Today's Focus List from Chase H&Q:
Q2 Preview for Photonics and Broadband Semiconductors
For Q2:CY00, we expect most of the stocks in our photonics and broadband
semiconductor universe to exceed expectations.
We believe the names with the most upside in the quarter will be our Focus
list picks SDLI and PMCS, as well as recent public stocks NUFO and ONIS.
We also expect JDSU, CIEN, and BRCM to post upside.
Fundamentals for these companies remain extremely strong, especially for
photonics suppliers, although valuations remain extremely high according to
traditional metrics. Accordingly, we believe the best investments in the
current environment will be the stocks with the strongest fundamentals as
well as significant near-term upside potential.
In Q2, our universe again outperformed the broad indices, appreciating 19%
versus the 6% decline in the NASDAQ, though down sharply from last quarter's
77% return. Breadth was poor as two of the six stocks measured (CNXT and
BRCM) finished down for the quarter. Meanwhile SDL and Ciena finished up
better than 45%. We did not count recent IPOs NUFO and ONIS because they
were not public for the full quarter, though these deals were among the best
performing recent public offerings.
Considering high expectations and commensurate valuations, we continue to
monitor end-market demand and companies' ability to execute. Given the
strong fundamentals for photonics and broadband semiconductor suppliers, we
believe the best investments in the current environment will be the stocks
with both the strongest fundamentals as well as significant near-term upside
potential.
In Photonics, suppliers continue to struggle to meet exploding end customer
demand. Positive preannouncements by both Corning and SDL and the upward
capex revision by Williams attest to this strength. Long-haul DWDM business
remains solid, driven by new network deployments as well as upgrades to
current networks to meet higher speed, capacity,a nd scalability
requirements. More specifically, the 10Gbps upgrade cycle and ultra-long
haul technology, which is a key element of second generation
high-performance DWDM systems, should provide a boost to the long-haul
market toward the end of the year and clearly in 2001. Submarine business
hould also remain extremely strong. New applications of optical technology,
most notably metro systems, are also beginning to gain traction. We believe
2001 will be a big year for metro, and this market opportunity could
eventually eclipse even the long-haul segment. . . .
Overall, For Q2:CY00, we expect most of the stocks in our photonics and
broadband semiconductor universe to exceed expectations. We believe the
names with the most upside in the quarter will be our Focus List picks SDLI
and PMCS, as well as recent public stocks NUFO and ONIS. We also expect
JDSU, CIEN, and BRCM to post upside. . . . |
