Ciena is the spec to own right now, Cramer said Friday, for two key reasons: the rise of Internet video and the tech sector’s change in leadership.
More and more people are watching video online, or they are subscribing to Internet Protocol television, TV transmitted over the Web, provided by companies like Verizon or AT&T. Ciena , maker of networking products, is in key position to take advantage of this trend.
Also, Cramer thinks that smaller tech firms like Ciena could offer much bigger returns to investors than bellwethers Apple , Google , Research in Motion and Amazon . Plus, increased capital spending has overtaken semiconductor strength as the driving force behind the tech rally, which, again, puts Ciena in the spotlight.
Some facts and figures to prove the point: ComScore clocked the number of people using Hulu.com – “the Web’s most popular place for TV viewing,” says The New York Times – in March at 42 million. IPTV subscribers are expected to total 163 million by 2013, a 652% jump from the 25 million already signed up in 2008. As these next-generation networks come online, Ciena plays a crucial roll in connecting viewer to video.
As for capital spending, Cramer expects some of the $5.25 billion that Verizon earned selling landlines to Frontier to go toward new equipment. VZ bought very little last quarter, and he thinks the spending is about to start again.
There’s a catalyst here, too. A new version of Ciena’s CoreDirector switch, a product used by about 50 telcom carriers worldwide, should hit the market this year.
Maybe best of all, though, Ciena has focused on tightening up its balance sheet. Once seemingly afraid to cut costs, the company last quarter reported a 12% decrease in operating expenditure. And just recently a 9% headcount reduction was announced.
While it’s true that Ciena is losing money right now, the cash-burn rate is less than $1 million, the order flow has stabilized, cancellations have been nonexistent and there is $2 of cash per share protecting this $9.59 stock. That should be enough to keep the company going until capital spending really kicks in.
So how do you play it? Cramer recommended buying just half a position prior to Ciena’s June 6 report. Then buy the other half. This isn’t a play on the quarter, he said.
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