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Buy or Sell: S&P Top Performer JDS Uniphase?

In our Closing Bell “Too Hot To Handle” series we look into the top performing stocks on the S&P 500 year-to-date.

JDS Uniphase popped as one of the top performers, up 33% so far this year, and up 58% in the past six months.

We’ve got two analysts on both sides of the trade on this company that provides communication solutions.

THE BULL

Todd Koffman, Telecom Equipment Analyst at Raymond James maintains that valuation is still attractive at current levels and he’d be a buyer of the stock. Koffman pointed out JDSU has diversified over the years to make test equipment and other products.

“For many years, pushing 10 years, the phone companies underinvested in the core part of their network. This is the part that allows massive amounts of traffic to travel long distances. What's happened with the explosion in smartphone and data traffic, the carriers are now going into investment to upgrade the core. When you do that, you buy big optical systems products from people like Ciena and Alcatel Lucent and those are the customers for JDS Uniphase,” said Koffman.

JDSU’s direct competitor Finisar dropped 40% in two days earlier this month. Finisar warned that business is “weakening considerably.” Koffman said “investors are concerned that maybe this investment cycle doesn't have staying power. That's the single biggest risk.”

THE BEAR

Cobb Sadler, Analyst with Catamount Strategic Advisors is neutral on JDSU in the short-term. Sadler’s advice is to wait for the stock to fall, he’d be a buyer at $16 a share.

Sadler points out two of JDSU’s biggest growth products may face competitive pressure. “XFP Tunable used in carrier equipment networks — they have 100% market share. It was only 10% of their optical revenue last quarter but 30% of the revenue growth. They'll be second, third and fourth source on that product in the next six to nine months. The one thing I've learned is that when there's a product transition going on and someone has 100% market share, stay away,” said Sadler.

However, on the upside, Sadler believes, JDS Uniphase has an “excellent management team.” As the smartphone market and tablet market grow, Sadler expects companies to expand their networks to sustain this and JDSU will benefit as a result.

Tune In:

“Too Hot To Handle” today on the Closing Bell at 330PM ET.

DISCLOSURES: Koffman’s firm owns JDSU. Sadler, no conflicts.

Donna Burton contributed to the article.

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