Fix Your Eyes on Optical Fiber Stocks

Investors with an appetite for returns should consider getting a little more
fiber into their portfolios particularly shares of firms that sell optical
fiber networking equipment.  Optical components may sound about as tasty as a
bowl of dry bran flakes, but the potential upside is pretty sweet. Consider the
fact that three companies in the sector – Ciena (Nasdaq: CIEN ), JDS Uniphase
(Nasdaq: JDSU ) and Finisar (Nasdaq: FNSR ) have risen an average of 120% since
their 52-week lows last fall.  Three others, Oclaro (Nasdaq: OCLR ), Oplink
(Nasdaq: OPLK ) and Infinera (Nasdaq: INFN ) are up an average of 49% over last
year's lows. Seeing gold in these names may seem to be a bold boast –
particularly since these are the same companies whose share prices were kicked
in the teeth a month ago over trouble selling out their product inventories.
That forced Oclaro, Finisar and others to revise their quarterly revenue
estimates downward.  Pair that news with the fact optical networking gear sales
went nuts last year, and it makes sense why some investors may think these
stocks' run is done. But that move was, pardon the pun, short-sighted. 
Carriers need to buy more and more advanced fiber optic gear in order to
support aggressive data transmission requirements and the proliferation of 3G
wireless networks.  So even though their customers are sitting on a fair amount
of unused product now, these purchase delays are less about excess inventory and
more about customers waiting a tad longer to outfit their networks with the
hottest technology available. Here are a few factors that signal strong growth
potential for optical component firms:   Despite uncertainty in the short
term, the sector is well-positioned for strong growth between 2011 and 2015, a
new forecast from the research firm LightCounting says.    Since so-called
"passive" optical component sales grew at a higher rate than other
components last year, a new cycle of carrier network upgrades may be starting
now. The industry is bouncing back from the recession of 2008-09. Carrier demand
for optical fiber components will be driven by the need to link together
networks of networks – efficiently and cost-effectively. Carriers must have
these components in order to keep pace with the surge in data traffic over both
traditional and wireless networks. As broadband networks continue to grow bigger
and faster, carriers will have to upgrade their existing optical fiber
components.  Never underestimate the need for speed: sales of 40Gbps
(gigabit/second) components and modules have started this year strong; 100Gbps
optics likely will rise sharply by late 2011. Bottom Line: In today's
data-hungry culture, all the world's a network and all the carriers are
chasing bandwidth. Since optical fiber equipment makes massive amounts of data
traffic move quickly through both traditional and wireless networks, it's easy
to see why analysts see the market nearly doubling to $22.1 billion in 2014. As
of this writing, Susan J. Aluise did not hold a position in any of the stocks
mentioned here.