Surviving the BustLet's spend a few moments looking at the most able of the walking wounded. Many of these stocks are deservedly 98% off their 2000 highs, but perhaps undeservedly 50% off their much lower January 2004 highs. Scarred but not dead, they represent ways to play a version of the '90s Big Vision that is slowly becoming rather real amid considerable skepticism. Tops on the list is JDS Uniphase ( JDSU), the granddaddy of them all. Shares of this major maker of fiber-optic components fetched 27 cents, adjusted for splits, back in 1993 when the Internet was just a gleam in futurists' eyes. Ultimately, the stock rose as high as $153 in March 2000 when the hype was on high heat. Then the line went dead. Shares sank to $1.96 again by October 2002, then rallied as high as $5.89 in January before sliding back to the mid-$3 range in recent days. So is the company fairly priced now, or is the stock poised for a return to pennies?
Fit-With-Fiber PlaysThe story to become excited about now with fiber-optic suppliers is fiber to the premises. It's about the only way that Baby Bells like SBC Communications ( SBC) and Verizon ( VZ) can battle back against the onslaught of cable companies that have pushed television, broadband Internet and telephone service to residential customers nationwide, aiming to shoulder the Bells out of their traditional business with low-cost plans. The Bells are in a pickle because Internet-based phone service -- voice-over-Internet protocol -- is far cheaper than the switch-based phone service into which they've sunk a century's worth of infrastructure spending. More and more, customers are accepting the cable companies' pitch and ditching the phone company. Baby Bells' answer to this death knell is the prospect of far faster Internet broadband and video/television delivery over fiber-optic lines. Currently, the phone company's broadband solution, digital subscriber line, maxes out at roughly 1.5 megabits per second, though typical speed is around 768 kilobits. That's generally a bit faster than cable speeds. But fiber optics will boost the speed as high as 100 megabits per second, which is fast enough to make speed concerns a memory. It'll be nothing to download a feature film. You'll be skating on air. Cable can't match it.
Two More to Dig IntoLast week, trade publication NetworkWorldFusion reported that Verizon was halfway done with the buildout of fiber to the premises in one of its first markets: Keller, Texas, a city of 25,000. It reported that the fiber has been strung along aerial cables and in underground conduits, and buried in the ground through the suburb's neighborhood at a cost of $1,000 to $1,500 per home. All that digging and climbing has meant new work for a low-tech beneficiary of the last fiber boom: construction companies. There used to be dozens of these sorts of outfits, but the telecom bust has left just a few standing -- most notably Dycom ( DY) and MasTec ( MTZ). Dycom is a very good company, which said it was rolling out two fiber-to-the-premises cities for Verizon this quarter and had four on the books for next quarter. But MasTec is more interesting for speculators at its current price near $4.16. MasTec spent many years rolling up competitors, but never invested in a computer system that would tie all its parts together. The company paid for that recently when it failed to file its 2003 annual report and first-quarter 2004 financial report with the Securities and Exchange Commission, and said it would have to both restate earnings and renegotiate loan covenants. LaForge, who specializes in what he calls "broken stocks," said that if the 10-Q is "messy but not horrible," the stock could go to $6 in short order after it is filed. But he said he would double down if it went to $3 as the problems look worse than they are, and, in any case, at that price almost any scenario -- short of bankruptcy -- would be discounted. Like most cool telecommunications ideas, this one is sure to be slower to get off the ground than advocates want. But the difference for investors now is that some of the key stocks are pretty cheap, so the investment risks, while high, are not outrageous.
|Strong Fiber Plays |
Watch these stocks
|Company||June 2 Close||52-Week High||52-Week Low||Market Cap|
|JDS Uniphase (JDSU:Nasdaq)||$3.31||$5.88||$2.60||$4.7 billion|
|Avanex (AVNX:Nasdaq)||3.05||7.57||2.70||427 million|
|MasTec (MTZ:NYSE)||4.11||16.50||3.63||202 million|
|Bigger FTTP Plays|
|Dycom Industries (DY:NYSE)||24.94||29.80||13.70||1.2 billion|
|Verizon (VZ:NYSE)||35.18||41.35||31.10||98 billion|
|Source: MSN Money|
Please note that due to factors including low market capitalization and/or insufficient public float, we consider Avanex and MasTec to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.