Telecom Equipment Stocks Seeing Great Trading Action

It’s tough to be consistently good at trading equities and you’re always at

the mercy of the broader market’s whims. So far this earnings season, there have been some

really good trading opportunities in the technology sector and corporate news has been

really positive. This is the beginning of a new up cycle in technology and investors should

be paying attention to specific sectors underneath the umbrella of the industry.

We know that the stock market had already gone up before earnings season started, so most of

the recent trades have been momentum plays, which are tricky. But, with the broader market

trending so positively, a lot of these momentum trades have really done well.

Consider, for example, JDS Uniphase Corporation (NASDAQ/JDSU), which sells testing and

measurement equipment to telecommunication (telecom) service providers. This stock is

currently on fire after the company reported that its revenues, earnings and guidance beat

the Street. The entire communications equipment sector is showing a major turnaround and a

number of these stocks are taking off.

In its second fiscal quarter ended January 1, 2011, JDSU generated revenues of 477.2 million

dollars, representing an impressive increase of 39% over the comparable quarter last year

and a 16% increase sequentially. Earnings came in at 23.6 million dollars, or $0.10 per

share, compared to a net loss of 19.5 million dollars, or $(0.09) per share, in the second

fiscal quarter of 2010. This stock is up some 10 points over the last few months, and it

could go higher yet if sentiment in the broader market holds.

Then there’s Oplink Communications, Inc. (NASDAQ/OPLK), which operates in the same industry,

but is a much smaller company. This company just announced revenues that grew to 52.0

million dollars, representing a 59% increase over the comparable quarter and five percent

sequentially. Earnings were $8.5 million, or $0.41 per diluted share, representing growth of

174% over earnings of $3.1 million, or $0.14 per share, generated in the same quarter last

year and 52% sequentially. The company finished the quarter with some 168 million dollars in

cash (about $8.60 per share) and very little debt. Citing strong demand for bandwidth, OPLK

blasted higher on its earnings news, and it is still ticking upward.

Part of the impressive growth we’re seeing is the fact that business was so slow in the

comparable periods last year. But, the numbers are still impressive and, most importantly,

so are the visibility and the trading action.

There are good momentum trades in this market, but investors have to be fully engaged in the

process so as not to get sideswiped. The strength in the telecommunications equipment

industry is another really positive sign for the economy, as it signals that both retail and

wholesale customers are spending on technology. This specific sector should be on a trader’s

focus list this year.