unknown device or a new location.

Faceless person in hoodie working on laptop.

Image source: Getty Images.

Notably, Okta's neutrality gives it an edge over rivals like Microsoft Azure Active Directory. Specifically, Okta isn't biased toward any specific service provider; its platform is designed to work with all applications and infrastructures, enabling clients to easily adopt any technology -- not just those provided by Microsoft.

That advantage has allowed Okta to capture greater market share than its rivals, which has translated into stellar long-term growth.

 

2018

Q1 2022 (TTM)

CAGR

Customers

4,350

10,650

32%

Revenue

$260 million

$903.6 million

47%

Data source: Okta SEC Filings. Note: Q1 of fiscal 2022 ended April 30, 2021. TTM: trailing 12-months. CAGR: compound annual growth rate.

Looking ahead, several catalysts should keep Okta's business in growth mode. The company recently acquired Auth0, a developer-centric identity provider, which strengthens Okta's presence in the customer IAM market. And Okta recently launched two new products -- Okta Privileged Access and Okta Identity Governance -- which extend its capabilities in the workforce IAM market.

Given these opportunities, CEO Todd McKinnon believes Okta will grow sales by "at least 35% each year" through fiscal 2026 (ends Jan. 31, 2026). That means its share price could triple over that period, assuming its price-to-sales ratio remains unchanged. And while that may not happen -- Okta currently trades at a rich 31 times sales -- I wouldn't be surprised to see this stock double over the next four years.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Trevor Jennewine owns shares of Arista Networks and Okta. The Motley Fool owns shares of and recommends Arista Networks, Facebook, Microsoft, and Okta. The Motley Fool recommends Broadcom Ltd. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Arista Networks, Inc. Stock Quote
Arista Networks, Inc.
ANET
$132.74 (2.53%) $3.28
Cisco Systems, Inc. Stock Quote
Cisco Systems, Inc.
CSCO
$49.37 (5.81%) $2.71
Okta Stock Quote
Okta
OKTA
$101.77 (0.05%) $0.05

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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