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Raising Our Stake

This company's equipment helps the cable industry compete against fiber optics, which should keep orders growing.
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We are adding 100 shares to our position in Arris (ARRS) because we believe the stock will outperform the market over the next 12 months. Shares closed Tuesday at $10.95.

We believe Arris is the best low-dollar way to play the growth in voice-over-Internet protocol, or VoIP, at Comcast (CMCSA) , the country's largest cable provider and Arris' largest customer. Despite its size, Comcast has lagged peers such as Time Warner Cable in signing up VoIP customers. But we believe Comcast CEO Brian Roberts' comments this year on earnings conference calls indicate Comcast is focused on making up the lost ground, which should provide a steady flow of orders to Arris. In addition to Comcast, Arris also provides voice modems to Charter Communications (CHTR) and Time Warner Cable, which allows Arris to benefit from the widespread adoption of phone services by cable companies. Besides voice modems, Arris also provides network equipment that cable providers need in order to upgrade their data networks. For example, regional Bells such as Verizon (VZ) have rolled out fiber networks that are able to send data at up to 10 times the speed of Comcast's high-speed data network, and equipment from Arris should help close the gap between the cable and fiber companies. We will continue with our strategy of adding to our One-rated names into weakness, and are pleased that the model portfolio has held up well relative to the major indices in recent days. Even so, we are in no hurry to call a bottom in this market, and will be patient and use volatility to trade around core positions.

William Gabrielski is a research analyst at TheStreet.com.

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