Telecom Equipment & Solar Energy:
Two Sectors Experiencing Renewed
Upward Momentum

I'm noticing quite a solid trend in small technology companies—business is getting better and it’s doing so across a range of specific sectors. One sector that really seems to be taking off is that of communications equipment for telecom companies. Another sector of the technology industry that’s also experiencing a major turnaround is the solar energy equipment business.Fourth-quarter earnings are about over for most large corporations. Now we’re getting into the heart of earnings reports from smaller companies that don’t have large accounting departments to get the numbers out quickly. I’m noticing quite a solid trend in small technology companies—business is getting better and it’s doing so across a range of specific sectors.

One sector that really seems to be taking off is that of communications equipment for telecom companies. Specifically, we’re seeing a huge resurgence in the sale of optical components used by telecom companies to produce and manage the flow of voice and data traffic. Traffic flow on networks and the Internet is a good barometer for the economy.

A number of smaller equipment supplier in this industry reported outstanding growth in the last quarter of 2010 and most, if not all, have high expectations this year. A lot of these stocks jumped higher after beating consensus estimates and they are still trending higher in this market. There is a lot of momentum in the optical component business and many of these stocks aren’t yet expensively priced.

Another sector of the technology industry that’s also experiencing a major turnaround is the solar energy equipment business. As a group of stocks, this sector has proven itself to be volatile and highly cyclical (both operationally and with investor sentiment). But, the good news with these kinds of cyclical stocks is that, when you get the timing right as an investor, you can generate some serious returns.

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All kinds of solar energy companies reported great fourth-quarter numbers and a lot of them beat Wall Street’s consensus estimates by a wide margin. That’s the best sign ever that an industry is reaccelerating. There are a lot of high expectations for First Solar, Inc. (NASDAQ/FSLR), an Arizona-based company that manufactures solar modules. A lot of First Solar’s products are sold to customers in Germany, where the adoption of solar energy is becoming widespread.

It is heartening to see a solid resurgence in business conditions in these specific sectors of the technology industry. The stocks within these two sectors should be solid bets for the rest of the year. If we get a major consolidation or stock market correction, speculative investors should certainly take a look.