Ciena Corporation (CIEN), Finisar Corporation (FNSR), JDS Uniphase Corp (JDSU): These Stocks Stepped on the Gas in Q2 and Should Get Better

When 2013 began, there were a few stocks that I had tipped for success. At the end of the first calendar quarter, I reviewed my calls and found that they were, well, not exactly where I wanted them to be. However, the stock market is not a short-term game and there were a few solid reasons why I’d expected these stocks to succeed this year and in the future as well.

Their returns at the end of the second calendar quarter prove the fact that if a company’s long-term prospects are good, one should ignore the short-term pain. And if you were patient and had persisted with these stocks, then the second quarter would have been a great one for you.

Let’s see which stocks I’m talking about and how they stood at the end of the first half of 2013.

Stock price data (from Dec. 31, 2012 to June, 28, 2013) taken from Google Finance

See what I’m talking about. The prospects of all these companies were bright when I’d reviewed them at the end of last year, but due to cautious sentiment on the Street regarding their end markets, they had failed to take off in the first quarter. But, the second quarter proved to be a revelation for almost all of them and I believe that they can continue their positive momentum. Let’s take a closer look at each of them.

Leading the way

Communications equipment maker Ciena Corporation (NASDAQ:CIEN) has turned in a solid performance so far this year. Two terrific quarterly reports, where it posted profits while analysts had expected losses, have propelled the stock to its highs and there is every reason to believe that it will continue scaling new highs. A big client list with more than 1,000 customers and presence of lucrative accounts such as AT&T Inc. (NYSE:T), Verizon, BT etc. makes Ciena Corporation (NASDAQ:CIEN) a top stock to profit from the deployment of faster networks and cloud computing.

Ciena is looking to benefit from higher data consumption going forward, and the company has positioned itself by focusing on software intelligence. The proliferation of automated and programmable networks, according to Ciena, will require multi-year re-architecturing of networks and the company is looking to profit from this trend by pushing its open architecture.

The deployment of 100G optical products, along with ethernet and switching, are expected to drive Ciena Corporation (NASDAQ:CIEN)’s top line higher going forward according to Jess Lubert of Wells Fargo. Throw in the company’s diversified client base, which includes the likes of Telefónica Vivo in Brazil and certain important customers in Asia, and it becomes clear that Ciena ticks the right boxes as it is plying its trade in a growing industry and has a diversified client base.

Moreover, Ciena Corporation (NASDAQ:CIEN) has witnessed a bigger order backlog in the past two quarters than the revenue earned by it, along with improving margins. These points indicate that Ciena has enough fuel in the tank to power higher even after the solid gain recorded so far this year.

The turnaround story

At the end of the first quarter, optical networker Finisar Corporation (NASDAQ:FNSR) was struggling and had disappointed investors as it declined 16%. As I’d pointed out in my Q1 review, Finisar was well-positioned to profit from telecom and cloud spending, but analysts weren’t willing to buy that theory. Thus, even though the company was doing well, its stock price wasn’t.

However, the stock sprung to life last month after a terrific earnings report. From here, it should be all positive for Finisar Corporation (NASDAQ:FNSR) as data center build out and deployment of faster networks by telcos, coupled with Finisar Corporation (NASDAQ:FNSR)’s solid product development moves, should help it perform even better going forward. The company counts bellwethers such as Cisco, AT&T, and Verizon on its client list and this further strengthens the bull case for Finisar.

The company recently started shipping its new 100G module on a pilot basis and would move into full production later this year. In addition, its 10G SFP wire, which is better than the copper solutions present on the market, is already finding takers and the company looks set to capture this demand by ramping up production. Moreover, like Ciena Corporation (NASDAQ:CIEN), even Finisar Corporation (NASDAQ:FNSR) is looking to profit from a multi-year upgrade cycle of one of its key customers, which is probably AT&T.

Thus, given the strength in the company’s end markets and its new products, I believe that the good times have just begun for Finisar Corporation (NASDAQ:FNSR).

Waiting for a turnaround

JDS Uniphase Corp (NASDAQ:JDSU) did better in Q2, but the stock’s performance has been disappointing on the whole when you consider that it had begun the year with flamboyance. However, the wheels came off in May when JDS Uniphase Corp (NASDAQ:JDSU) failed to satisfy the Street with its outlook and also missed estimates in the third-quarter.

However, management stated that it was more of a case of bad timing as a holdup by carriers in releasing their budgets led the company to miss out on some sales in the quarter and led it to issue a cautious guidance. I’ll give the company the benefit of doubt as its order book remained strong in the quarter with a book-to-bill ratio of more than 1, and as such, I believe that it can turn its fortunes around when it posts earnings next month.

JDS Uniphase Corp (NASDAQ:JDSU) is looking east for growth, as it expects deployment of 100G by an important Chinese telecom company. Its relationship with Huawei should stand it in good stead since Huawei counts several telcos in Asia as customers. In addition, JDS Uniphase Corp (NASDAQ:JDSU) is also aggressively focused on product development and its new products have accounted for more than 50% of its core network-related revenue in the last two years.

So, even though JDS Uniphase Corp (NASDAQ:JDSU)’s returns haven’t been very spectacular, it does have the potential to turn around and appreciate further.

Steady and solid

Xilinx has been a consistent performer this year and its 12% gain in the first half of 2013 is pretty satisfying. It has a diversified business spanning communications and data center, industrial, aerospace & defense, and broadcast, consumer & automotive among others, to whom it supplies programmable chips.

The company is a dividend payer as well, yielding 2.50%, and these are the reasons why I’d recommended Xilinx in the first place since it is stable and solid. The company has a number of things going for it and I’ll focus on them in greater detail in an earnings preview next week before Xilinx releases its results. So, keep an eye on this space to see why I believe Xilinx has the potential to continue its steady ascent.

The takeaway

I’d rounded off my Q1 review saying that Ciena Corporation (NASDAQ:CIEN), Finisar Corporation (NASDAQ:FNSR), and JDS Uniphase Corp (NASDAQ:JDSU) were struck by bad luck, but much of that bad luck turned into good for Ciena and Finisar in Q2. Uniphase still needs to get off the blocks and I think that it would do so in due course of time, while for the others; the good times look set to continue.

The article These Stocks Stepped on the Gas in Q2 and Should Get Better originally appeared on Fool.com and is written by Harsh Chauhan.

Harsh Chauhan has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Harsh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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