Playing the Telco Spending Cycle

Verizon is starting to spend more, Cramer says. And now that the AT&T-Bell South deal is closed, AT&T should be opening its wallet as well. So it looks like the telco spending cycle is back on track. But whom should you own among these dozens companies? Just follow the money.

AT&T seems to be a big customer of Tellabs. That company’s business is starting to pick up, Cramer says, and it has been doing just fine regardless. The stock held its ground even after missing the quarter back on April 24. TLAB is also a leader in local-level telco infrastructure, which just happens to be the fastest-growing piece of telecom infrastructure spending. There’s a good chance TLAB could be enjoying a new spending spree by AT&T, and it’s sitting on $1.6 billion in cash. Cramer thinks that could be used for a buyback.

Verizon seems to favor Ciena as its fiber-optic network continues to grow. Cramer thinks this is a good play on Verizon’s need to offset losses in the landline sector, which it does by developing its triple play package of internet, phone and cable services.

Cramer advises caution no matter what plays you make in telecom, though. He’s been burned too many times before. Circumstances changed too quickly in this sector, so he recommends taking profits as soon as you make them. Forget the hope of bigger gains, he says. It’s too dangerous.

Cramer makes a special note of steering Home Gamers away from JDS Uniphase. He thinks that company is too risky.

Bottom Line: The telco spending cycle is back on track, and Cramer thinks the best ways to play it are Tellabs and Ciena.

Questions? Comments?