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LR Index Led Rally in 1H 2003

The Light Reading Index staged a powerful rally in the first half of 2003, climbing 26 percent in the period between Dec. 31, 2002, and June 30, 2003. It outgained both the Nasdaq Composite Index (up 21%) and the Standard & Poor’s 500 (up 7%) during the same period.

Telecom carrier and telecom equipment stocks, the dogs of the day during 2001 and early 2002, suddenly became the stars of a rally that commenced in the fall of 2002.

In fact, a look at some of the stocks in Light Reading's index of leading telecom equipment and components players reveals some eye-popping gains -- with many stocks doubling in value.

Here are the top ten gainers for the first half of 2003: The law of low numbers was hard at work here, as those companies with small share prices realized the biggest gains.

In many cases, the biggest gains came from companies trading at or below the value of their cash on hand. For example, shortly after the market capitalization of both Avanex and Corvis dipped below the value of their cash, investors scooped them up (see Corvis Spikes on DISA Talk and Corvis Insiders Buy Up). Corvis, now trading at about $1.50, has about $1 per share in cash in the bank.

But even the largest gains may come as small consolation to investors who bought such stocks during the days of the bubble. They are still well off their highs and show little or no hope of recouping the valuations attained at the time of their initial public offerings.

Avanex, for example, rallied back more than 300 percent from its low of a little under $1. But it's still miles away from $172, the price it closed at on the day of its IPO (in fact, it's all-time high was above $250 per share). Trading at about $3.90 now, Avanex would have to rally another 4,400 percent to approach that price.

Say you bought 100 shares of Avanex at $100 -- a price well off its all-time highs. That would have set you back $10,000. Those shares would now only be worth $390, even though the stock's price is three times higher than its all-time low of 63 cents.

The big three equipment vendors logged gains as well, but nothing like the top gainers. Cisco Systems Inc. (Nasdaq: CSCO) logged a 28 percent gain, Lucent Technologies Inc. (NYSE: LU) tacked on 60 percent, and Nortel Networks Corp. (NYSE/Toronto: NT) spiked 68 percent during the first six months of 2003.

Elsewhere in the LR Index, there were companies that failed to see any gains. Riverstone Networks, for example, lost 45 percent and is facing a Nasdaq delisting (see Riverstone Branded 'E' by Nasdaq). Here are the bottom six performers in the first half of 2003: The key question -- whether the stock market is simply bouncing in the midst of a dismal bear market or is signaling a recovery on the horizon -- is the topic of our new Research Poll. Go ahead and Vote.

— R. Scott Raynovich, US Editor, Light Reading

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