Optical/IP Networks

Rally Lights Up LR Index

The Light Reading Index rallied today, as both the Nasdaq Composite and NYSE jumped considerably.

In late afternoon trading the Light Reading Index was up $7.12 (4.18%) to $177.46, with a quarter of the companies in the index gaining 10 percent or more.

Leading the charge was Redback Networks Inc. (Nasdaq: RBAK), which reported its third-quarter earnings last night (see Redback's Rough Road). Today the company’s stock rose 0.39 (23.78%) to 2.03. Even though it reported a $40 million loss on revenue that dropped by $20 million from the last quarter, the company managed to beat the revised analyst expectations that came after the company warned last month (see Redback Melts Down). It also announced further spending reductions through more job cuts. And it cancelled development of a smaller version of its optical transport platform, the SmartEdge 100.

Analysts say the company has to go back to its roots and effectively upgrade its Subscriber Management System (SMS) products.

“They need to scale the edge router to stay cash-flow positive,” says Steve Kamman, analyst with CIBC World Markets. “And if they can, they will have a viable business. What you see is people reacting to this bet.”

Other big winners in the Index today included optical system companies Ciena Corp. (Nasdaq: CIEN), which was up 1.78 (14.24%) to 14.26, and ONI Systems Inc. (Nasdaq: ONIS), up 0.99 (16.34%) to 7.05. Finisar Corp. (Nasdaq: FNSR), which may have seen a boost from insiders buying stock on the open market, was up 0.90 (19.20%) to 5.96 (see Finisar Execs Lead by Example ). Other top movers included Digital Lightwave Inc. (Nasdaq: DIGL), up 1.20 (20.69) to 7.00, and Avanex Corp. (Nasdaq: AVNX), up 0.69 (19.27%) to 4.27. Ethernet switch provider Extreme Networks Inc. (Nasdaq: EXTR) also moved up the charts 1.65 (16.10%) to 11.90.

Following the terrorist attacks of Sept. 11, the Light Reading Index plunged to an all-time low of 131.83. But since the beginning of October the Index has shot up 45.87 (34.8%) to 177.46. Has the telecom sector finally hit bottom? Most analysts say no. The sector fundamentals haven’t changed. At the end of the day, investors can’t ignore that AT&T Corp. (NYSE: T) still says that it is going to cut its capital spending by $2 billion for next year. Nor can they ignore the effects of Nortel Networks Corp.’s (NYSE/Toronto: NT) latest pre-announcement. Nortel was also up 0.16 (2.92%) to 5.64.

“Fundamentals haven’t improved,” says Nikos Theodosopoulos, a telecom equities analyst with UBS Warburg. “Most people are still expecting another negative year.”

But stock prices are very low right now, and some analysts suspect that today’s rally can be attributed in part to fund managers and other investors looking for deals on long-term investments.

“This is a tremendously good time to be picking up stocks that will survive the downturn,” says CIBC’s Kamman. “When growth comes back and things are flying high, investors don’t want to look back and say, ‘If only I had the sense to buy (fill in the blank).' ”

With the third-quarter earnings season just around the corner and end-of-the-year sellers looking to cut their losses for tax purposes, the rally may be short lived.

— Marguerite Reardon, Senior Editor, Light Reading
lightpimp 12/4/2012 | 7:44:07 PM
re: Rally Lights Up LR Index More like another headfake! just like in April, "The bottom is here!!! Buy Buy Buy!!!" No good my friends. just as Nicos says, "The fundamentals have not changed." Look to buy when tech stocks are cheaper, I know I am! Most are still trading way to high compared to forecasted EPS. The bargins will come soon people. Be patient and ye shall be rewarded graciously.
PantomineHorse 12/4/2012 | 7:44:06 PM
re: Rally Lights Up LR Index "More like another headfake! just like in April"

I agree.

I'm worried about our financial markets. Close advisors are suggesting to dump it all, esp. mutual funds, retaining only select stocks.

There is a lot of "chatter" -- that the market is largely being "propped" by the big players (feds, lead banks & brokerages). The main intent is to restore people's confidence, as a kind of last ditch effort to draw money into the casino. Some even accuse the fed of cooking the numbers to make reality less visable. Coincidentally, calls from brokers are urging me to take sideline money and put it to good use. Seems too transparent.

Article this morning http://www.msnbc.com/news/6414... includes quote "The behavior of the stock market is the most obvious indicator of what is happening to the mood of the public.". Really!? Am I that far out-to-lunch?

Does Juniper's "wonderful" announcement justify it's after hours price based on its year/year earnings and p/e. Maybe Juniper is the wrong example (God bless them), however the market seems to be trading at its highest p/e ever. Based on what?

Thursday's edition of Investor Business Daily, a fairly no nonsense pub, was very guarded on the recent market's behavior. It also had a scathing editorial on the pork-barreling & lobbying attempts currently underway in Congress concerning fed stimulus. (As an aside, you should be aware that RBOCs are trying to introduce another measure to kill off CLECs under the guise of security). Today's IBD hasn't arrived, so I can't say whether their interpretation has changed overnight.

Later today, after lunching with seasoned pros to discuss this whole issue & business in general, I will be making a decision to dump it all or not (in my case, retirement accounts heavy into equities). I'd like to think that the institutions, if they are manipulating, could be the bag-holders this time.

I post here because I have valued the various opinions on LR and I'd like to be viewed as a thoughtful contributor.

What are LR readers' insights & mood? Does it agree with MSNBC's article/quote?
MKTG_Hack 12/4/2012 | 7:44:05 PM
re: Rally Lights Up LR Index Hey Horse:
I tend to read a lot of Chris Byron's opinions and in general they are blunt, honest, and lately, very pessimistic. The fact that he thinks he sees a little sunshine is a good thing. It doesn't mean we're out of the woods but maybe there is hope for us all soon.

And I think the signs are better than they have been. Juniper did well, Cisco expects to make it's lowered numbers, Enterasys has had six quarters of growth. Again, things aren't necessarily healthy but at least the execs feel like they can see again. Right now, a market surprise is when a company DOESN'T miss it's estimates by a wide margin, and that's what we are seeing more and more of. Am I optimistic - always! Grasping at straws - maybe.

As far as your financial experts go, just remember they are as deaf and blind as the rest of us. In the long run, it is always a bad idea to bet against this country and that is the gut feeling that drives my decisions. The LR boards right now seem closer to the F***edCompany message boards with people just venting and spewing so be careful how much weight you put in the opinions expressed here. Consider the source!

If I had money to invest (and I don't being unemployed!) I'd put it on the big boys right now and wait it out for another 6-12 months.
PantomineHorse 12/4/2012 | 7:44:04 PM
re: Rally Lights Up LR Index Appreciate your comments.

I had a long talk w/money mgr, who controls a lot of my (and other people's) money. He's not from WS and has a long established rep to protect.

He's "distributing" for reasons that agree with mine and then I added my 2c for confirmation. (He's not "bailing" 100% mind you, but it approximates what he's doing).

Thus, it appears I'm getting out of this casino (until he puts me back into it).

In the end, I trust his judgement (based on his past performance).

The message here is -- if you have a financial advisor your trust, you may want to check in with them.

"Man on the street" views are important to me also, so thanks again for your reply.
lightpimp 12/4/2012 | 7:43:55 PM
re: Rally Lights Up LR Index Excellent point! The PPT has been in full force since the "incident" on both sides...equities and of course in the $/Yen. The evening before the markets reopened, recall that the BOJ intervened to prop up the dollar when Gold was soaring near $300/oz. Folks.....Nobody plays in a rigged casino...Lets learn from our past shall we...The NAZ vs. the Nikkei 225, looks familiar??? Nine rate cutz and no response. Doesn't look good for the near-term folks.

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