2 Telecom Stocks to Buy Now

NEW YORK (TheStreet) -- Placing bets on telecom stocks requires faith that carrier spending will rebound. But this is precisely what industry experts believe happen -- to what extent remains to be seen.

However, because the entire sector reached such depressed levels in 2012 there's a prevailing notion that, well... how much worse can 2013 be? This year if the sector recovers only 1/3 of its 2012 losses, investors would do very well.

Here are a couple of names to keep an eye on.

Ciena ( CIEN)

I'm going to lead off with Ciena. The stock is currently trading at $16 but in 2012 it was all over the map. I've always wanted to like Ciena but the company has not been able to escape its rut -- at least not to the extent that I would like. Also, recent earnings didn't exactly woo investors over much cheaper rivals.

For the period ending in October, Ciena reported a non-GAAP loss of 7 cents per share on revenue of $465.5 million. The company missed on both the top and bottom lines as Street estimates called for a loss of 6 cents on revenue of $468.3 million.

Although revenue dropped almost 2%, it was encouraging that sales advanced 2% year over year. On a GAAP basis, the company lost $38.8 million, or 39 cents per share. The company's main challenge continues to be profitability. Adjusted gross margin was 42.7%, worse than 43.2% logged a year ago. Then again, it was a 3% improvement from the third quarter.

The outlook remained somewhat cautious. Management offered revenue estimates ranging from $435 to $460 million, in line with analysts' expectations. But is that enough to place a bet on the stock today?

However, on a relative basis they are pretty consistent with the guidance provided by rivals Cisco ( CSCO) and Juniper ( JNPR).

I like the stock at these levels. If Ciena can show it can innovate and leverage its existing technological advantage to fight off pricing pressure, the stock should reach $20 by the summer. Also, the company has to show investors that its increase in R&D expenses have not been in vain.

Alcatel-Lucent ( ALU)

Alcatel-Lucent has all of the makings of an excellent turnaround story. Then again, this has been said for three years. This time there is evidence that things are beginning to fall in place. The stock gained over 80% in the last three months of 2012, which means that the Street is starting to believe.

Still, at a current price of $1.69 and a P/E of 3, it can be argued that pessimism lingers. The company is expected to lose money this year -- that's not a surprise. However, with a recent financing pact worth $2.1 billion, ALU has just been given time to get its house in order. This now gives the company some flexibility and latitude to extend maturities accordingly.

The good news is with liquidity concerns behind the company (for now), ALU can begin focusing on execution and figure out ways to render its good market share into shareholder value. With some recent upgrades under its belt, there are now a few more catalysts making the stock more appealing.

For instance, despite competitive pressures from more prominent names such as Cisco, many still underestimate that ALU's IP and optics business is trending higher. Too, its newest routing platform competes extremely well to similar models from Cisco as well as Juniper, and in some cases it's even better.

Likewise, ALU has an impressive CloudBand strategy that rivals that of some of the more prominent names in the industry, including Cisco. For this reason, I wonder how long it will take before Cisco realizes it needs to acquire ALU. Beside, recent acquisitions, which includes paying $141 million in cash for Cariden and another $1.2 billion for Meraki suggests Cisco will leave no stone unturned to produce growth.

What's more, with the cloud market expected to grow to $177 billion over the next three years, it would be foolish for Cisco not to consider acquiring Alcatel-Lucent, especially now since ALU can be had for pennies on the dollar. For that matter, it would also be foolish for investors not to consider ALU.

At the time of publication, the author held no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Richard Saintvilus is a private investor with an information technology and engineering background and has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.

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