Out of the various telecommunication companies I took a closer look at the value of Ciena Corporation (CIEN) for investment purposes. CIEN is an American telecommunications networking equipment and software services supplier that is likely to be included in a broader trend of building data infrastructure capacity. With 6,000 employees they would be large enough to handle government and corporate contracts (Not to say there are not others that fit this profile but this is the one I saw👀).
The Lessons of COVID
Covid taught us things about the world and how economic development works in a high technology society. It was that push that forced us to change our paradigm of thinking and begin the process of transitioning much of daily activities and business affairs online. Even the government integrated online technology to process things like auto registration renewals versus forcing people to stand in line like some old soviet bread line. The courts weren't far behind when conducting "in person" affairs via Zoom type technologies 😬😱."
All of this online activity means lots and lots of data that demands stronger infrastructure!!!! (That isn't even talking about the potential improved economic development from increased economic transactions. That is where my theory comes into play. You can read about it HERE.).
Technology and telecommunications are here to stay! Yes there is going to be market fluctuations that will move up and down but I can't imagine us reverting back to the "ancient world" where our primitive pre-Internet ancestors got along with things like paper mail. ...and graphic pencils! Yikes! So I suspect there will be continued growth in technology and telecommunications sectors. Cleaner environment....improved efficiency........economic growth......create digital GDP........Pandemic............virtual classrooms.....etc......etc.....
Why are Markets Important?
Investment markets are important because they keep our economic engines running. Growth relies on whether there is a mechanism that quickly moves financial resources from slow moving safe sectors to highly interactive high growth sectors. Through the markets and the efficient use of money we were able to create modern finance. Online trading increased the rate and ease of access that increased trading activity and thus long-term global market growth spurts.
Any economic theory must have a way of understanding the investment markets and how those forces impact local development. In one form or another, all governments are impacted by the markets and what people are willing to pay for municipal bonds, real estate, equipment, etc... To explore the connection between investment and economic growth is a noble goal in and of itself if it helps highlight how to better draw investment to local communities (i.e. Delta County with its small but high potential industry clusters.).
The Context of CIEN?
What I like about CIEN is that despite a recent correction the company still maintains long term growth potential. As companies are forced to adapt to online models they will collectively increase the demand for high speed fiber cables and improved interconnectivitly that leads to enhanced data management. Increased transactions of information, finance, ideas, and resources, etc. leads to faster innovative development and improved production (i.e. Digital GDP).
Digital GDP will move to the forefront of economic discussion as increased information (i.e. big data) leads to more accurate decision making matched with increased resource transactions (i.e. financial/investment) that speeds up the Shumpterian ideas of Creative Destruction. Thus, CIEN exists as one company that fits within the market need of improved telecommunications that may be called upon to build new infrastructure networks.
Some of our that potential future growth will depend on our current national leaders and their ability to create a vision for a high tech society. As of date, we are still on that trajectory that increases the need for further nework investment and likely continue to see the need for telecommunications companies like CIEN in the future. You can learn more about the company and stock market. I use E-Trade but I'm sure there are plenty of other great sites out there for you to try and use for small investment purposes.
How to Evaluate a Stock?
As part of my theoretical work I'm trying to understand how my theory might function as a way to attract investors and in turn foster local economic development. Helping communities align to the global markets means that the theory should explain market behaviors (Even better if it could predict it!!). As workable explanations form we can eventually move to mathematical formulas that allow for explanation and model building. That takes a long time to do if your aren't a PhD mathematician.
I'm not picking a single stock as much as I'm overviewing a battery of fiber optic/network industries that are at the center of the transformation into a new forms of economic existence. I might also want to discover the important connected/associated industries that will be impacted by changes in spill over sectors. Multi-cluster networks function in collaboration and contribute to each other. If companies exist to fulfill market needs then we know that some sectors will have more interactivity as they seek to meet upcoming market opportunities.
How does that relate to CIEN? If you go back to something I wrote on Digital GDP HERE you will notice part of the idea is that the COVID virus forced us to change our economic fundamentals and push us further into a digital world. That in turn means more investment in virtual employment and networks such as those offered by CIEN. This is not a short term adjustment so there will be continued investment in telecommunications that can handle higher amounts of data. I believe this company, along with some others, fall within the general parameters of what I'm taking a closer look at.
What you also notice is that the stock took a significant dip from a high of $60.7 on September 2nd, 2020 to $46.46 on September 3rd, 2020. What you can also tell from the chart is that they took a significant dip in over one day as concerns over orders rose over decreased orders in the 3rd Quarter of 2020. A pretty good article in Barron's by Ben Levisohn specifically mentions CIEN's decline based on a poor outlook that also is somewhat reflective of other drops in technology stocks (Levisohn, 2020).Technology stocks and government related infrastructure investments likely have some uncertainty while we are still adjusting to the COVID virus. People are jumpy and governments may not be sure how where the next step should be placed. Yet that doesn't take away from the general necessity of future telecommunications investments to keep the economy growing. While the budgets might not be allocated today they are likely to be allocated when we find strategies for a post-Covid world.
We may also find that based on the way in which budgets are allocated with the Pandemic jitters companies might be holding back on telecommunications investments. We could look at something called momentum when we want to make an investment decision. I'm not familiar with all of them so I will focus on just one. In this case, CIEN had a large dip in the beginning of September but from a momentum perspective it looks like it is poised to have a moderate improvements.
According to an article hosted by the UCLA Anderson School of Management momentum investing strategies look at 3-12 months prior to determine the likelihood of continued increase or decline (Petruno, 2018). Thus the month dip might be more of a market correction and the only way to to truly tell is to look at growth over the year and over five hears. We will also need to look at some comparable industries that deal with fiber cable.
It appears that the stock has been rising overall over the past year and bounced down just over past year. It started October 2nd, 2019 at $36.80 per share and ended October 1st, 2020 at $39.74. Without the adjustment they would have done well. However, you can see a trajectory line of growth that from a momentum perspective we can expect to go upward again if the fundamentals haven't changed.
Comparing Stocks to the Index:
We can see that other than in the past few months CIEN has grown and improved significantly. the stock has grown and developed over time but that may not necessarily be much better than the market.
Comparison on the Market
The index would be a general comparison and gauge of sentiment but not necessarily helpful for seeing how the company functions with its competitors. For that information we should include data on a comparison of companies that engage in the network fiber optic cable business. Two other comparable companies we may want to look at are Oclaro (NASDAQ:OCLR) and Acacia Communications (NASDAQ:ACIA). NASDAQ:VIAV, NASDAQ:AMKR; NASDAQ:SPWR and NASDAQ:SYNA.
For the most part the industry seems like its still growing at a similar rate except; save one. You can see a pretty good comparison from Market Beat HERE. Thus the market seems to be influencing them all similarly over a 6 month period.
Where Are We At?
At the moment it looks like the industry based on a few markers doesn't necessarily appear to be ready for a boom based on what the market data is currently providing. We can look into the financial statists of each of the companies to determine their profitability and resources. This also isn't really the goal. The goal is to determine whether the industry will change based upon new heavy data market demand as it relates to current lines of innovative development. The chaos of COVID can lead to adaptation as an entire connected organism and that the next stage of development will likely need better networks. Let's wait to see what happens next.
Petruno, T. (October 13th, 2018). After a quarter century of sprawling study, it’s time to narrow the focus and settle on an explanation. UCLA Anderson School of Management. https://www.anderson.ucla.edu/faculty-and-research/anderson-review/momentum
Levisohn, B. (September 4th, 2020). Tech Stocks Finally Got Crushed. Why the Stock Market Is on Shaky Ground. Barrons. Retrieved https://www.barrons.com/articles/the-stock-markets-august-gains-turned-to-september-pain-what-happens-next-51599266176
https://www.anderson.ucla.edu/faculty-and-research/anderson-review/momentum
This article is in no way investment advice nor am I qualified at the moment to give that advice. You own your choices and your stocks.
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