This Fallen Networking Stock Will Bounce Back
Networking stocks should be simple. Worldwide network traffic will continue to explode for the foreseeable future, driven by fatter and more ubiquitous bandwidth needs. Thank Apple (NAS: AAPL) for introducing media players that fit in your pocket or purse; thank Google (NAS: GOOG) and Netflix (NAS: NFLX) for burning the fires under traffic-sucking video streams.
So yeah, it should be simple. Demand is guaranteed to stay high and rising; networking stocks should follow suit.
That's the theory. But as you know, theory and practice aren't always the same thing. Networking companies and their stocks do not move on a straight line to the stars, as you might expect.
Reality hit optical networker Infinera (NAS: INFN) hard Wednesday. The company reported a pretty acceptable third quarter with a $0.09 adjusted loss per share on sales of $104 million. That was better than expected on both counts, but shares still plunged through the floor, closing the day 10.8% down. You guessed it: The outlook for the fourth quarter came in a bit light next to analyst projections. Look out below!
In related industry news, Alcatel-Lucent (NYS: ALU) also crashed hard on a very drastic analyst note. Jeffries cut that stock from buy straight down to sell due to a lack of catalysts and timid network spending from North American backbones in general, AT&T (NYS: T) in particular. Since 65% of Infinera's business comes from North America, comments like that strike directly at the company even if aimed at a competitor. What's bad for the goose is terrible for the gander.
That being said, Infinera does have catalysts lined up for 2012. A new line of high-speed optical cards promises to boost sales significantly, albeit at the cost of lower margins as manufacturing yields usually start out pretty low.
Infinera's largest customer is Level 3 Communications (NAS: LVLT) , and recent Level 3 addition Global Crossing is also on the list of significant clients. Hence, I would advise Infinera investors to listen up when the two-headed Level 3 beast reports its own results in a couple of weeks -- how Level 3 plans to invest in its networks makes a huge difference to Infinera.
This stock is an official recommendation of one Foolish newsletter and a real-money holding for three other services, not to mention a perfect five-star CAPS stock. Never mind one silly Fool waxing poetic about Infinera's catalysts -- a veritable army of sharp minds stands ready to back me up on this.
Navigating the networking waters can be tricky. Why not grab a map of the space to help you along? This free report on high-speed networking stocks will be your North Star on the quest for market-stomping returns.
At the time this article was published Fool contributor Anders Bylund owns shares of Netflix and Google, but holds no other position in any of the companies discussed here. The Motley Fool owns shares of Google, Apple, and Infinera. Motley Fool newsletter services have recommended buying shares of AT&T, Google, Apple, Infinera, and Netflix. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can go over Anders'holdingsandaconcisebio, follow him on Twitter or Google+, or check out our Foolish disclosure policy.
Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.