Play It Smart With Conexant, JDSU

This column was originally published on RealMoney on Nov. 22 at 2:15 p.m. EST. It's being republished as a bonus for TheStreet.com readers.

Is it time to get off Conexant(CNXT) and JDSU(JDSU)? These are two little jobbies that I had a pretty strong call on from lower levels and that both have run 25%. I have to tell you that as much as I like to ring the register because bulls make money, bears make money and pigs get slaughtered, I believe that I would sell half of what I had on, booking a hefty gain, and would let the rest run.

Here's why. Go back and listen to the conference call that JDSU held when it reported. The company has divested almost every bad business and really concentrated on a couple of strong growers. To sell it now, when it has finally put behind it all of the disparate units and gotten rid of the cats and dogs, is to believe that management won't be capable of doing much better now that it is focusing on just the winner units.

My experience in business is that the real good numbers don't come until companies have focused on the divisions worth focusing on, and that's what Kevin Kennedy's about to do. Optical solutions for medical and telecommunications uses are pretty darned important growth areas, and that's what you are getting now with JDSU.

Conexant's got en fuego end markets and is a big player in satellite set-top box growth and wireless. It finally has gotten its costs down to where it can deliver actual earnings upside surprises. You want a low-cost producer of semiconductors for the furtherance of broadband -- that's Google, that's Yahoo!, that's where the growth is, and you want to be involved with the telco rollout that's competitive to cable.

Both of these companies are finally in the position to show numbers that will look fabulous against their previous reports. Now, I don't expect either to be Corning(GLW), which had this great glass division. But I don't expect them to flame out fast, either, and as they get whole they also could be acquired by someone trying to be dominant in the space. Better balance sheets, better earnings, good management -- you hardly ever see those qualities in $2 stocks. Both of these have them all.

Don't be greedy, but let the rest run.

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