Technology

3 Tech Stocks to Buy That Benefit From Huge Network Buildouts

Think of the Internet and carrier networks as a busy highway in any major U.S. city. There are times when there are absolute bottlenecks and nothing moves very fast. In an effort to avoid just that situation, major carriers need networks with capacity. With all the carriers offering multi-gigabyte data plans, more people are using more capacity. A new report from Deutsche Bank says that needed carrier network buildouts are ongoing for increasing 4G LTE network capacity to support high-end smartphone and PC/Tablet data traffic, a trend that will only grow.

The Deutsche Bank analysts focused on three companies that stand to benefit from this continued effort by the carriers to build out network capacity: Ciena Corp. (NYSE: CIEN), Cisco Systems Inc. (NASDAQ: CSCO) and F5 Networks Inc. (NASDAQ: FFIV). Hosted private cloud buildouts are also mentioned in the report as very big priority.

Ciena

The Deutsche Bank analysts believe this company could be the top beneficiary of the increase in wireless spending, despite the many fits and starts investors in the stock have experienced over the years.

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Other Wall Street analysts have pointed out in recent reports that a majority of enterprise and Web/cloud data centers are in the process of running high speed 40/100G optical interconnects between their data centers. Ciena could be a solid winner from this theme, and more than 30% of its sales are not from the telecom sector.

The company also could be a good fit for a large-cap tech like Cisco looking to expand into this market, or a big telecom looking to expand.

The Deutsche Bank price target for the stock is $24. The Thomson/First Call consensus price target is $24.44. Ciena closed Thursday at $20.83 a share.

Cisco Systems

Recently reported outstanding earnings were accompanied by an increase in the dividend. The Deutsche Bank team said that 100% of chief investment officers surveyed at a recent forum preferred to stick with the tech giant as their primary network vendor. The stock remains the analyst’s top mega-cap idea in the sector on the theme of improving information technology (IT) spending, IT and telco network integration projects, and a positive global macro environment.

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Cisco investors are paid a solid 2.96% dividend. The Deutsche Bank price objective is $33, and the consensus target is posted at $29.89. Shares closed Thursday at $28.24.

F5 Networks

Despite lousy fourth-quarter earnings, the analysts feel the stock has the potential for fundamental upside to the current consensus of low double-digit revenue growth. They have also said that the fourth-quarter miss was in part due to a very aggressive sales forecast.

The Deutsche Bank team likes the potential for continuing strength in F5’s Next-Generation Security and Service Provider Layer 4/7 business and, like Cisco, for IT and telco network integration projects. The analysts also stressed that Cloud Services are a positive new revenue stream.

Deutsche Bank’s price target is $140, but the consensus target is $128.24. Shares closed Thursday at $113.04 apiece.

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The plan at Deutsche Bank is simple. Stay with the big boys that get and keep the business. While earnings may fluctuate, the demand from the carriers is strong.

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