Oclaro (OCLR-Q)

(Market Call Minute.) This has struggled all year and broke down in the month of October. He would stay away from this.

This makes components for fibre optic networks. This sector is quite cyclical. It has big advances and then when capacity comes in, it is harder to get a margin. The company in this space all had a wonderful run in 15, 16 and into 17, and have been consolidating since then. While fundamentals look good, the price chart is a little bit concerning. It is not broken, but has become much more volatile and has been unable to make progress against a rising market. Relative strength has been weak. He would be cautious.

(A Top Pick July 24/17. Down 17%.) A bandwidth networking equipment maker. It’s all about big data, bandwidth and the Cloud where they are helping with bandwidth to build out technology centres. Recently their ROC popped up to 1%. The recent downturn was related to one of their competitors which got really hit by association with another company. Both price drops were overdone as they are both good companies.

(A Top Pick Sept 13/16. Up 2.26%.) This is in the component space for optical networking. A more volatile area, which has sort of come off the boil a little. Thinks the demand for more optical gear is going to grow.

They make products for higher bandwidth. He was looking for big data and cloud companies and he found this one. They are earning a 21% return on capital. We are expecting three times the devices on the Internet as there are people in the world. (Analysts’ target: $12.00).

He really likes the fibre networking space, and this company sells components into that area. If he had to choose today, he would probably choose Lumentum Holdings (LITE-Q) which is also in the component space. Both can do well. Both have pulled back in the last couple of weeks as some of the more economically sensitives have pulled back.

Another example of an industry that is going through a change. The last time we were in a boom for fibre was the late 1990s, and they put way too much fibre in the ground, so we had too much capacity and the whole thing went to sleep. With the growth and boom in band width use, these networks are now getting strained, and are going through another uptick in replacement of some of the fibre and some of the fibre gear. This company sells transmitters and multiplexers that are used in fibre. A very interesting industry, because demand is really ramping up. This has doubled in the last 6 months, and has just recently technically broken out again. It is only trading at 13X next year’s earnings.

Small and midsized companies are now outperforming large size companies in this market. Believes we are in a new, longer-term bull market for equities. If you believe that we could have a long run up, then you want to be looking at some smaller and midsized companies, understanding that they are higher risk in that you will need to Sell those that don’t work out. This company makes optical components that are being used in fiber-optic networks. Growth in data is exploding, so companies like Verizon are having to upgrade their networks so that they can push a lot more information through. They are starting to upgrade from 40 gig networks per second, to 100 gigs, so there is a huge roll out that has to take place. This company sells components into those companies. Revenue in the last quarter was up 135%.