"Picks and shovels" is a popular trope in investing and sometimes
there is logic to it - instead of trying to pick winners and losers in
industries like oil/gas exploration and mining, sometimes it makes more
sense to invest in the service and equipment providers. The details
really do matter, though, and going the picks-and-shovels route doesn't
serve investors as well when there are plenty of pick-and-shovel vendors
and the buyers can play them off each other for better pricing.
Finisar (NASDAQ:FNSR) continues to be a tough case to evaluate within the networking universe. I thought the shares looked washed out back in September of 2014 and the shares have risen almost 20% since then, matching fellow components supplier JDSU (NASDAQ:JDSU) and broadly tracking customers like Ciena (NYSE:CIEN) and Cisco (NASDAQ:CSCO). On the other hand, the company's operating performance hasn't been stellar and particularly so at the margin line.
I
am unconvinced that Finisar is a stock that readers should consider as a
long-term holding, but I do believe it has more positive attributes as a
shorter-term play. Ciena and Cisco should see 100G metro orders pick up
next year as a Verizon deployment picks up, and a better CFP2 module and capacity constraints at rival Oclaro (NASDAQ:OCLR)
should help the datacom business as Web 2.0 deployments pick up. A
recovery in margins could run the shares into the high $20's (or
higher), but I think investors should go into this thinking "whirlwind
romance" and a long-term engagement.
Read more here:
Finisar Still Looking For Leverage
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