The release of economic figures may sometimes move sectors or
markets. Back in April 2013, weak non-farm payroll numbers (or NFP)
hurt stocks in sectors considered to be leading indicators. Telecom
network suppliers were hurt when March NFP numbers missed consensus
estimates by a long shot. At the time, NFP was 88,000, compared to
a consensus of 190,000.
F5 Networks, Inc.
) also warned that its March quarter would be weak. This led to a
major sell-off. Since then, companies in the telecom sector
rebounded. In May 2013, NFP
175,000 compared to estimates of a payroll of 163,000.
Does this suggest investors should be getting bullish on telecom
Below are the monthly returns of
JDS Uniphase Corp
Mellanox Technologies, Ltd.
), and F5 Networks:
Valuation Matters More
The forward P/E of telecom equipment makers rose from late 2012.
Only the valuation in F5 Networks declined in the last two years:
JDS Uniphase is cautious about its current quarter. The company
operates in the core network business of optical communications
components. The other part of its business is laser components,
which comprises of 40% to 45% of total revenue each quarter. A
weaker macro environment could pressure margins, but JDS has new
products like Arieso, StrataSync, and PacketPortal (to name a few)
the company possibly reach gross margins in the high 60%.
F5 Networks reported a weak second quarter in April 2013, due to a
slowdown in orders in North America. The emerging markets also
contributed to the weakness. Weakness was especially significant in
F5's telecommunications vertical. Sales dropped and were hurt by
project delays related to funding. The government sequester also
hurt the quarter. Looking ahead, investors could anticipate that by
the fourth quarter (September), government spending will pick up.
That quarter is seasonally strong for government spending.
The network infrastructure software is a $170 billion industry, and
$9 billion of the market is addressable today. Data integration and
data quality in embedded applications and devices will be growing
in importance for Informatica. Even though short-term fluctuations
in the economy could be a challenge for the company, Informatica
that it is positioning itself for growth regardless. MDM, or master
data management, will be an area of development for Informatica.
Shares of Mellanox are stuck in a range at around $45-$60. The
company is a fabless semiconductor company that sells interconnect
products. This facilitates data transmission between servers,
systems, and storage. Its high forward P/E is supported by revenue
growth of 43% over the last five years (
). Shares remain low because in Q4, Mellanox generated revenue of
$122 million, which was below the $145 million - $150 million
target. It will take several quarters before inventory is depleted.
This story by
originally appeared on
Kapitall's lists break complex concepts down to their basics,
offering education and investing ideas to novices that double as a
refresher course for more seasoned investors. Inspired by video
game design, Kapitall's revolutionary brokerage platform combines a
graphical user interface with tools that make it easy to build
portfolios, share ideas and execute trades.
Read more from Kapitall:
8 High Growth Technology Stocks Insiders Are Buying
Insider Trends: 5 High Growth Health Care Stocks
With Heavy Insider Buying
Funds Are Buying Three High-Yield Dividend Stocks