Telecom Equipment Stocks Seeing
Great Trading Action

Why telecom stocks should be on a trader’s focus list this year for profitable investments.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.