Friday, May 15, 2009
(Cont'd from above)...

Jim (cont'd):   


Boom! Voila! Eureka!... The play is...

CIENA Corp. (CIEN)!

Ciena makes the equipment that makes it possible to transmit video over the web... You bring me your New York Times and I, unlike the New York Times Company, turn it into money!...

But wait... We have to ask the next question... Is Ciena investable?... Should you really be buying this single-digit midget mange of a tech stock?...

Okay, let's think...

While the Nasdaq declined this week... and, by the way, it was the first week in 10 that it did so... and, unlike so many others I heard or read this week, I am not willing to write off this tech rally!... I think this tech rally is alive and well... and, if anything, broadening out...

And Ciena fits with something I've been saying for the last two weeks... that this rally has changed its stripes... The best way to play it may still include the old "generals"... the still-liked four horsemen of tech... Apple (AAPL), Google (GOOG), Research In Motion (RIMM) and Amazon.com (AMZN)... but it's time to buy tech from the junior ranks too... not just the top brass...

The first phase of this rally was all about resurgent Chinese demand... and what's known as "restocking." It was a reaction to the fact that everybody in the tech food chain had cut back too hard on inventory...

This leg is different...

It's a response to genuine tech spending coming from a whole bunch of different areas, just like I talked about last night. That's the reason we can go back to the speculative well, and recommend a tech spec like Ciena... off of this Hulu story.

If you remember, this network equipment company was one of the original trio of beaten-down speculative stocks that I introduced to you at the end of the year... along with Skyworks Solutions Inc. (SWKS) and Tellabs Inc. (TLAB). That was back on December 12th. Ciena was at $6.13. Now, in less than a month, Ciena was up 42% to $8.75. That was on January 8th. And that's when I told you to ring the register on most of your position, and play the rest with the house's money...

And that big move was back when we were still mired in our garden-variety depression... There wasn't a lot of reason to believe in anything tech, except that some of the speculative names were simply too cheap... Ciena gave us a huge win anyway. The stock's now a point higher from where I told you to take profits in January... so you can see I'm being duplicitous... maybe not being consistent...

But there are genuine reasons to like the company now, and these reasons didn't exist back then... and I think these reasons could propel the stock higher...

Ciena is all about the growth of next generation networks. It sells the optical transport and switching equipment that enables the transmission of video on the internet. That's why, when I saw this article in the Times about Hulu, I knew that I have come into the right place. See, it's also for IPTV... that's television transmitted over the internet...

This market has been growing at about a 15% annual clip, despite the weak economy... and, because of the endless wars between the two phone companies, T and VZ... and cable... a war in which Ciena makes money like an arms dealer... the migration of networks to the next generation of optical technologies... stuff Ciena sells... It's pretty unavoidable, isn't it?...

So the question is how quickly it happens...

Last quarter, Verizon which, along with AT&T - one of the two largest customers for Ciena - spent very little on new equipment... But now it's flush... Remember, it just sold those lines to Frontier for $8 billion?... I think it's going to start spending... I think the spending is going to pick up at Verizon...

How big is the transition?... In 2008, 25 million subscribers to IPTV... That's expected to grow... are you ready... to 163 million by 2013... that's a 45% annual growth rate. I do not have any other industries growing at that speed.

With Ciena selling the necessary parts to make the expansion possible, I can't believe the stock's still at $9...

AT&T and Verizon together are expected to have 6.5 million triple play subscribers. That's people who get TV, Internet and phone service... Now, this is all over, saying the high-tech lines... It's triple play and you need Ciena... It's a good story.

But it's only half the reason to like Ciena for speculation...

See, it's also tapped into internet video. We all know that more and more people are watching video over the web... The actual number of videos viewed in a given month has increased by 63% from the beginning of 2007 to the end of 2008... But the average number of minutes watched per month - up 105%.

YouTube alone makes up 13 billion videos... 13 billion videos... Google's got to try to find a way to make money with that thing... per month.

Who do you think makes up the equipment that's necessary to support all this traffic?... Ciena... Ciena.

Ciena isn't just about big, long-term trends. It also has a catalyst...

A new version of its existing core director switch... a product that's used by about 50 different telecom carriers across the world... and it's expected to come out this year.

There are more reasons... I've got a lot of reasons... I'm willing to recommend Ciena here at $9.59, also because the company has finally become focused on profitability...

Historically, Ciena seems to have had a real aversion to cutting costs, which is one of the reasons it's a single-digit stock...

That's changed.

Last quarter, Ciena reported a 12% decrease in operating expenditures, and the company recently announced a 9% reduction in its workforce... It's almost as though Ciena - an old veteran of the tech boom and ad bust - is at last being run, not as a hobby growth company, but as a real business.

Okay, now the company is losing money at the moment... But its cash burn rate is less than $1 million, its order flow has stabilized, it hasn't seen any cancellations, and this $9 smacker stock has about $2 per share to keep itself going until we get that AT&T and Verizon turning on the faucet, if not the fire hose, for spending.

Here's the bottom line...

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