Are Fund Managers Still in Love With Optics?

If you own one of the 949 mutual funds with a stake in Nortel(NT Quote), you may be wondering how your money manager has weathered the unnerving period since the company's surprise revenue disappointment. Well, those that weren't selling were gripping the arms of their chairs with their eyes squeezed shut, chanting: looonng-terrrrrrrm; loooonng-terrrrrrm.

The latest troubling news: A Bank of America analyst reportedly voiced concerns about inventory problems and said the weakened stock could drop from the mid-30s currently to the 20s.

It's not that money managers are all that surprised by the recent shakeout in the precariously high-priced optical sector. "We've been anticipating a valuation correction for quite some time," says Bruce Bartlett, a portfolio manager at (OPPSX Quote)Oppenheimer Growth. But Bartlett, like probably many others, didn't think it would look this brutish. Some of the biggest names in the sector, like Nortel and JDS Uniphase(JDSU Quote), have dropped 40% to 50% from their highs earlier in the year. "We thought it would be a three- to nine-month process," he explains. ...