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Can These Stocks Bounce Back?

Saturday - 4/6/2013, 8:12pm  ET

Time indeed flies fast. The first quarter of 2013 is already behind us, and it proved to be a great one for the markets. The broader market rally left investors who had their money in the right stocks richer, but, quite naturally, there were some laggards as well.

In a previous post, I’d discussed a few of my picks whom I’d expected to outperform when the year began, and they did fantastic. Moreover, I also outlined the reasons why they are well-positioned to move even higher as the year progresses. However, I’m no Superman and not all of my picks outperformed the market. Let’s take a look at what stocks I’m talking about.

Company

Expectation

1Q Returns

Ciena

Will Appreciate

4.44%

Finisar

Will Appreciate

-16%

JDS Uniphase

Will Appreciate

1.56%

Xilinx

Will Appreciate

8.09%

Stock price data (from Dec. 31, 2012 to March, 28, 2013) taken from Google Finance

Not exactly a great performance from some of the stocks I’d expected to outperform the market, but the downside wasn’t too much either (if you include the stocks discussed in the previous post). Barring Finisar, every other stock went in the direction I’d expected.

Now, it’s time to see whether these stocks can finally pick up and perform better for the remainder of the year.

Optical networkers in doldrums

There were enough reasons at the end of 2012 for me to expect optical networking players Ciena, JDS Uniphase, and Finisar to outperform this year. Telecom and data center spending was expected to revive this year, as Gartner had forecasted. Moreover, AT&T’s decision to boost capex had sparked optimism that optical networkers would do well. However, things haven’t turned out as planned for these companies, mainly due to the market’s negative perception.

Both Ciena and JDS Uniphase gave ample indications about an industry bounce back in their latest quarterly reports in March and February, respectively. Both of them posted good numbers and saw their shares soar after posting earnings. But the Street’s enthusiasm was short-lived, and both of them lagged the market.

However, their prospects remain strong. Ciena’s close relationship with Ma Bell, which is a 10%-plus customer, its latest Tier 1 design wins at clients such as Tata, Reliance Globalcom, and Comcast, and a strong order backlog should continue to drive its top line higher. The company has landed contracts across North America, Latin America, and the Asia Pacific, with a deal with Brazil’s largest mobile operator, Telefónica Vivo, for providing 100G solutions being the highlight.

Similarly, JDS Uniphase’s leading position in 4G LTE test solutions, rapid adoption of its new networking products -- which now constitute more than half of its core network revenue -- and good traction of its PacketPortal solution are tailwinds which can propel the stock higher. Also, JDS Uniphase is well-positioned to benefit from the growth of cloud computing and the presence of Cisco as a customer should aid it in doing so.

Now, I’ll come to the worst performing pick of mine -- Finisar. A rebound in telecom spending, strength in the company’s datacom business, and Finisar’s revamping of its product portfolio led me to believe that the company would do well this year. But, analysts’ lack of confidence in the company’s prospects, and speculation that Cisco’s silicon-photonics technology would knock the wind out of Finisar’s business dragged it down.

However, Cisco’s technology isn’t a potent threat for Finisar, and the company’s last quarterly report wasn’t bad at all. However, nitpicking by analysts once again proved to be the bane for Finisar, and it was unable to break out of its negativity. However, the company should be helped by the prospects which are expected to drive Ciena and JDS Uniphase. Growth in telecom spending, build out of datacenters for cloud computing, presence of Cisco as customer, and improvement of its product portfolio are tailwinds which should drive its business.

These stocks have lagged the market while they should have done better. However, their businesses continue to remain strong, and all they need is a bit of positive perception to do well.

Xilinx going steady

Being a supplier of programmable chips to equipment makers such as Huawei, ZTE, Ericsson and Cisco, Xilinx was expected to perform well this year as these companies would be driving the data and telecom boom. The stock’s 8% return, although not extravagant, is certainly solid and has the potential to rise further.

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