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3 techs that could seize the momentum
By Cody Willard 3/9/2006
In the blink of an eye, single-digit optical stocks are suddenly back on everyone's radar.
The optical frenzy started with Tellabs (TLAB, news, msgs) continuing its string of reports that beat expectations and continuing to offer good guidance. JDS Uniphase (JDSU, news, msgs) followed with an impressive quarter, and then when Finisar (FNSR, news, msgs) blew the doors off the joint, the optical frenzy kicked into overdrive. Now you've got the mo-mo folks piling into any name they can find that has the word "optical" in it.
I'd been taught for years on Wall Street that it's a big bearish indicator when speculative names like these start rocking. But at some point, Rev Shark flipped that logic on me and taught me that speculation is actually very bullish for those who are nimble enough to embrace it and move on from it quickly when the froth dies down.
Optical's fundamentals have finally turned
To be sure, I have owned core positions in many optical names for a long time, and I continue to hold core positions in each of the aforementioned names, because it's looking increasingly as though the fundamentals in the optical world have finally turned. I did trim some of those names this morning, but I'm planning to hold positions in these names regardless of whether the speculation dies down tomorrow.
However, in the meantime, I've started looking for the next momentum arena, because this type of speculation is likely to spread to other names outside of the now-frothy optical world. As I continue to think the odds are lining up that we are entering an echo-bubble in tech, there's a good chance that the mo-mo and quick-money types will drive other tech names to froth-like levels.
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Three to investigate
Here are some of the names I'm looking at:
TiVo (TIVO, news, msgs), the old momentum stalwart: Talk about a stock that's fallen off everybody's radar. TiVo's software is still the best DVR platform there is, but the company has failed to enhance its long-term strategic positioning since it rolled out its original box. Speaking of the original box, why hasn't the company taken a page from Apple and redesigned the thing in some hip, cool manner? And speaking of Apple, there is risk to the TiVo longs if Apple were to roll out a TiVo-like device in the near term. I'm not expecting to see that any time soon, though.
Regardless, as the cablecos and telcos and Internetcos continue to push into each other's video worlds, TiVo is likely to see some attention again. And who knows what attention would do when combined with speculation. I'd expect such a chemical reaction would pop the stock.
Brocade Communications Systems (BRCD, news, msgs): The old storage-networking company reported some darn good numbers recently, blowing past Wall Street's estimates. Unfortunately, nobody believes the fundamental momentum is sustainable. I wouldn't argue that, but I do think that it could last for more than one quarter and that this stock could be a mo-mo favorite at some point soon.
Sonus Networks (SONS, news, msgs): I can't think of a management that I have less faith in than the folks at Sonus. Google's handling (i.e., refusing to hold analysts' hands) of Wall Street is one thing. Sonus goes the other way. The company is in the midst of an endless series of raised expectations that lead to a blowup, followed by lowered expectations that Sonus then blows away. That's all a little more than this guy can handle in an investment, but as a trade amid increasing telco speculation? I'm long a little Sonus in that regard.
I want to be clear about two things here. These are indeed speculative trades (by definition, of course). And I'm not making any outsized or even medium-sized bets in these names.
But I am using some capital to open up some exposure to these stocks. We'll see if the mo-mos get crazy and pile in.
By Cody Willard, TheStreet.com
Cody Willard is a partner in a buy-side firm and a contributor to TheStreet.com's RealMoney. He also produces a premium product for TheStreet.com called The Telecom Connection and is the founder of Teleconomics.com. The firm in which Willard is a partner may, from time to time, have long or short positions in, or buy or sell the securities, or derivatives thereof, of companies mentioned in his columns. None of the information in this column constitutes, or is intended to constitute, a recommendation by Willard of any particular security or trading strategy or a determination by Willard that any security or trading strategy is suitable for any specific person.
© 2006 TheStreet.com, All Rights Reserved.
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