Traders looking for a quick pop in JDS Uniphase (JDSU) should bark up some other tree. I say this because the current demand for fiber-optic components is, as everyone knows, lackluster at best. But that doesn't mean that the truly long-term investor shouldn't be taking a close look at the stock.
emails. Let me make it perfectly clear that I'm not calling a bottom on the stock price. God knows too many analysts have tried that before. Nor can I accurately predict when demand will perk up. But what I will tell you is that management is finally doing the things it needs to do in order to stabilize the business so that when the industry does turn, the company will be well-positioned and the stock price will react in kind.
To that end, JDS is in the process of laying off some 16,000 workers. It has also written off a host of assets and attempted to clean up its balance sheet. In all, its "global realignment program" is expected to trim roughly $700 million in annual expenses. In simple terms, the patient appears to be in relatively stable condition. I say relatively stable, because we, of course, don't know with any certainty if the bottom has indeed been realized.
So what's the downside for the stock?
I know some pretty smart people, including
Jim Cramer, will argue with me. But several analysts I've spoken with think that the company -- its assets, investments, goodwill, plant, property and equipment (in other words, the bare bones) -- is worth at least $5 a share.
And my primary argument is that once the industry rebounds, and JDS gets its "corporate culture" together, the stock could realistically double or even triple from current levels. Again, keep in mind that JDS sports a pretty decent balance sheet with more than $1.8 billion in cash and equivalents. On top of this, industry sources are still telling me that the company continues to garner a good number of bookings -- net of cancellations. In other words, not all is doom and gloom.
The bottom line is that I simply don't believe JDS Uniphase is going out of business. Nor do I believe that the manufacturing of fiber-optics products such as transmitters, receivers and amplifiers is a lost cause. Sooner or later, because enough companies have placed a bet on this technology, capital spending on system upgrades and equipment must rebound. The primary question in my mind is when -- not if.
In keeping with TSC's editorial policy, Glenn Curtis doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Curtis welcomes your