Concerns about rising bond yields, higher interest rates, and the market’s frothy valuations recently sparked a broad sell-off in tech stocks and a rotation into cheaper value stocks…
But instead of panicking and dumping all their tech stocks, investors should take a breath and spot the cheap plays in this pricey sector. Today, we’ll review three oft-overlooked companies that have promising growth potential, trade at low P/E ratios, and can be bought for less than $20 a share.
Infinera‘s (NASDAQ:INFN) optical products enable carriers to expand the bandwidth of their current networks without laying down additional fiber. It accomplishes this by splitting existing signals across additional wavelengths.
Current-generation fiber networks transfer data at 100G to 200G speeds across long distances and 400G to 600G speeds across shorter distances. Many service providers are currently testing out 800G connections.
Infinera, Ciena (NYSE:CIEN), and Huawei are the three leading players in the 800G market. But blacklists, sanctions, and security concerns are preventing many carriers from purchasing Huawei’s products — which leaves Infinera and Ciena as the top choices outside of China.
Most carriers don’t want to put all their eggs in a single basket, so they’ll likely split their 800G contracts between Infinera and Ciena. Infinera recently turned in a mixed fourth-quarter report that missed analysts’ revenue expectations, but its growth should accelerate in the second half of the year as it starts shipping its 800G ICE6 products.
Infinera’s revenue rose 3% in fiscal 2020 with a narrower net loss. But in fiscal 2021, analysts expect its revenue to grow 5% with a return to profitability. Based on those estimates, Infinera trades at 22 times forward earnings and 1.2 times this year’s sales — which are reasonably low valuations for a stock on the cusp of a cyclical turnaround.
Ericsson (NASDAQ:ERIC) is the world’s third-largest telecom equipment maker in the world after Huawei and Nokia (NYSE:NOK). All three companies are currently helping carriers expand their new 5G networks, but Ericsson is arguably stronger than its two larger rivals for several reasons.
Huawei’s 5G equipment business faces the same blacklists and sanctions that are hurting its 800G business. Meanwhile, Nokia’s $16.6 billion acquisition of Alcatel-Lucent back in 2016 caused it to focus too much on cutting costs. As a result, it fell behind Huawei and Ericsson in 5G investments and is still grappling with those consequences today.
Nokia also lost several major 5G contracts in…
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