Is Fiber Optics The Next Hot Investment Sector?

In a new report, Northland Capital Markets analyst Tim Savageaux discusses the trading opportunity associated with the current 100G optical upgrade cycle. Northland initiated coverage on a number of names in the space and sees a long-term cyclical opportunity for savvy investors.

A decade in the making
According to Savageaux, the 100G opportunity has been 10 years in the making. He sees the upgrade cycle providing both fundamental and share price value for systems and component providers for years to come. “While we have seen some share price upside over the last few quarters in several sector names, the message of our analysis is clear and simple. It ain’t over, in fact it’s really just getting started,” Savageaux explains.

Ciena Corp CIEN
Although Nothland has short term concerns about the financial fallout from the Cyan acquisition, the firm believes that Ciena’s exposure to 100G among carriers worldwide makes it a potential long-term play. Northland initiates coverage at Market Perform with a $25 target.

Infinera Corp INFN
Northland believes that Infinera’s leading growth and profitability metrics and its technology and product leadership makes it the top pick among 100G plays. The firm initiates coverage at Outperform with a $30 target.

Lumentum Holdings Inc LITE
Northland sees “stand alone exposure” to the 100G cycle and medium-term upside based on industry consolidation potential. The firm initiates coverage at Outperform with a $27.50 target.

Luna Innovations Inc LUNA
Northland is also bullish on Luna, and notes that the company’s recent acquisition of API further increased its exposure to the 100G cycle. The firm initiates coverage at Outperform with a $2 target.

Other Names
Northland believes that the power of the 100G cycle will likely have a far reaching impact within the industry and will provide upside for a number of other names as well. The report mentions NeoPhotonics Corp NPTN, Oclaro Inc OCLR and MRV Communications Inc MRVC as three other 100G stocks that Northland is initiating at Outperform.