A smart play… in about five years
You know how I’m always saying that many investors are really astute about analyzing and discovering the next big thing but they’re absolutely terrible at timing that trend? Well, let me introduce you to NeoPhotonics Corp (NYSE:NPTN), a company that sounds like it came straight out of a Star Trek movie and makes its living by manufacturing high-speed optoelectronic modules and photonic integrated circuitry for rapid data transmission.
Ultimately, NeoPhotonics Corp (NYSE:NPTN) may make quite a name for itself when 5G wireless technology, or even 4G LTE, becomes more superfluous in the U.S. and around the world. NeoPhotonics Corp (NYSE:NPTN)’s products are geared toward enterprises to help improve transmission speeds and, based on the fact that the company’s 100G products grew 41% quarter over quarter, businesses seem to be taking to its products with open arms.
However, those products aren’t likely to see sales ramp up until well into 2015 or 2016, meaning profitability is still years off by my estimations. In addition, the tech replacement cycle, whereby wireless infrastructure is upgraded beginning with big investments from wireless service providers, will likely end sometime in 2014. To that end, NeoPhotonics Corp (NYSE:NPTN)’s shareholders are probably seeing the best environment for their company’s 100G products that they will see for the next three to five years… and it’s still not profitable.
I’d suggest keeping this company on your Watchlist but trading it in for something that you’d be likely to see a more immediate and longer-term impact from, like JDS Uniphase in the fiber-optics sector.
Quite the gamble
There are no “sure things” when it comes to investing, but some stocks just look like more of a gamble than others. That’s the way I feel about Scientific Games Corp (NASDAQ:SGMS), a gaming solutions company to the lottery and gaming industries.
The most recent quarterly report for Scientific Games Corp (NASDAQ:SGMS) highlighted a few bright spots, including its pending acquisition of WMS Industries, which will boost its existing lottery and gaming foothold, as well as being selected as the primary lottery vendor by the state of Delaware.
But for what few victories Scientific Games have achieved, there are also many disappointments along the way. For instance, U.S. lottery systems’ customer retail sales dropped by 15% from the previous quarter, which the company blamed on a record Mega Millions jackpot in 2012. To that end, this shows just how little control Scientific Games has over the gambling habits of its customers. Service revenue on the gaming side of its business also declined, leading to an overall sales slump of 5% in the first quarter.
The other aspect that we have to take into account here is that global economic strength determines how willing consumers will be to gamble their money away. Aside from a select few individuals, consumers are generally spending less with the payroll tax holiday now removed in the U.S. and austerity measures instituted throughout much of Europe. Without a huge push into Latin America and South America, Scientific Games’ forward P/E of 48 is looking like it could hit tilt long before it hits the jackpot.
Foolish roundup
Every once in a while, timing can be important, and that’s what today’s theme is all about. All three companies have a shot at being successful over the long run, but this isn’t the time or the place for investing in any of these three. Until Noodles & Co. gets more geographically diverse, NeoPhotonics Corp (NYSE:NPTN) jumps on the 5G upgrade cycle, and Scientific Games has had some time to digest its WMS purchase, I’d lay off all three stocks.
The article 3 Stocks Near 52-Week Highs Worth Selling originally appeared on Fool.com.
Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool recommends and owns shares of Panera Bread.
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